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Rules for Settlement of Claims by Infants and Impaired Persons, Victor, 2006

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Paul A. Victor
Justice Supreme Court
State of New York
County of Bronx















The Proposed Order
Counsel’s Affirmation
Petitioner’s Affidavit
Infant’s Affidavit and Attendance
Supporting Medical Proof
Other Necessary and/or Helpful Exhibits
For Structured Settlements - Other Required Exhibits











Compliance With Rules and Statutes
Compliance With The Internal Revenue Code
Ex-Parte Application and Notice of Settlement
The Proposed Order For A Structured Settlement
Supporting Documents and Additional Requirements
Counsel’s Affirmation
Petitioner’s Affidavit
Structure Broker’s Affidavit
Due Diligence and Shopping For The Best Deal
(a) The Cost Of The Annuity
(b) Independence Of The Structure Broker
(c) Compensation For The Broker
(d) Guaranteed Payments
(e) Lock-In Quotes and Notices
Qualified Settlement Fund





These rules are adopted in recognition of the equitable duty of the court to
consider infants and impaired persons to be wards of the court and to protect them as
such. Thus, in order to zealously safeguard the rights of infants and impaired persons,
this court will require strict adherence to its rules and all other applicable laws and
rules. Unless there is a waiver for good cause show, a failure to strictly comply will
result either in delay and/or denial. Therefore, make certain before you file that all of
the affirmations and affidavits are consistent, and that your application fully complies
with and provides all information required by these rules as well as Article 12 of the
CPLR; Uniform Court Rule 202.67; and Judiciary Law § 474. If a structured
settlement is proposed the application must also comply with General Obligations Law,
Article 17, §§ 5-1701 et. seq., as well as with Internal Revenue Code §§ 104 and 130.
These rules also require counsel to complete and file a Worksheet/Checklist.
The worksheet/checklist and all of the court’s rules and forms are available on the OCA
Website. 1 The worksheet/checklist and the supporting affidavits and affirmations must
each contain the same information and be consistent.


On the same day that a compromise application is filed with the Clerk in Room
217, a completed worksheet/checklist must also be delivered to the Clerk. A courtesy copy


should be delivered to the Court in Chambers (Room 828). If the worksheet/checklist is not
provided to the Court in Chambers, the Court will not be aware that the application has
been filed in Room 217; and it may result in a delay of the delivery of the file to the Court.
As stated above, all information provided in the worksheet/checklist and in the
supporting affirmations, affidavits and other supporting papers must be consistent ,
especially as it relates to the issues of liability, injuries, present complaints and damages.
An explanation or statement which is set forth in the worksheet, but not set forth in the
supporting affirmations, (or visa versa) will result in a denial.


CPLR 1207 provides, among other things, that a settlement application
which is made upon behalf of an infant/impaired person , must be made either by motion in
a pending action, or if no action is pending, by special proceeding commenced upon a
petition. However, in the County of Bronx, (with one exception) it has always been the
rule and practice to process an infant/impaired person’s settlement application as an exparte proceeding, i.e., the court is presented merely with a proposed order and all
supporting documentation, none of which is required to be settled or served upon
defendants; and the compromise hearing is conducted in the absence of all other parties.
The one exception to this wholly ex-parte procedure is when a structured settlement is
proposed. (See below).
Notice of Settlement For Structured Settlements
When a “structured settlement” is being proposed, although the ex-parte procedure
is still being utilized, a Notice of Settlement of the Proposed Order is required to be served
on all defendants and upon all insurance carriers involved in the transaction. However,


only the Notice and Proposed Order need be served; and this should be accomplished only
after the hearing has been conducted.
Because of the complexity of such settlements, and the representations and
conditions required to be contained in the proposed structured settlement order, the court
requires that the defendants and all insurance carriers involved in the structured
settlement transaction be served with a Notice of Settlement of the Proposed Order so that
they will have an opportunity to object to the proposed order, and be heard before they are
bound by its terms. To reiterate: Only the Notice of Settlement and Proposed Order (not
the supporting petition or other supporting papers) need be served.


The application will consist of the following documents:

The Proposed Order (Use the court’s form)
Counsel’s Affirmation
Petitioner’s Affidavit
Infant’s Affidavit (If over 14)
Supporting Medical Proof
Other Necessary and/or Helpful Exhibits
For Structured Settlements, also include,
(a) proposed settlement agreement
(b) proposed assignment agreement
(c) proposed annuity contract
(d) proposed guaranty agreement
(e) the structure settlement broker’s affidavit

The court has provided the following form orders on the OCA website, namely: (a)
Standard Compromise Order; (b) Simple Order For a Structured Settlement; and (c) Complex
Order For a Structured Settlement. Counsel is required to use one of these orders since they


contain all of the decretal paragraphs required by the court. Each proposed order can be adapted
to fit the circumstances presented; and each of the form orders for structured settlements are
accompanied by a set of instructions which will assist counsel and staff to understand and
complete the same.
Counsel must provide an affirmation which not only demonstrates full compliance
with, and all information required by, CPLR 1208 and UCR 202.67, but also sufficient details
concerning the following issues:
(a) Petitioner’s Standing. Counsel’s affirmation must demonstrate that petitioner is a
person who is qualified and has standing to bring the application as authorized by
CPLR 1207 (See also, Petitioner’s Affidavit, below);
(b) Counsel’s Reasons For Recommending the Settlement (See below);
(c) Recent and/or Current Complaints Of Infant/Impaired Person (See below);
(d) Medical Services and Expenses. Counsel and petitioner must obtain written proof of
the total amount of the charges incurred for each doctor, medical provider and
hospital in the treatment and care of the said plaintiff, and the amount remaining
unpaid for such treatment and care (See, USCR 202.67 [b]);
(e) All Possible Liens and Claims. Counsel and petitioner must provide sufficient
documentary proof of either the absence or existence of liens against plaintiff’s
proceeds; obtain an itemized statement for any payments made by a lienor; and
provide sufficient details of the efforts made to resolve said liens. Claims for equitable
or contractual subrogation or reimbursement by a private medial insurer or employee
benefit plan. (ERISA) must be identified; and the reason for paying or not paying or
compromising said claim must be explained in detail;
(f) Other Related Claims and Possible Conflicts. (See below);
(g) Fees and Disbursements of Counsel. Counsel must set forth all services rendered in
support of the request for counsel fees; itemize all disbursements, especially
those disbursements, if any, which counsel seeks to have reimbursed.
(h) Retainer Statement Compliance (See UCR 202.67 (d));
A Fair and Reasonable Settlement. CPLR 1208 (b) (1) requires counsel to provide the


“reasons for recommending the settlement.” These “reasons” must be set forth in the
supporting affirmations and affidavits, as well as in the worksheet/checklist. Moreover, the
Court requires that counsel provide a detailed explanation as to why the proposed settlement
is fair and reasonable. In that regard, counsel must address the issues of liability and
damages and the infant’s current complaints, if any. Note: Conclusory assertions (such as
“poor liability”; or “full recovery”; or “best interest of the child”) without specification and
supporting facts, will not be sufficient.
Recent and/or Current Complaints. The issue of the infant/impaired person’s recent
or current complaints, if any, must also be fully addressed in petitioner’s affidavit, as well as
in the current medical proof which is provided to the court in support of the application. If
plaintiff does have recent or current complaints, the medical proof must provide a prognosis.
Counsel is cautioned to make sufficient inquiry in advance so that the court and counsel are
not surprised at the hearing concerning the infant/impaired person’s recent, intermittent or
current complaints.
All Possible Liens. Note: UCR 202.67 (b) requires the court to make provisions for
payment of all medical expenses and liens. The court is concerned that if this issue is not
properly addressed, the plaintiff may be surprised and held accountable post settlement. It
must be noted that a lien may arise by operation of law if public funds were used to pay for
the medicals; and that the lien may have to be satisfied from the proceeds of the settlement
regardless of the awareness of counsel or petitioner. See, Gold v. United Health Services
Hospitals Inc., 95 N.Y. 2d 683 [2001]; Arkansas Dept. Health and Human Services v.
Ahlborn, 126 S. Ct. 1752, 2006 U.S . Lexus 3455. Note, that if counsel is proposing a

settlement for an amount which is less than what would be considered the “full value” for
the damages and injuries suffered by plaintiff, it may be necessary to conduct a hearing for
the purpose of apportioning the lien. [See, Lugo Beth Israel Med. Ctr. 819 N.Y.S. 2d 892
(Sup Ct. N.Y., 2006).
Other Related Claims and Possible Conflicts. A full identification of all
claims made by any person, including a parent or other family member, arising out of the
same accident must be provided. If any such other claims exist, counsel for petitioner must
provide a copy of the Bill of Particulars and all medical records for all other settling parties
so that with full disclosure, the court can determine if the proposed apportionment of the
settlement proceeds is “fair and reasonable.”[See also CPLR 1208 (a) (8)].
Petitioner’s affidavit must demonstrate that petitioner is one of the persons
authorized by CPLR 1207 to make said application; and it must comply with and contain all
information required by CPLR 1208 and UCR 202.67; including details concerning the
following issues:
(a) Qualification and standing of petitioner to bring the application (See below);
(b) Petitioner’s understanding of the proposed settlement (See below);
(c) Recent and/or current complaints, if any of the infant/impaired person (See
(d) Medical services rendered, expenses incurred; method of payment; and liens,
if any (See below).
Qualification of Petitioner. CPLR 1207 provides that the application may be made by


one of the following persons: a guardian of the property; or guardian ad litem of an infant; or
a parent having legal custody; or another person having legal custody; or if infant is married, by
an adult spouse residing with infant; or a committee of property of a judicially declared
incompetent; or a conservator of the property of a conservatee. Note: At times a parent may not
qualify, for example, when custody has been removed by the Family Court. Also note, that even
where a parent has lawful custody a problem can arise, for example, when the lawsuit is
commenced by one parent on behalf of the ward and the compromise application is brought not
by that parent, but by the other parent, who was not named as the natural guardian in the
underlying claim or action. In such a situation, counsel must also provide, among other things,
proof of the authority of the non-party parent to settle or discontinue the loss of services claim.
Petitioner’s Understanding of the Settlement. In addition to all of the above, a
petitioner must acknowledge an awareness and understanding of all of the reasons given by
counsel for recommending the settlement; as well as a full understanding of the proposed
apportionment of the settlement proceeds.
Recent and/or Current Complaints. Petitioner must also acknowledge familiarity with
all injuries, conditions and complaints, if any, made by the infant/impaired person especially
recent and/or current complaints, so that they can be fully addressed at the compromise hearing.
At the hearing the following questions will be asked of the petitioner and the infant/impaired
person: Does the infant/impaired person have any recent or current pain or limitations? When
is the last time any pain or limitations were experienced? How often? Has plaintiff’s physical or
mental ability or range of motion, or ability to engage in any activities been affected?; and if so,
what is the prognosis or plan for the future? (Note: Applications have been denied because,


although all the supporting papers, including the current medical report, reflect in a conclusory
way that the infant has “fully recovered,” at the hearing the court discovers otherwise.)
Medical Services, Expenses, Payments and Liens. CPLR 1208 (a) (4) requires that a
petitioner provide an itemization of such expenses; and subdivision (a) (7) provides that the
affidavit of the petitioner must state whether reimbursement for medical expenses has been
received from any source. Note: UCR 202.67 (b) goes further than the CPLR. It not only
requires petitioner to provide an itemization of the medical expenses but it compels the court to
make provision for payment thereof. Thus, petitioner and counsel are cautioned not to be vague.
The court must not be left with only mere speculation as to whether there are any unpaid bills or
liens. For example, an unsupported statement that “all medical expenses have been paid”, or that
they have been “paid by Medicaid” will not suffice without documentary proof of payment. In
addition, vague statements such as, “I have not been aware of any unpaid liens or bills,” also will
not suffice. Note : When it is claimed that the medical bills have been paid by “Medicaid”,
counsel must obtain and submit the HRA client detailed report [CDR] which will assist the court
in determining what, if any, bills have been paid by Medicaid, and which if any such payments
are related to the occurrence. Only those bills which are related to the occurrence may be
claimed as a lien.

Note that, absent extraordinary circumstances, CPLR 1208 (d) mandates that the
attorney, the petitioner and the infant/ incompetent attend the hearing. It has been the
longstanding practice in the First Department to require an infant over the age of fourteen to

provide a supporting affidavit, and attend the hearing; and thus this court’s rules, forms and
worksheets also make it mandatory. At the hearing, the court will question the infant/impaired
person as to the episode, the injuries sustained and recent or current complaints and limitations,
if any; and where appropriate, their understanding of the terms of the settlement. The court will
also view the injured area when it can be accomplished without any embarrassment to the
plaintiff and others present.
CPLR 1208 (c) states that “if the action or claim is for damages for personal injuries
to the infant or incompetent, one or more medical or hospital reports, which need not be verified,
shall be included in the supporting papers” [emphasis added]. Note that neither the CPLR nor
any other statute or rule requires that said reports and records be verified. The Court’s rules and
worksheet provide, however, as follows:
“Unless waived by the Court this part of the application must include a
recent [not stale] medical record, report or affirmation which provides:

History obtained;
Infant’s complaints of pain and/or limitations (past and present);
Treatment rendered;
Details of the examination currently rendered upon which
current opinion and conclusion is based;
Q Diagnosis;
Q Prognosis, especially if there are any present complaints of
pain or limitations;
Q Opinion, conclusion and recommendations.”

While an affirmation is not required, the court does mandate that a recent [not stale]
medical record or report be submitted in support of the application. The said record, report or
affirmation should provide all of the above information, especially as it relates to recent or
current complaints and/or limitations of the infant/incompetent if any. Note: If the issue of

present or recent complaints and/or limitations is not addressed in the medical proof submitted,
the application will probably be denied. In addition, if there are any recent or current
complaints and/or limitations, counsel should make sure that the medical proof provides a
prognosis so that the Court and the petitioner can make a meaningful determination as to
whether the proposed settlement is fair and reasonable. Sparse and conclusory medical reports
or affirmations will not be acceptable.
When necessary, the application should have as exhibits a copy of all documents
(relating to liability and damages), which would assist the court in arriving at a determination.
When such documents are included they should be appropriately identified in the supporting
affidavits and affirmations, as well as separated by Exhibit tabs. Note: Additional documents
will be necessary when a structured settlement is proposed (See below)
When a structured settlement is proposed the following additional exhibits are
required to be submitted with the application: (a) the proposed settlement agreement; (b) the
proposed assignment agreement; (c) the proposed annuity contract; (d) the proposed guaranty
agreement; and (e) the affidavit of the Structure Settlement Broker, (See below, Section F,
Structured Settlements).


CPLR 1208 (d) provides that “at the hearing, the moving party or petitioner, the

infant or incompetent, and his attorney, shall attend before the court, unless attendance is
excused for good cause” [emphasis added]. If attendance at the hearing would create a hardship

for any of said persons, the court will consider waiving the appearance and allowing a telephone
conference, if appropriate assurance can be made as to the identity of the person who appears by



These rules for a proposed structured settlement are supplemental to the above rules

for the conventional settlement of claims for infants and impaired persons. Because of the
multiple benefits achievable (even for modest settlement amounts), structured settlements are
highly favored by this Court provided, however, compliance with all applicable statutes and
rules, including the mandates of Sections 104 and 130 of the Internal Revenue Code and the
New York State Structured Settlement Protection Act (Gen. Obligations Law, Article 17, §
5-1701, et. seq.).

One of the benefits of a structured settlement is that the full amount of the

periodic payments received as physical injury damages is excludable from the
claimant’s income by law.

By comparison, a claimant receiving damages in the form

of a lump sum must pay tax on the subsequent earnings from investing that lump sum.
The Internal Revenue Code, in essence, allows settlement funds to be “invested”
in an annuity and grow tax free (U.S. Internal Revenue Code §§104 and 130)
(hereinafter the “Code”.) However, it must be noted that the Code does not (without
adverse tax consequences) permit a plaintiff to receive (or even constructively receive)
settlement funds and then invest same in an annuity. Such a transaction would result in

taxable income. By comparison, in the case of a structured settlement, the plaintiff and
the defense agree to settle the physical injury claim in exchange for the defendant’s
promise to make a stream of periodic payments to the plaintiff. Under section 130 of
the Code, the defendant or its liability insurance carrier then assigns its periodic
payment obligation to an affiliate of a financially strong life insurance company. The
assignment company agrees to receive an assignment of defendant’s obligation to pay
and then acquires an annuity from the life insurer to fund the periodic payments to the
plaintiff. Under the Code, the full amount of these periodic payments (including the
appreciation in value between the cost of the annuity and the total benefits paid) is taxfree by law to the plaintiff. In other words, the Code allows a defendant or its liability
insurance carrier to use the same settlement proceeds to purchase an annuity and, then
assign all payments including the growth thereon, to the plaintiff tax free. Therefore,
both the settlement proceeds which are used to purchase the annuity, and the interest
earned and paid via that annuity, are tax excludable.
It also has been the court’s experience that, in addition to the benefit of providing
long-term financial security and fully tax-free compensation for the claimant,
structured settlements can assist the parties in reaching a settlement by focusing
settlement discussions on what damages the plaintiff actually has suffered and how best
to match periodic payments to meet those future needs for medical care, living expenses
and educational.
The court therefore, mandates that all settling parties, and all insurance carriers
involved in the structured settlement transaction, comply fully with requirements of the
Internal Revenue Code.

As stated above, the general rule in Bronx County is to process an infant/impaired

person’s settlement application as an ex-parte application. However, if a structured
settlement or a Qualified Settlement Fund (QSF) is being proposed, Notice to the
defendants, as provided below, is mandated by these rules.
When a structured settlement is being proposed, although the ex-parte procedure is
still utilized, a “Notice of Settlement” of the proposed “Order” is required to be served
upon defendants as well as upon all insurance carriers involved in the structured
settlement transaction, so that they will have an opportunity to be heard and object before
being bound by its terms. Note: This Notice of Settlement and the proposed Order are to
be served only after a hearing has been conducted and after the court has tentatively
approved the proposed structured settlement. Note further: Only the Notice and proposed
Order [not the underlying supporting papers] need be settled and served on the
defendants and insurance carriers.
When plaintiff seeks to establish a “Qualified Settlement Fund” (as a prelude to an
apportionment of the settlement proceeds and the use of all or a portion of said settlement
proceeds for a structured settlement), defendants must be provided with Notice and be
served with a copy of the entire application so that they will have an opportunity to join in
or object to the application. For the procedures and implementing regulations necessary
to establish a “QSF ”, see below: “(10) Qualified Settlement Fund”.


Counsel must use one of the court’s two form orders for a structured settlement,

each of which are available on the OCA Website. The form orders (simple and complex),
which can be adapted to fit the circumstances presented, comport with Internal Revenue
Code requirements; contain all of the decretal paragraphs required by the court; and each


form is accompanied by a set of helpful instructions. Each form includes vital information
concerning the financial aspects of the structured settlement, and an identification of all of
the documents and parties necessary to implement the transaction, namely:
(a) The Plaintiff/Payee of Annuity
(b) The Defendant/Assignor
(c) The Assignee/Annuity Owner
(d) The Annuity Issuer
(e) The Guarantor
(a) The Settlement Agreement
(b) The Assignment Agreement
(c) The Annuity Contract
(d) The Guaranty Agreement
The proposed “order” for a structured settlement must clearly provide a
distinction between the “total settlement cost” and the “total settlement payout.”
For tax code compliance2, the form orders clearly provide the following distinction
between “total settlement cost” and “total settlement payout”:
(a) The Total Settlement Cost, consists of:
(i) Up front funds; plus
(ii) Cost to fund annuity;

The Total Settlement Payout, consists of:
(i) Up front funds, plus


The “total settlement payout” and the total settlement cost” are different and must
be distinguished in order to obtain the tax advantage provided by the Internal Revenue
Code. The total settlement cost consists of the up front monies plus the cost to purchase
the annuity.
The total settlement payout consists of the up front money plus the total of all future
periodic payments.
For example, if the total settlement cost is $1,000,000 ($400,000 up front and
$600,000 to fund an annuity) and the annuity will pay a total of $3,000,000 in future
periodic payments, the parties and all implementing documents, including the court’s order
must, in order to comply with the tax code, state that the case is settled (not for the
settlement cost of $1,000,000) but for $3,400,000, the total settlement payout.

(ii) Total of all future periodic payments.
The form orders also require a listing of all annuity payments with an identification
of all payments which are guaranteed to be paid regardless of whether plaintiff survives.


In addition to the requirements and documents described above for a
traditional compromise application, the application for a structured settlement must also
include and be supported by:
(a) Counsel’s Affirmation (additional requirements, see below);
(b) Petitioner’s affidavit (additional acknowledgments, see below);
(c) Affidavit of the Structured Settlement Broker (see below);
(d) The Proposed Settlement Agreement (see below);
(e) The Proposed Assignment Agreement (see below);

The Proposed Annuity Contract (see below);

(g) Proposed Guaranty Agreement (see below)


In addition to compliance with all other requirements for an ordinary

compromise application, counsel for the plaintiff, in support of a structured settlement
(a) Demonstrate “due diligence” in the selection of an annuity and a structured
settlement broker. (See “Due Diligence and Shopping the Best Deal”, below);

(b) Demonstrate that the plaintiff has been provided with the disclosure
required by General Obligations Law § 5-1702 and § 5-1701(e)
(c) Annex as exhibits3 a copy of all of the above described proposed implementing
structured settlement documents, as well as copies of the alternative and/or
other competitive structure proposals from other annuity providers or from
other structured settlement brokers, which were considered and rejected.


Petitioner’s affidavit must, among other things, acknowledge receipt of a

copy of all of the above documents as well as a copy of counsel’s affirmation in support of
the proposed structured settlement; and petitioner must acknowledge that all of the above
was fully explained by counsel.
Petitioner must further acknowledge receipt of all of the “initial disclosure”
required by General Obligations Law § 5-1702, including the advice “to obtain
independent professional advice relating to the legal, tax and financial implications of the
settlement, including any adverse consequences.” It should be noted that § 5-1701(e) of
Title 17 of the General Obligations Law4 provides that:
“‘Independent professional advice’ means advice of an attorney, certified


One set of numerically or alphabetically identified exhibits will suffice for the
entire application and they can be referred to in the supporting affirmations and affidavits.
Do not have separate exhibits within each supporting affirmation and/or affidavit.

Title 17 is the General Obligations Law (entitled the “Structured Settlement
Protection Act”) was enacted by Chapter 537 of the Laws of 2002, in essence, to protect the
rights and interests of injured settling litigants from the overbearing and predatory
practices of “factoring” companies which vigorously pursue these individuals and entice
them with offers to purchase their annuity payments for a “present value” lump sum cash
payment less a steep discount and substantial costs. In the memorandum and other
correspondence in support of this legislation it is noted, among other things that, by their
practices, these unregulated factoring companies “deprive injury victims and their families
of the long term financial security their settlements are designed to provide.” Among the
reforms enacted in Title 17 is a provision that all such sales and transfers must receive
prior authorization of the Court.

public accountant, actuary or other licensed professional adviser:

who is engaged by a claimant or payee to render
advice concerning the legal, tax and financial implications of a
structured settlement or a transfer of structured settlement
payment rights.

(ii) who is not in any manner affiliated with or compensated
by the defendant in such settlement or the transferee of such
transfer, and
(iii) whose compensation for rendering such advice is not affected by
whether a settlement or transfer occurs or does not occur”
[emphasis added].
It must be noted that for the purchase of an annuity (as distinguished from a sale or
transfer thereof) a structure broker (whether selected by a plaintiff or a defendant) cannot
qualify as an “independent professional adviser” under the above definition. Subdivisions
(e) (ii) an (e) (iii) disqualify a defendant selected broker; and subdivision (e) (iii) would
also disqualify a plaintiff selected broker.
In any event, unless plaintiff receives a prior waiver upon good cause shown,
plaintiff is required by this court’s rules to obtain a competing proposal from a structure
broker who is selected by the plaintiff and who is independent of the defendant and
defendant’s liability insurance carrier. It should be noted that in some states (e.g. Texas
and California) the involvement and use of a structure broker selected by plaintiff is the
accepted norm.
This court’s rules require that an application for approval of a proposed
structured settlement must be supported by an affidavit provided by a structure broker.
In addition, that affidavit must conform to, and contain all representations and
warranties that are set forth in the form affidavit which has been provided by this court


and published on the OCA website, above.
In the annuity field the bargaining agents are structured settlement specialists,
and are usually referred to as structure brokers. Most defendants and/or their liability
insurance companies have their own list of preferred structure brokers and preferred
annuity issuers (life insurance companies). In addition, an annuity issuer will generally
sell an annuity only through a structure broker that is appointed as an agent for such
issuer. The vast majority of structure brokers, however, operate independently, and are
not affiliated with any liability insurance company or annuity issuer. Furthermore,
most structure brokers have agency relationships with multiple annuity issuers.
The court is advised that structure brokers are listed in a variety of places
including lists maintained by bar associations, by trial lawyers associations and
structured settlement trade associations. See, for example, the website maintained by the
National Structured Settlement Trade Association ( which lists such
brokers by state.
The structured settlement application, which is being recommended, must be
supported by an affidavit provided by the broker who places the annuity. The affidavit
must, among other things, include:
(a) a representation that the cost to purchase the proposed annuity was
arrived at after a survey of the market of annuity providers in order to
confirm and obtain the best value (price/quality) for same.
(b) a full description of all the other annuity plans considered in addition to
the one being recommended;

all other warrantees, assurances and affirmations which are set forth in
the form sample broker’s affidavit, which is published by this court in
the above OCA website.

See, Form Affidavit in the Appendix to these Rules.


The following proposed documents, which will implement the recommended
structured settlement, must be annexed as exhibits to the application and referred to in
the brokers affidavit:

Proposed Settlement Agreement
Proposed Assignment Agreement5
Proposed Annuity Contract
Proposed Guaranty Agreement6
Rejected and/or Alternative Proposals

This court’s rules require counsel for plaintiff, in his supporting affirmation to set

forth and explain the efforts made to provide the plaintiff with the best and least costly
annuity. When conducting such “due diligence”, counsel for petitioner should consider
the following observations:
(a) The Cost of the Annuity


A standard form assignment agreement called a “Uniform Qualified Assignment
and Release Agreement,” is generally used to implement the transfer of the obligation to
make the future payments. However, if a “Uniform Qualified Assignment, Release and
Pledge Agreement” is used, the plaintiff receives a security interest in the annuity policy,
and thus becomes a “secured creditor” of the assignment company and receives a priority
over other creditors in the event of a default or bankruptcy of the assignee.

This guaranty is provided by the annuity issuer, a major life insurance company,
or by an affiliated insurer of the annuity issuer, which is licensed to issue insurance and
annuity products in the State of New York. The annuity issuer must be rated by A.M. Best
at no less than A++ or A+. This guaranty is in addition to the insurance protection
provided by New York State Insurance Law. Under N.Y. Ins. Law Article 77, the Life
Insurance Company Guaranty Corporation of New York provides $500,000 of protection
with respect to a structured settlement annuity in the event an annuity issuer becomes
insolvent if the annuity issuer is licensed in New York and the plaintiff is a New
York resident. See, N.Y.S. Ins. Dept. O.G.C. Opinion 5-1-96 (May 1,1996), General
Counsel Opinion 2-20-2003 (February 20, 2003). In view of this monetary limitation,
where the cost of the annuity is more than $500,000, it may be prudent to purchase
annuities from more than one issuer to keep the cost of each annuity below $500,000.

While a fixed annuity is a contractual obligation rather than a traditional
investment product, its future payout, and thus its rate of return, is affected mostly by
the interest rates prevailing at the time of purchase. Despite the fact that annuity issuers
periodically publish a schedule of rates, which set forth the cost to buy various future
periodic payments, other variables affect the ultimate quote. First, rates between
carriers may differ and, in any event, the published rates for each carrier are
periodically adjusted relative to prevailing interest rates. Second, the cost to purchase
an annuity may be affected by the sex and life expectancy of the plaintiff. Third, market
place competition, rivalry and circumstances, which effect each annuity issuer, may also
play a part in the annuity’s return.
When lifetime benefits are part of the proposed annuity, one unknown variable is
plaintiff’s real life expectancy. For example, when payments which terminate at death
are included in the proposed structure, and the plaintiff, due to some injury or
condition, has a shorter life expectancy than normal (and is thus given a “rated age”),
the cost of the annuity may be less because the annuity issuer may anticipate making
fewer payments. In such cases, although the offered annuity may have a large projected
payout (if plaintiff lives to a normal life expectancy), the annuity issuer’s actuary
“calculates” that the actual payout will be truncated by those “payments” which
terminate upon death. In any event, as with mortgage rates, market forces and
competition between issuers play a role in the proposed cost of the annuity. The court
has been informed that it is not uncommon for the costs quoted by different annuity
issuers, for the identical proposed annuity benefit to vary by more than 10%.

Independence of The Structure Broker


As noted above, the Internal Revenue Code, in essence, prohibits the
direct purchase of an annuity by the plaintiff from the settlement funds. The Code
mandates (in order to achieve tax excludability) that the claim be settled in exchange for
the defendant’ promise to make periodic payments. The defendant then assigns its
periodic payment obligation to an affiliate of a major life insurance which then acquires
and holds an annuity to make those periodic payments to the claimants.7
It may appear therefore, that the Code has indirectly provided the settling defendant or
its carrier, with a preference in the selection of a structure broker. It should be noted
that, although such a defendant selected broker has no fiduciary relationship with or
obligation to the plaintiff, this lack of fiduciary obligation does not mean that such a
broker cannot provide the best possible annuity advice and plan. In any event, nothing
in the Tax Code precludes a plaintiff, from selecting and receiving advice from a
structure broker who can act as a fiduciary for plaintiff and who is independent of the
settling defendant and its liability insurance carrier. Indeed the recent experience in
structured settlements has been that in serious physical injury cases, most often both
parties are receiving advice from their own structured settlement brokers. As stated
above, in many states the involvement of a broker selected by plaintiff is the accepted
Unless a waiver is obtained upon good cause shown, the court’s rules require,
among other things, that the plaintiff obtain annuity advice from a structure broker that
is independent of the defendant and its liability insurance carrier. This court’s chief
goal is to make certain that a settling infant or impaired person is being provided with


In essence, the Code allows the defendant or its liability insurance carrier to
arrange for the purchase of the annuity.

an annuity which is not only personally designed to meet the plaintiff’s needs, but also
the best value available from a quality and cost evaluation. Although, it is not the
purpose of these rules to imply that these goals cannot be achieved by a broker selected
by a defendant, plaintiff is required by these rules to obtain advice from an independent
plaintiff selected broker if for no other reason but to introduce competition and market
forces to the process. Thus, both brokers are required by these rules to survey the
annuity market, and the application must provide an explanation why the proposed
annuity represents the best value and is most suitable for this claimant.
Obtaining an independent structure broker may not be a useless precaution. Due
diligence in the selection of an independent structure broker is required in order to
minimize the exposure of the plaintiff to abuses. Although abuses can occur no matter
who selects the structure broker8, it is hoped by this court, that the fiduciary relationship

Any form of a referral fee, rebate or other form of compensation paid by a
structure broker (whether plaintiff or defendant selected) to an attorney or to a party or to
an insurance carrier that made the referral, would be considered unethical and illegal. See,
for example, Macomber v. Travelers Property And Casualty Corp., 261 Conn. 620, 804
A.2d 180 (Conn. Sup Ct., 2002); and also reported on a subsequent appeal at 277 Conn, 617
(Conn. Sup. Ct. 2006); Lyons v. Medical Malpractice Insurance Association, 286 A.S.2d
711, 73 N.Y. S.2d 345 (2d Dept., 2001). It must be noted that these actions are still pending
and at this stage of each case we are only left with unproven allegations of wrongdoing; and
they are included herein only as an example of the type of wrongful conduct this court is
seeking to prevent.
In Macomber, above (a proposed class action), it was alleged that Travelers
Property and Casualty Corp. entered into an illegal arrangement with certain structure
brokers pursuant to which the brokers allegedly agreed to rebate a portion of the annuity
commission to Travelers. It was alleged further that as a result of the arrangement,
Travelers did not expend the full amount that it had represented to each plaintiff as the
cost of the annuity. On that first appeal the Connecticut Supreme Court upheld the
plaintiffs’ right to bring the action by reversing a lower court’s dismissal of six of the
alleged causes of action which were brought on behalf of the class. However, the Supreme
Court directed the lower court to conduct further discovery in order to fully identify the
appropriate class. On the second appeal the Supreme Court held, among other things, that
by examining only thirty files out of several thousand when it ruled on a motion for class

created by a plaintiff’s selection of a broker, and the competition between both brokers,
will not only maximize plaintiff’s opportunity to get the best annuity, but also minimize,
if not eliminate, the plaintiff’s exposure to such abuses. Of course, abuses affecting the
structured settlement can also take place after an annuity has been purchased. See, for
example, footnote No. 4 at page 17 above, dealing with the predatory practices of
“factoring” companies that use overbearing tactics to solicit and purchase these annuity
payments at a steep discount. Since the sale of a structured settlement may undermine
the goal of the court to provide long term financial security to an injured settling party,
counsel is advised that when doing due diligence in the selection of a broker, counsel
should refrain from engaging the services of any structured settlement broker or
company which has an affiliation with any of these factoring companies. This is not
meant to imply that, when an annuitant seeks to sell and transfer an annuity, a broker
cannot qualify as a “licensed professional adviser”, in accordance with § 5-1701(e) of
the GOL; nor is it meant to imply that said broker cannot provide good advice on how
the annuitant can maximize the purchase price and not fall victim to a predatory

certification, the trial court engaged in a truncated discovery procedure which could not be
endorsed. The case was remanded to the trial court for further action and proceedings.
In Lyons, above, it was alleged that the liability insurer and its structure broker
misrepresented the value of the annuity as $940,000, when the alleged cost was only
$410,000! The court denied defendant’s motion to dismiss the action stating that “there
are questions of fact as to whether the represented present value was a fraudulent,
intentional or negligent misrepresentation . . . .”


factoring company. However, these services, should be provided at the request of the
annuitant. In contrast, it would not seem appropriate for a structured settlement broker
to provide the names of its client annuitants to such factoring companies for solicitation
purposes; and it would certainly seem unethical, if not illegal, for a structured settlement
broker to receive a referral fee or any form of compensation from such a company. It
must be noted that the “structure broker’s affidavit” which is required by this court’s
rules must contain a representation that said broker does not have any such relationship
with a factoring company.
In any event, as stated above, it is not uncommon for costs of an annuity
quoted by different annuity issuers, for the identical proposed annuity, to differ by more
than 10%. When considerable sums are involved, 10% can be a very considerable
savings to a plaintiff; and hopefully the competition between said brokers will result in
a benefit for the plaintiff.
(c) Compensation For The Broker:
A structure broker is paid a one time commission of 4% for services rendered in
connection with the selection and purchase of an annuity. This commission is paid by
the annuity issuer. In theory this commission is not deducted from the settlement
proceeds, but this cost is certainly taken into consideration by the annuity issuer when it
makes an annuity proposal. But, unlike many other types of investment vehicles there
are no ongoing management, advisory, or administrative fees under a structured
settlement. This can represent a significant cost savings over the decades of pay-out to a
permanently disabled infant or minor plaintiff.
In any event, the issue of compensation and/or commissions for structure brokers
must be addressed by counsel in the affirmation supporting the application. When

more than one broker is involved, a dispute may arise as to which broker is entitled to
the commission. Usually these disputes are resolved amicably with a commission
sharing agreement. There are times when an amicable agreement cannot be achieved.
In such instances the issue should be brought to the court’s attention.
If the issue can be resolved amicably by an agreement between the competing
brokers, the court will most likely accept the proposed resolution thereof. If there is a
dispute a hearing must be held so that the court can review all circumstances concerning
the efforts made by each broker in the selection of the recommended annuity. At the
hearing each said broker will be required, among other things, to provide testimony as
to the financial advice provided and as to the efforts made to obtain the annuity that
provides the best value for the particular circumstances for this plaintiff.
(d) Guaranteed Payments
Counsel must be aware of, and not confuse the various forms of guarantees which
are available and should be provided to a settling plaintiff/annuitant. There are three
distinct guarantees. The “guaranteed” payments mentioned in the annuity contract and
in the form orders which have been provided by this court, refer to that portion of
periodic payments which will not terminate upon the death of infant/impaired person.
Upon death, these “guaranteed” payments will be made to the estate of the
infant/impaired person, or to the designated beneficiary of said person. These
“guaranteed payments” are not to be confused with the guaranty of the annuity


contract which is provided by a “guarantor” company.9 This guarantor company will
guarantee the obligation of the assignee company to fulfill its obligation to make the
future periodic payments in accordance with the annuity contract. Neither of these
guarantees should be confused with the additional guaranty provided by the Life
Insurance Company Guaranty Corporation under New York Insurance Law, Article 77.
Under N.Y. Insurance Law, Article 77, the Life Insurance Company Guaranty
Corporation of New York provides $500,000 of protection with respect to an annuity in
the event an annuity issuer becomes insolvent if the annuity issuer is licensed in New
York and the plaintiff is a New York resident. See, N.Y.S. Ins. Dept. O.G.C. Opinion 9565 (9/24/95); See also N.Y.S. Ins. Dept. O.G.C. Opinion 5-1-96 (May 1, 1996), General
Counsel Opinion 2-20-2003 (February 20, 2003). In view of this, where the amount
structured is more than $500,000, it may be prudent, but not required by law, to
purchase annuities from more than one annuity issuer in order to keep the cost of each


The “Assignor, The “Assignee”, The “Annuity Issuer” and the “Guarrantor”
The defendant (or its insurer), is the “assignor”,and they usually assign the
obligation to make the periodic payments to an “assignee” company, which is usually a
single purpose corporate affiliate of the “annuity issuer”. That “assignee” company will
then purchase the annuity contract from the “annuity issuer”. The following is required by
this court’s rules:
The “annuity issuer” must be licensed to do business in the State of New York in
order for the annuity to be protected by the Life Insurance Company Guaranty
Corporation of New York. The annuity issuer must have an A.M. Best Company rating of
no less than A++ or A+, which are the two highest ratings. The ratings of the proposed
annuity issuer must be described in the broker’s affidavit and must be supported by an
appropriate exhibit attached thereto.
The “guarantor” company must guaranty the obligations of the “assignee” company
to make the periodic payments. The guarantor is usually the annuity issuer or a substantial
affiliated company. If the assignee itself is a substantial company, which is rated A++ or
A+ and it otherwise qualifies for insurance under New York Insurance Law, Article 77, a
“guarantor company” may not be necessary.

annuity below $500,000. The court is informed, however, that purchasing more than one
annuity generally results in lower payments to the plaintiff. In any event, if the
proposed annuity is to cost more than the above $500,000 maximum guaranteed by
Article 77, both counsel and the structure broker must justify any proposed investment
in an annuity which does not take full advantage of that added protection.

Lock-In Quotes and Notices

Plaintiff’s counsel should avoid placing the court in a“catch 22" by locking in an
annuity quote before submitting a structured settlement application for approval.
Unless the “lock in quote” acknowledges that it is subject to court approval, counsel
must seek court approval before agreeing to a lock-in quote or notice! In any event, the
said proposal should be brought to the court’s attention expeditiously and before there is
any change in prevailing interest rates.
The court might consider imposing a penalty or sanction on those who, by
violation of this rule, cause an infant or impaired person to be unable to timely survey
the market and obtain the annuity that represents the best value available for the
particular plaintiff.
This court’s rules require full compliance with the Tax Code and its
implementing regulations if a “Qualified Settlement Fund”(QSF) is being proposed.
The IRC and its implementing regulation, allow a QSF to be established to resolve or
satisfy “one or more contested or uncontested claims.” (See, IRC § 468B; Treasury
Regulation, § 1.468 B-1; see also, Rev. Proc. 93-34, 1993-2 CB 470, 08/10/1993, IRC § (a)
468b; Rev. Rul. 79-313, 1979-2 C.B. #75; Rev. Rul. 79-220, 1979-2 C.B. #74; Rev. Rul.

83-25, 1983-1 C.B. #116). Thus, a QSF is often used to settle class tort actions.
Caveat: Despite the express authority to create a QSF to resolve “one or more”
claims10, the issue is still uncertain as to whether, in a single plaintiff action, the
attempted creation of such a fund would cause the income portion of each periodic
annuity payment to be taxable. Most attorneys and judges will not take the risk of
utilizing a “qualified settlement fund” for actions or claims involving only one claimant
until a definitive ruling is issued by the Internal Revenue Service that such a fund can
provide payments that would be fully tax-free damages in the hands of the claimant.
In any event, the establishment of the QSF is initiated by way of a
petition to the court for an order allowing its creation. Once the order is signed, the
liability insurer pays the settlement amount into the fund, which deposits same into
an interest bearing account, and the liability insurer and defendant are released
from all further responsibility and liability. Thereafter, attorneys for the plaintiffs
have additional time to propose and seek court approval for the appropriate
apportionment and use of the settlement funds, and the creation of the appropriate
structured settlement. Of course, while the settlement amount is in the “qualified
settlement fund”, those funds will earn interest that is taxable. However, when the
annuity is ultimately purchased via the monies in the QSF, the future periodic
payments will be tax free. The court order establishing the fund must completely
extinguish the taxpayer’s (defendant’s) tort liability; and no amounts may be


Section 1.468B-1 (c) of the regulations provides, among other things, “that a fund,
account, or trust is a qualified settlement fund if: ***(2) it is established to resolve or
satisfy one or more contested claims ***” [emphasis added].

transferred to the fund other than in the form of a qualified payment.
When a QSF is utilized, the structure broker is apparently selected, not by the
defendant or its insurance carrier, but by the administrators of the QSF, a majority
of whom are independent of the defendant and its liability carrier. However,
defendants may have the right to object to the initial establishment of QSF. See,
Continental Casualty Co. et al v. United States of America, 2006 U.S. Dist. Lexis
90012, 2006 WL 3455055 (N.D. CAL.; 11/29/06) (Court found that it lacked power
establish a QSF over defendant’s objection).11 In Continental above, the United


In the Continental case the parties agreed to an all-inclusive settlement figure of
$1.75 million with the expectation that the settlement would include a structure that would
be subject to approval by the Center for Medicaid Services . However, the government’s
proposed structured settlement terms, were objected to by plaintiffs, and the government
then took the position that the only alternative was an all cash settlement. The plaintiffs
then asked the Court to enter an order establishing a qualified settlement trust presumably
to bypass the DOJ requirements and privately create a structured settlement plan. The
plaintiffs also sought an order imposing restrictions “on all settlements by the Torts
Branch of the United States Department of Justice, Civil Division.” As justification for this
extraordinary request for relief, the plaintiff’s challenged the legality of the government’s
settlement terms, including DOJ “requirements”: that the government select an annuity
broker; that the annuities “provide reversionary interests to the government; and that the
settlement documents “prohibit the future assignment of the structured settlement
The Court denied the plaintiffs’ petition, observing that it was “not in the position
to make policy decisions regarding DOJ settlement practices and finds no illegality in any
of the requirements.” The Court decision summarized and rejected two of the plaintiffs’
complaints as follows:
First, plaintiffs argued that an annuity agent selected by the government would have
a conflict of interest in violation of Model Rules of Professional Conduct 1.7(a). Unless the
annuity agent is a lawyer, however, the model rules are not binding for annuity brokers.
Rule 1.8 applies only to lawyers with current clients who have conflicting interests. The
court noted that plaintiffs are represented by independent counsel.
Second, plaintiffs argued that any condition prohibiting assignment of the
annuity payments would eliminate rights granted by 26 U.S.C. §5891. The court noted that
section 5891 involves tax exemptions for transfers of structured settlement rights and does
not establish a statutory right for such transfers; and that plaintiffs are free to contract
away an y right of assignment; and that the government can seek such a provision.

States District Court, for the Northern District of California, held among other
things, that it did not possess the power to establish a QSF over the objection of the
defendant, despite a tax regulation which allows for the creation such settlement


_____________an infant, by his/her Parent and Natural
Guardian ___________; and ____________,
Docket No. ________



[Insert Name of Broker] , of
[Insert Name of Company]
, acting as structured settlement
consultant in the above matter hereby warrant and represent, under oath, having first been
duly sworn, the following facts to be true, complete and accurate to the best of my

In response to the plaintiffs’ contention that the regulations under IRC § 468B
empower courts to establish qualified settlement funds the decision explained: “This court
may not create a qualified settlement account merely because a tax regulations allows the
creation of such settlement accounts.”

knowledge, information and belief:

1. No rebates, service fees, administrative fees, or other financial consideration of any
kind or in any amount has been paid, will be paid or had been promised to be paid
to any party, insurer, attorney, guardian or any other person, firm or corporation
associated with this case by me or by my above stated company either directly or
indirectly, by virtue of the structured settlement or otherwise, relating to this matter.

2. The cost to the defendant(s) and/or casualty insurer(s) of the structured settlement
portion of the settlement in this case is $ _____________ inclusive of any
applicable qualified assignment fee; and this cost to purchase the proposed annuity,
was arrived at after a survey of the market of annuity providers in order to confirm
and obtain the best value (price/quality) for the periodic payment plan now



(Insert name of Defendant or Insurer) will make the following future periodic
payments to (Name of Annuitant):

[Provide full benefit payment schedule]

The obligation of (Name of Defendant or Insurer) to make the above future periodic
payments will be assigned to _________________________, the Assignee.
(Assignee) may fund the obligation assumed by the purchase of an annuity from
(Insert name of annuity issuer), an A.M. Best Company rated A+ or A++ insurer. A
guarantee letter will be issued by (Insert name of guarantor) to guarantee the
performance of said assignee.


The Annuity Issuer company above named is licensed to issue insurance and
annuity products in the State of New York.


The standard industry commission that we are receiving in this case is based on 4%
of the premium of $__________. This commission is paid by (annuity issuer)
__________________, the life insurer issuing the annuity policy.

[If more than one broker is sharing in the commission,
set forth the details supporting same].

The annuity being provided in this case is based upon guaranteed non-life
contingent payments for the plaintiff, who is presently ______years of age, having been
born on _________________. The annuity cost set forth in number two above reflects
this non life contingent annuity cost;
The life insurer(s) providing the annuity or annuities in this case has rated the plaintiff,
who is presently ____ years of age, having been born on _________________, up to age
______ by reason of plaintiff’s medical condition. The annuity cost set forth in number
two above reflects this rated age with regard to all life contingent annuity benefit
payments Period certain only payments and guaranteed lump sum payments are not
affected by rated age;
By reason of said plaintiff’s non life impairing medical condition, the annuity being
provided in this case is based upon a standard age quote for the plaintiff, who is
presently years of age _________ having been born on ______________. The annuity
cost set forth in number two above reflects this standard age rating. Period certain only
payments and guaranteed lump sum payments are not affected by a rated age.



Medical underwriting is inapplicable in guaranteed non-life contingent cases;
No medical underwriting has taken place or will take place after the agreement to settle
has been reached without full disclosure to both plaintiff and defendant. No post
settlement medical underwriting has or will take place to secretly reduce the
defendant’s cost.


No present value calculations were provided in this case. All illustrations
provided were based on actual cost only.

10. Neither I nor [company name] is an in-house broker of any party or casualty
carrier involved in the settlement; nor am I or said company affiliated with or an
“exclusive” broker of any of any party or casualty carrier involved in the

11. Neither I nor (Insert name of company) will, without the express consent of the
plaintiff and the prior written approval of this court:
(a) provide any information about this settlement to any
factoring company for any purpose; or
(b) solicit the plaintiff or plaintiff’s family on behalf of any
factoring company for any purpose, including, but not
limited to, the proposed sale of plaintiff’s future periodic
payments, nor will I or (Insert name of company) participate,
assist, promote, or aid in such solicitation by any person, firm,
corporation or entity; or
(c) seek or accept any consideration, financial or otherwise, directly
or indirectly from a factoring company.
12. The following documents have been annexed as exhibits to the application made
to the court for approval of the recommended settlement proposal:

Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E


Proposed Settlement Agreement
Proposed Assignment Agreement
Proposed Annuity Contract
Proposed Guaranty Agreement
Rejected Alternative and/or Competing Proposals.



(Insert name of individual) individually
and on behalf of [Insert name of company]
Sworn on before me
this ___________day of __________, 2006

My Commission Expires: