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Beneficiaries of structured settlements can’t sell or assign their future payments if the settlement agreement forbids that, the Georgia Court of Appeals has ruled. In a decision that could hamper Georgia companies that buy up structured settlements as well as cash-strapped plaintiffs looking to sell their future income streams, an appellate panel last week concluded that two Colquitt County, Ga., men can’t sell a portion of the structured settlement they received for their mother’s death. That’s because the settlement language specifically barred such a sale, language that now routinely is added to most such agreements. “A transfer of structured settlement rights that is made in violation of a valid contract,” the panel found, would be invalid and the transfer unenforceable. CGU Life Insurance Co. v. Singer Asset Finance Co., Nos. A01A0798, A01A0799, A01A0800, A01A0801 (Ct. App. Ga. July 11, 2001). Structured settlements, increasingly common because of their tax advantages, feature long-term payouts in lieu of, or in addition to, a lump-sum payment. The insurer typically meets its payment obligation by purchasing an annuity that pays out over a specified period. In 1999, the Georgia Legislature passed a law that requires companies buying such settlements, known as factoring companies, to provide full financial disclosure to the individual selling or assigning structured settlement payments. In this case of first impression before the Georgia appellate court, the 1997 structured settlement was intended to compensate Jonathan and Christopher Revill for their mother’s death in a car accident. Under the agreement, Jonathan Revill would receive an initial payment of $239,975 and payments of $500.01 a month for 10 years. He also would receive $25,000 in 2007, $50,000 in 2012, $100,000 in 2017, $135,000 in 2022 and $150,000 in 2027. Payments to his brother, Christopher, were similar, except Christopher, a minor at the time of the settlement, was to receive $1,000 a month for 10 years. The agreement allowed CGU Life Insurance to assign that debt to CGU Annuity Service Corp., which, in turn, bought an annuity from CGU Life Insurance Co. PAYMENTS CAN’T BE ACCELERATED It also stated that payments could not be “accelerated, deferred, increased or decreased … nor shall [the Revills] have the power to sell or mortgage or encumber same, or any part thereof, nor anticipate the same, or any part thereof, by assignment or otherwise.” IRS rules provide tax breaks on the arrangement to the insurer, its assignee and the recipient, unless the payments are accelerated, deferred, increased or decreased by the recipient. The problem comes, according to the insurance companies, when settlement beneficiaries sell or assign their long-term payouts for cash. Insurers fear the structured settlement’s tax advantages will be lost by such transactions. Many structured settlements, according to CGU’s attorney Michael D. Hostetter, now contain language that forbids the recipient from selling or assigning future payments. And insurers have gone to court in increasing numbers to stop beneficiaries like the Revills from doing so. The Revills sold parts of their future payments to Singer Asset Finance Co., in exchange for lump sum payments. In response, CGU filed a declaratory judgment action in Colquitt Superior Court, seeking to have the sale declared invalid based on the language in the contract. Singer and the Revills counterclaimed, asking the court to find the sale valid and alleging CGU tortiously interfered with the deal. Colquitt Superior Court Judge Frank D. Horkan found the sale valid. TRIAL JUDGE REVERSED The appellate court, however, reversed Horkan on that issue, although it affirmed other findings the trial judge made. Writing for the panel, Chief Judge G. Alan Blackburn concluded, “Although structured settlements may be assignable, we nonetheless uphold the non-assignment provision here.” Contract law, Blackburn wrote, recognizes the validity of assignments unless: they change the duty of the obligor or increase his burden or risk; they are forbidden by law or public policy; or assignment is precluded by contract. While the IRS has not ruled on whether assignments affect the tax liability of insurers in structured settlements, “the potential for jeopardizing the tax treatment of the structured settlement in the event of such a ruling, clearly provides a sufficient basis for the parties to contractually preclude such a sale or assignment,” Blackburn wrote. “Even if any challenge to the tax preference of structured settlements that were assigned resulted in a favorable result, the cost of litigation and attorney fees alone would justify a contractual preclusion of such a sale or assignment.” He noted that other courts that have addressed this issue have come to a similar conclusion, citing cases from Maryland, Vermont and Pennsylvania. Blackburn wrote that a 1999 ruling to the contrary by U.S. District Court Senior Judge Charles A. Moye Jr. was factually distinguishable from the case before the Georgia Court of Appeals. Settlement Funding v. Jamestown Life Insurance Co. 78 F. Supp. 2d 1349 (1999). Winning attorney Hostetter, a partner with Nall & Miller, says the appellate panel’s ruling last week “makes it more difficult for [factoring companies] to overcome the anti-assignment clauses in structured settlement cases.” The decision, he says, adds a measure of predictability to settlements. Insurers have a right to expect that parties to a settlement will live up to their agreement, he adds. The attorney for both Singer and the Revills, J. Scott Carr, a partner with Kritzer & Levick, says the decision — one of the first such cases to reach a state appellate level — undoubtedly will impact the structured settlement industry in Georgia. Factoring companies like Singer, a Florida-based firm, provide a valuable service to individuals in need of a loan, he says. Carr, who handled the case with C. Celeste Creswell of the same firm, says out of thousands of transactions similar to this one, insurers have produced no evidence of negative tax consequences from allowing beneficiaries to assign or sell their settlements. The appellate opinion, he says, “focuses a lot on speculation by the insurance companies of tax consequences.” The IRS has issued what is known as a Private Letter Ruling, finding that sale or assignment would not affect the tax status of the individual. “The insurance companies’ tax issue is really derivative of that,” Carr says. He says his client is considering filing a petition for writ of certiorari with the Georgia Supreme Court.

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