Legislature(2003 - 2004)
02/20/2003 08:02 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 64-PURCHASE OF STRUCTURED SETTLEMENTS CHAIR WEYHRAUCH announced that the first order of business was HOUSE BILL NO. 64, "An Act relating to court approval of the purchase of structured settlements." Number 0150 AL TAMAGNI, Broker, Structured Financial Associates; Member, National Structured Settlements Trade Association, testified his support in HB 64. He noted that this legislation has passed in various forms in 33 other states. This legislation is necessary in Alaska primarily for the protection of injured people to whom the [structured] payments are made. Basically, this is a consumer protection bill. He explained that there have been people who are to receive future periodic payments from workers' compensation cases, personal injury cases, and wrongful death cases. Those people have been approached to sell those annuities for a lump of cash at a substantial discount and with the loss of future tax-free benefits. Many of those who have sold the aforementioned annuities have returned to the welfare rolls and general Medicare relief and the like. Mr. Tamagni reiterated that this legislation should be passed and since it's consumer protection legislation, there should be no partisan politics. REPRESENTATIVE BERKOWITZ inquired as to the following: the number people who are approached to have a structured settlement in the state; the number of people who have structured settlements; and the impact of this legislation. MR. TAMAGNI informed the committee that no statistics are kept by the trial bar or the insurance companies. He pointed out that these are private settlements that aren't all a matter of public record. REPRESENTATIVE BERKOWITZ inquired as to the number of settlements in Alaska annually. He further inquired as to the percentage of settlements that lead to structured settlements. MR. TAMAGNI answered that the number of settlements in the state could be obtained from the court system. With regard to the number of cases settled by a structured settlement, Mr. Tamagni reiterated that no statistics are available. In further response to Representative Berkowitz, Mr. Tamagni said that he didn't believe there are any accurate statistics available from other states. Number 0483 REPRESENTATIVE SEATON directed attention to page 1, Section 1, paragraph (1) which specifies [that this legislation] only applies to court filed and approved structured settlements. Therefore, he surmised that this legislation doesn't speak to private structured settlements. MR. TAMAGNI explained that there are many instances in which cases have been settled when no lawsuit has been filed. This legislation addresses those people who want to sell their benefits and requires that those people go through a court approval for that process. REPRESENTATIVE SEATON returned attention to page 1, Section 1, paragraph (1) and recalled that the language "action filed" meant a court action. He asked if that is Mr. Tamagni's understanding. MR. TAMAGNI related his understanding that an action is one in which a lawsuit is filed in the appropriate state. However, there are cases for which no lawsuit is filed because the parties reach agreement prior to filing the lawsuit. Therefore, no action is involved because nothing was ever filed with the court. REPRESENTATIVE SEATON clarified that Representative Gruenberg has pointed out the section with "or could've been filed" language and thus would include [private structured settlements]. Number 0773 MR. TAMAGNI, in response to Representative Berkowitz, confirmed that he does business in structured settlements. In further response, Mr. Tamagni clarified that he is approached by either a plaintiff attorney or the defense counsel. In most cases, the plaintiff attorney will call and inform Mr. Tamagni of a severely injured individual for which there is concern of a proliferation of a lump cash and thus there is the desire to do a structured annuity to preserve the future benefits on a tax exempt basis. Therefore, a package annuity is prepared and placed with the concurrence of the defense and then the injured party receives the tax-free benefits. In response to Representative Berkowitz's question regarding the number of annuities placed annually, Mr. Tamagni related his personal experience of handling 25-40 cases per year. He noted that there is one other person in Anchorage in the same firm who performs the same service. The majority of structured settlements are handled by out-of-state brokers. In response to Representative Berkowitz, Mr. Tamagni said he had no idea of the portion of cases he handles because there is no statistical information with regard to the number of structured settlements that are placed per year per state. However, he estimated that [he and the other person] handle maybe 5-10 percent of the total cases in the state that are settled with a structured annuity. REPRESENTATIVE BERKOWITZ surmised then that it would be fair to say that there are approximately 1,000 cases annually. MR. TAMAGNI agreed and noted that would include automobile accidents. Number 0950 REPRESENTATIVE GRUENBERG highlighted that there already exists a similar provision, AS 09.17.040, which addresses periodic payments. He asked if Mr. Tamagni was familiar with that provision, which is found in the Tort Reform chapter. MR. TAMAGNI clarified that these structured annuities are periodic payments. The periodic payments are received from a structured annuity. REPRESENTATIVE GRUENBERG pointed out that the current statute, AS 09.17.040(f), includes the following sentence: "Payments may be modified only in the event of the death of the judgment creditor, in which case payments may not be reduced or terminated, but shall be paid to persons to whom the judgment creditor owed a duty of support, as provided by law, immediately before death." Representative Gruenberg interpreted that to mean that the court has no jurisdiction to allow a lump sum payment under the aforementioned statute. He asked if Mr. Tamagni knew of a case which would support modifying the aforementioned statute such that it allowed the court to entertain a motion for a lump sum payment as is being done in HB 64. MR. TAMAGNI said he didn't believe the committee wanted to confuse structured annuity payments and periodic payments because they are synonymous under Section 104 A2 of the Internal Revenue Service (IRS) code. Mr. Tamagni surmised that HB 64 is attempting to lay out the terms, conditions, and protection that should be guaranteed for those payments to be converted to a partial lump sum. Mr. Tamagni indicated [that HB 64] is similar to the scenario in which the legislature took action to curb the selling of permanent fund dividends (PFD). Therefore, Mr. Tamagni related his belief that HB 64 attempts to meet the same standard and principle without modifying any section of the civil code beyond that specified. Number 1230 PAUL LaBOLLE, Staff to Representative Richard Foster, Alaska State Legislature, informed the committee that the sponsor has some amendments that he would like incorporated into a committee substitute (CS). One of the amendments is the result of the Alaska courts' desire for the following: page 3, [line 20], after "maintained" insert "or the payee is domiciled in". Clarification that the language to be inserted would read "or where the payee is domiciled" was given. Mr. LaBolle mentioned another issue regarding whether the jurisdiction would be limited to superior court and announced that [the sponsor] has no stance with regard to whether that should be changed or not. Number 1403 REPRESENTATIVE GRUENBERG moved that the committee adopt Amendment 1, which read as follows: page 3, line 20, after "maintained", Insert "or where the payee is domiciled" There being no objection, Amendment 1 was adopted. REPRESENTATIVE GRUENBERG informed the committee that he discussed the potential amendment dealing with court system jurisdiction with a representative from the court system. Representative Gruenberg related his belief that most of these structured settlements would involved damages that would, at least, initially be above the jurisdictional limit of the district court, $50,000. Furthermore, in some of the cases, by the time the payee wanted to cash out, the remaining payments would total less than $50,000. Moreover, some of these cases would've never been filed in court and have an out-of-court settlement, which is an enforceable contract. Therefore, Representative Gruenberg recommended the following: page 3, line 19, delete "superior court", insert "court of competent jurisdiction". REPRESENTATIVE GRUENBERG explained that this amendment would allow either [the superior court or the district court] to have the motion filed in the appropriate court. He said that he believes the court system feels that the district court would [be] competent in this area, although there had been mention as to whether this would be more of a probate matter. Representative Gruenberg said, "My feeling is it doesn't have to be, it's not just a competency kind of thing, [rather] it's an approval of a settlement." Furthermore, there are minor settlements that can be filed in the district or superior court. Number 1630 JERRY LUCKHAUPT, Attorney, Legislative Legal Counsel, Legislative Legal and Research Services, Legislative Affairs Agency, said that he viewed [structured settlements] as akin to guardianship/conservatorship proceedings, which are solely within the jurisdiction of the superior court. Mr. Luckhaupt pointed out that the court has to make a finding that's in the best interest of the payee and the payee's dependents to allow this transfer to occur. He noted that the settlements he has seen have been fairly large settlements and thus it seemed more appropriate to be [under the jurisdiction] of the superior court. Mr. Luckhaupt expressed concern with the language "court of competent jurisdiction" because he wasn't sure that one would want a justice court making this decision if assets are spent down to a certain level. Therefore, Mr. Luckhaupt suggested the following language: "superior or district court as appropriate". REPRESENTATIVE GRUENBERG clarified that he wasn't thinking of a magistrate. Representative Gruenberg asked if minor settlements can go to the district court. MR. LUCKHAUPT answered that minor settlements can go to the district court, although he didn't believe it to be a common process. Mr. Luckhaupt said, "I think there could be a difference of opinion as to the issue involved here as opposed to those normal minor settlements ... that don't necessarily have someone on the other side objecting to the transfer." He explained that this was presented to him as sometimes being an adversarial process and the minor settlements with which he is familiar aren't adversarial. Number 1830 REPRESENTATIVE GRUENBERG inquired as to who would be objecting unless a conservator was appointed. If a conservator was appointed, then there would be a conservatorship and [the case] wouldn't be in the district court. MR. LUCKHAUPT clarified that he was given examples in which the payor objected to these transfers at times. For example, a friend of the children would be involved, which would necessitate a guardian ad litem appointment and would almost have to go to superior court because there is a dispute. Therefore, it seemed to be an economy of resources to have the case in superior court, he explained. However, he noted that he didn't have any strong feeling on it, although most states placed this in their trial court of general jurisdiction. MR. TAMAGNI interjected that there probably won't be a buyer for any case under $100,000. Furthermore, there is rarely a case with a future present value of less than $50,000. Therefore, he estimated that 99.99 percent of the cases will be set at the superior court level. Mr. Tamagni viewed the superior court as the final stop where everything can be done because it reduces the cost of the representatives of each party. Mr. Tamagni related his belief that there is a question of competency at some of the lower court levels and thus he encouraged the committee to maintain the superior court's [jurisdiction] as the initial and final jurisdiction. Number 2046 REPRESENTATIVE BERKOWITZ identified the cost to the payee as a concern for the consumer protection. He inquired as to the amount brokers are compensated. MR. TAMAGNI informed the committee that brokers aren't engaged in this portion of the process in any way. In fact, if he receives calls from people wanting to sell their annuities, he tries to discourage them. Mr. Tamagni clarified that he doesn't provide his services at all when someone wants to sell their annuities. Mr. Tamagni explained that when people settle a lawsuit they use a structured annuity, periodic payment under Section 104 A2, and then he becomes involved and makes a commission. Once people receive those payments and the desire is to sell the annuities to whomever, he isn't involved in that process. Those involved in the sale of the annuities are in separate businesses, all of which are virtually out of state. Number 2186 MR. LaBOLLE turned to another issue, which he thought would [address] some of Representative Berkowitz's [concerns]. Mr. LaBolle informed the committee that the National Association of Settlement Purchasers specified that the cost of bringing a structured settlement in for transfer is roughly $1,800-$2,500. The National Association of Settlement Purchasers also related to him that it take 60-90 days [to bring a structured settlement], although the association mentioned it might be a shorter time period in Alaska due to the volume of cases. REPRESENTATIVE BERKOWITZ highlighted that those putting together these structured settlements receive a flat fee ranging between $1,800-$2,400. MR. LaBOLLE responded that he wasn't exactly sure, but he understood it to be the total cost to the payee, dependent upon legal fees. REPRESENTATIVE BERKOWITZ said that he was trying to determine where the money goes. He pointed out that part of HB 64 requires a payee to go to a professional and thus there is a cost for that. Furthermore, there is a cost for putting one of these [structured settlements] together. Representative Berkowitz said that although he agreed with the objectives [of HB 64], he wanted to understand who is receiving transactional fees. MR. LaBOLLE specified that the $1,800-$2,500 doesn't include professional advice but rather is only the cost once the transferee firm actually supplies the material to the court. CHAIR WEYHRAUCH announced his preference not to address the superior court [amendment]. REPRESENTATIVE GRUENBERG noted his agreement. Number 2370 REPRESENTATIVE SEATON moved to report HB 64, as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 64(STA) was reported from the House State Affairs Standing Committee.
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