Structured Settlement Companies May Need to Look At Suitability Studies, Says Expert

Structured settlements have recently gotten back in the news through a series of articles by Terrence McCoy in the Washington Post. The stories covered the lead paint cases arising in Baltimore, Maryland. The death of Freddie Gray brought the lead paint issue to the fore, as it turns out that Gray was a lead paint victim. The stories discussed problems with the purchase of structured settlements. Mark Wahlstrom, CEO of Wahlstrom & Associates, discusses the issues raised in the Washington Post articles in this report.

The issue that brought structured settlements into the news was the purchase of structured settlements by companies that engage in the business, factoring. Many of these purchases were made of victims of the Baltimore lead paint cases, of which there were over 4,000. Children who ingested the paint had filed claims against landlords and building owners who had failed to remediate the properties that had lead paint in them. Many of the lead paint victims had severe cognitive problems. “A lot of them can barely read.”

Mark Wahlstrom

Mark Wahlstrom

The articles in the Washington Post prompted the Maryland Court of Appeals to adopt some new rules regarding the purchase and sale of structured settlements. Like most other states, Wahlstrom points out, Maryland has a structured settlement protection law that requires the involvement of an independent professional advisor in the creation of the settlement. What came to light was the apparent rubber stamping of proposed structured settlement sales with no real analysis whether the sale would be in the best interests of the structured settlement payee. But the parties involved in those sales were doing what the law required, Wahlstrom notes.

The troubling issue in these cases, says Wahlstrom, is that many of these child plaintiffs had mental or cognitive disabilities. The concern is that these child plaintiffs obviously had the same mental problems when the structured settlements were put intl place to begin with. The question, Wahlstrom says, should be, what suitability studies were done when the settlements were put into place? In other words, how could so many of these lead paint structured settlements be sold in questionable circumstances if they were put into place properly to begin with?

Wahlstrom is not suggesting any improprieties by the trial lawyers involved. Their job was to get the best aggregate settlements for the clients that could be had, and they probably got every dollar they could for their clients. The important question is whether structured settlements were suitable for the clients involved. Wahlstrom suggests that the law requires the independent advisor to opine on the mental or cognitive abilities of the client in the first instance, when a structured settlement is being considered. Most independent advisors are incapable of making that decision. If the plaintiffs in question were as incompetent as now appears after the fact, Wahlstrom asks, why were not guardians or guardians ad litem appointed? Why weren’t the settlement proceeds put into trust accounts? Were structured settlements truly the appropriate solution? What suitability analysis was done?

Wahlstrom points out that, if structured settlement payees were being taken advantage of in court-approved sales, the solution to the problem is better oversight by the courts. Wahlstrom suggests that, if heightened oversight and analysis of the cognitive abilities of these sellers will be applied on the back end, factoring companies will start pushing to apply the same oversight at the beginning of the process, when structured settlements are being considered and put into place. Structured settlement companies are not presently required to do a suitability assessment for the sale of the annuities that make up structured settlements.

Wahlstrom opines that structured settlement sellers should make it a point to look more carefully at plaintiffs in proposed structured settlement arrangements and suggest the appointment of guardians or some assessment of cognitive abilities in the case of any plaintiff whose abilities seem questionable. “It’s something for our profession to think about.”

Mark Wahlstrom, President of Wahlstrom & Associates of Scottsdale, AZ, founded of one of the nation's first plaintiff only structured settlement firms in 1983, and is a renowned specialist in settlement planning, structured settlement annuities, structured legal fees, and the administration of large, complex multi-claimant settlements using qualified settlement funds and trusts. He manages a national practice with clients in every part of the country. He is also the CEO of Sequence Media Group. The Legal Broadcast Network is a featured network of Sequence Media Group.