Probably the hottest item of discussion at the NSSTA annual meeting in San Diego was the increased use of the “Qualified Settlement Fund” authorized by IRC 468B in settlement of tort cases. To be more specific, the real hot potato was use of “single claimant 468B’s”. Treasury’s use of the word “one or more claims to the monies” in this code (twice actually) makes for some interesting opinions on what kind of case -- or more specifically IRC 121 cases -- qualifies under this code. And therein is the controversy. Does the code mean you can use a QSF on ALL tort claims or just certain cases? So far Treasury has not given tax specialists direction on how this code affects structured settlements.

Many defense brokers cry that 468B was meant for “mass torts” not settlements for one person even though that one action may have “one or more claims on the monies.” Many times a new tax code is broad enough to affect areas of the tax code not considered by the proponents of the code. As any tax expert will tell you, the intent is not the law -- the code is the law. A classic example of this fact is when IBAR Settlement Company lobbied through congress the Periodic Payment of Judgment Act (IRC 121) to protect from taxation the “bond trusts” they were using to fund periodic payments. Little did IBAR know when they paid to lobby congress to pass this code for their company that 121 would save the entire structured settlement industry from collapse after the “Executive Life” bankruptcy. Today all structured settlements use a “Qualified Assignment” even for those cases are funded by annuities sold by life insurance companies not IBAR’s bond product.

Of course, the real issue for we structured settlement brokers is the question of who has the vender say on those cases that qualify for a structured settlement. If the court orders a QSF, then the funds available for settlement of the “claims on the monies” are under the control of the administrator of the QSF not the original defendant or its casualty insurer. In other words, the plaintiff broker is now in the drivers seat should there be a structured settlement – much like the defense brokers have been for the first twenty years of this industry. Talk about a paradigm shift!!

So, there has been a lot of gnashing of the teeth by those defense brokers that have locked themselves in on the defense side with their commission sharing deals and sister life insurance company pressures. They see control of the structured settlement transaction slowly but surely slipping from their control into the hands of plaintiff brokers. Unfortunately, many defense brokers seem to have lost site of the ethics that have controlled our industry at least since the “Weil lawsuit” -- that our life insurers are not to be brought into broker dispute issues. On several cases in which the Delta Group has been contacted by the administrator of a QSF to quote on a structured settlement, a defense broker has taken the liberty of contacting our life insurers -- pressuring them to not quote on said QSF or even worse contacting our claimant attorney clients giving them advise that the structured settlement transaction within a QSF has adverse tax consequences to the claimants -- when they know that the IRS has not yet issued guidelines in this area. These actions are at best unethical and at worst interference with our contractual relationships with our life insurers and clients. This conduct is not acceptable to Delta Group and must stop to maintain the continued harmony we now enjoy with defense brokers and for the best interest of the continued growth of our industry. Delta Group will defend itself and our clients from this continued interference.

There is no question that a QSF is a valuable tool for both parties of the litigation on certain cases (see “settlement of the month” on the Delta Home page). The QSF will continue to grow in popularity once the plaintiff bar becomes aware of the advantages to their clients and the process has been streamlined. In our opinion the use of the 468B will substantially grow the entire structured settlement industry -- because, the people whose money is being invested will now have a direct say on the most important investment decision of their life. It is not plaintiff brokers that are causing this shift in control of the settlement annuity purchase. It is the force of the market place bringing our industry to where it must eventually be. The structured settlement will be a plaintiff product. So, get used to it -- Qualified Settlement Funds are here to stay.