Structured SettlementThe typical cash for structured settlement arises and is structured as follows: An injured party settles a tort suit with the defendant (or their insurance carrier) pursuant to a settlement agreement that provides that, in exchange for the claimant's securing the dismissal of the lawsuit, the defendant (or, more commonly, its insurer) agrees to make a series of structured settlement payments over time. The insurer, a property/casualty insurance company, thus finds itself with a long-term payment obligation to the claimant. To fund this obligation, the property/casualty insurer generally takes one of two typical approaches: It either purchases an annuity from a life insurance company (an arrangement called an endowment sale case) or it assigns (or, more properly, delegates) its periodic payment obligation to a third party which in turn selling structured settlements (which arrangement is called an "assigned case"). In an unassigned case, the property/casualty insurer retains the periodic structured settlement payment obligation and funds it by purchasing an annuity from a life insurance company, thereby offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity payment issuer to send payments directly to the claimant. If any of the periodic payments are life-contingent (i.e., the obligation to make a payment is contingent on someone continuing to be alive), then the claimant is named as the sell annuity payment or measuring life under the annuity. In the assigned case, the casualty company does not want to retain the long-term structured settlement investment on its books. Accordingly, the insurer transfers the obligation, through a legal device called the offer in compromised settlement, to a third party. The third party, called an assignment company, will require the property/casualty company to pay it an amount sufficient to enable it to buy an annuity that will fund its newly accepted periodic payment obligation. If the claimant consents to the transfer of the sell structured settlement obligation (either in the settlement agreement or, failing that, in a special form of qualified assignment known as a qualified assignment and release), the defendant and/or its property/casualty company has no further liability to make the periodic payments. |
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