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F I S C A L I M P A C T R E P O R T

SPONSOR Cervantes

DATE TYPED 02/25/05 HB 495/aHJC

SHORT TITLE Structured Settlement Protection Act

SB

ANALYST Ford

APPROPRIATION

Appropriation Contained

Estimated Additional Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

Minimal – See Narrative

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Administrative Office of the Courts (AOC)

Attorney General (AGO)

SUMMARY

Synopsis of HJC Amendment

The House Judiciary Committee Amendment makes a grammatical change and specifies that an

application for approval of a transfer of a structured settlement shall be made in court, rather than

“an appropriate court.” This serves to clarify that the application must be made in the court pur-

suant to the definition in the bill.

Synopsis of Original Bill

House Bill 495 enacts the Structured Settlement Protection Act, which requires court approval

for the transfer of structured settlements and provides the procedures for the transfer of struc-

tured settlements.

Definitions

The bill creates definitions for terms used in the Act, including:

•

“annuity issuer” means an insurer that has issued a contract to fund periodic payments

under a structured settlement.

House Bill 495/aHJC -- Page 2

•

“payee” means an individual who is receiving tax-free payments under a structured set-

tlement and proposes to transfer payment rights under the structured settlement.

•

“transferee” means a party acquiring or proposing to acquire structured settlement pay-

ment rights through a transfer.

Required Disclosures

The Act requires the transferee to provide specific disclosures in a separate statement to the

payee at least three days before the payee signs the transfer agreement. Among others, the re-

quirements include the discounted present value of the payments, an itemized list of expenses,

and a statement that the payee has the right to cancel the transfer agreement, without penalty or

further obligation, not later than the close of the third business day after the date the agreement is

signed by the payee.

Court Approval and Procedures:

The Act requires a transfer of a structured settlement to be approved by a court based on findings

that:

•

The transfer is in the best interest of the payee, taking into account the welfare and sup-

port of the payee’s dependents;

•

The payee has been advised in writing by the transferee to seek independent professional

advice regarding the transfer and has either received the advice or knowingly waived the

advice in writing; and

•

The transfer does not contravene any applicable statute or any order of any court or other

governmental authority.

The Act also specifies the procedures the transferee must follow to obtain court approval which

includes a required notification to all interested parties at least 20 days before the scheduled

court hearing. Interested parties shall be entitled to provide input on the proposed transfer.

Liability and Responsibility

The Act establishes that the transferee, not the payee, obligor or annuity issuer, is responsible for

taxes, costs and other liabilities that may arise from the transfer if the transfer contravenes the

terms of the structured settlement.

The Act also establishes that it is the responsibility of the transferee to comply with the condi-

tions of the Act. Neither the obligor nor the annuity issuer bears any responsibility for, or liabil-

ity arising from, noncompliance.

Significant Issues

AOC notes that the bill is intended to protect persons who should benefit from a structured set-

tlement from ill-considered transfers.

AGO writes: “There is a substantial potential for abuse or undue influence when a payee or the

injured person’s guardian seeks to convert periodic payments from a structured settlement of a

damages award or a workers’ compensation settlement that is designed to provide for support

House Bill 495/aHJC -- Page 3

and care of the injured person over life or a term of years into cash.”

FISCAL IMPLICATIONS

The bill may increase costs to the courts as a result of the requirement that transfers be approved

by the courts. The total fiscal impact will depend on the number of applications for approval.

AGO notes that the bill may also save the state money by preventing ill-advised transfers that

could cause individuals to seek public assistance, such as Medicaid, in the future.

OTHER SUBSTANTIVE ISSUES

The AGO raises a number of issues with the drafting of the bill. First, it notes that the bill re-

quires court approval of any transfer, but the approval procedures do not require that the court

actually hold an evidentiary hearing to determine if the proposed transfer meets the requirements.

Next, the AGO notes that Section 4(B) allows the payee to waive independent professional ad-

vice, which may lead to transferees preparing boilerplate waiver language for the payee’s for

signature. The AGO suggests that the bill require the court to determine that the waiver was in-

telligent and informed.

Finally, the AGO raises a concern regarding transfers made by a parent or guardian on behalf of

a minor or an incapacitated person. The AGO suggests that the bill could require the court to

appoint its own independent professional, at the transferee’s expense, to review the merits of the

transfer to provide better protections. Along these lines, the bill could be strengthened by requir-

ing a physician’s statement of the injured person’s mental and physical condition and long-term

prognosis.

EF/yr:sb