Please note that Jay Sangerman is certified by  the New York State Department of Insurance to give Continuing Education presentations to claims and life agents, as well as to structured settlement brokers. 

The presentations are on the use of Special Needs Trusts (also called Supplemental Needs Trusts) in the settlement process.  Also discussed is the issue of Medicaid liens.

For further information, please call Barbara Sangerman, client liaison, for further information, at 212-922-0711. 


Case Summary

New York's new Structured Settlement Protection Act, which governs the sale or other transfer of the right to receive future payments from the settlement of litigation, does not permit a court to approve a transfer if the original settlement agreement bars the assignment of the contract, a state Supreme Court judge in Rochester ruled. Many of the insurance carriers who administer the structured settlement payments routinely write an anti-assignment clause into the contracts, and there is nothing in the law, which became effective last July, that permits a court to ignore the restriction, said Justice Andrew V. Siracuse. He rejected the factoring company's contention that the law was intended to authorize the payments. The decision, Matter of Emerald Funding Corp. [Julius J. Brown], is published on page 25 of the New York Law Journal, June 12, 2003, and is set forth below.

The Decision
by: Justice Siracuse

Matter of Emerald Funding Corp. - To the best of this court's knowledge this is a case of first impression in New York. It deals with the effect of the new Structured Settlement Protection Act, General Obligations Law [5-1701 et seq., enacted as L. 2002, ch. 537 and effective July 1, 2002. This law sets out requirements for the transfer of structured settlements and gives courts the power to approve or disapprove such transfers. A number of disclosures are required of the firm seeking to buy the settlement or the right to receive payments, and the court must also consider if the transfer is in the best interests of the seller. A case decided this past month by Justice James Canfield, Matter of Settlement Funding of New York and Neal Cunningham [New York Law Journal, June 3, 2003], has held that this requires courts to act as "active gatekeepers," not merely approving settlements simply because all the disclosure requirements have been met.

There is every indication here that the petitioner complied with those requirements. The issue before this court, however, is a different one. To what extent, if at all, does the SSPA allow the court to approve a transfer that the settlement agreement itself forbids? As presented the issue is even more narrow. The contract in this case states that the payee has neither the right nor the power to transfer the contract. Is there anything in the SSPA that permits the court to ignore this provision?

The court holds that there is not. The SSPA was designed to limit and not expand the transfer of structured settlements, and to construe it as petitioner asks would contradict not only the letter of the law but the clear and expressed intent of the law's sponsors.

Similar issues have been presented in sister states; indeed, a recent law review article has stated, "The issue of the effectiveness of such assignments in the face of an explicit anti-assignment clause is currently being litigated in a number of jurisdictions, with little consistency in outcomes or rationales" [Selling Structured Settlements: The Uncertain Effect of Antiassignment Clauses, 28 Pepp. L. Rev 787, 789]. Travelers, the payor here, has opposed the application and has cited a Connecticut case, Rumbin v. Utica Mutual Ins. Co. [254 Conn 259, 757 A2d 526]. The Supreme Court of Connecticut there held in a 3-2 decision that a provision that barred only the right to assign would not prevent a transfer under Connecticut's version of the SSPA, because violation of a contractual right gives rise merely to an action for damages. The Court added, though, that those contracts which bar both the right and the power of alienation cannot be transferred regardless of the statute. Because the payee has no power to assign such contracts any attempt to do so would be completely void.

The dissent in Rumbin argues strongly that the language of either the no-right or the no-right-or-power clause is sufficiently clear that it should be enforced, and that under no circumstances should the court permit alienation even under the new statute. It is not necessary for this court to decide between these two views. In the present case both the majority and the dissent would agree that the transfer should not be allowed.

A justice of the Superior Court of New Jersey ruled otherwise in In re transfer of Structured Settlement Rights by Spinelli [353 NJ Super 459, 803 A2d 172]. Although Justice Sabatino of that court agreed that there is a distinction between clauses barring the right to assign and those barring the power, he held that a clause specifically denying the payee "the power to sell, mortgage, encumber, or anticipate the Periodic Payments" was one merely barring a right, because it did not contain a statement that an assignment would be void or invalid or that the assignee would receive no rights from the assignment [353 NJ Super, at 473-4].

After reviewing these and other decisions this court holds that the present case should follow the Connecticut precedent. While the anti-assignment clause does not contain the language cited in the New Jersey case, it differs from the clause construed there because it explicitly bars "the right or power to sell, mortgage, encumber, or anticipate the same, or any part thereof, by assignment or otherwise." It is a fundamental principle of contract interpretation that all words should be given effect, and if "power" is not to mean "power" over and above a mere right the parties' use of the word would be nothing more than excess verbiage.

The petitioner has advanced several arguments in favor of ignoring the clear language of the contract. It claims that the agreement is not a transfer of the contract, only of the right to receive payments under it. This is not a convincing argument. Because the only obligation of the payor is to make those payments an assignment of the contract and an assignment of the right to receive payments are effectively identical. Petitioner also cites an unreported case of the Massachusetts Superior Court, In the Matter of the Application of Wells and Settlement Capital Corporation [decided April 11, 2002]. This case which has no application here, because it interpreted language in the Massachusetts statute containing an explicit authorization for courts to approve transfers that contravene the terms of the original agreement. [The section is General Laws c. 231C, [2[b].] The New York SSPA contains no such provision.

The petitioner's other major argument begins from the proposition that anti-assignment clauses are required only to comply with the rules of the Internal Revenue Service. Because a judicially approved assignment is now exempt from taxation, thus maintaining the status of the original settlement, the petitioner argues that the anti-assignment clause should be ignored. In other words, the parties did not actually agree to bar the assignment. They merely used the bar on assignment as a device to ensure tax-exempt status, and courts should recognize that this was the parties' sole concern.

The court declines to do this. This is a clear and unambiguous provision, and extrinsic evidence is not admissible to nullify its effect. Moreover, there are any number of other concerns that might have motivated the parties to this agreement, including the protection of the payee, the security of the payor, and so on.

Nor does the legislative history of the SSPA support the petitioner's position. The petitioner argues that the purpose of the SSPA was to authorize these transfers; point two of its memorandum of law states that the act "removed any restriction to the assignment of structured settlement payments." Although New York's law duplicates and/or echoes provisions contained in the Federal Victims of Terrorism Tax Relief Act, the sections of the Federal law dealing with structured settlements have little to do with the targeted tax relief that made up the bulk of that act and thus that act's legislative history is of little assistance. The needs of victims of terror was the only subject of the president's memorandum in support of its passage [2002 US Code & Admin. News 1812-3].

There is, on the other hand, a clear statement of the purpose of the state statute, which was passed unaccompanied by any other provisions. The memorandum of support stated, in part:

Recently a growing number of factoring companies have used aggressive advertising, plus the allure of quick and easy cash, to induce settlement recipients to cash out future payments, often at substantial discounts, depriving victims and their families of the long-term financial security their structured settlements were designed to provide. Although transfers of structured settlement payments are generally prohibited by contract [and often prohibited under applicable state law] factoring companies have built a rapidly expanding business around circumventing these provisions.

This market in the buying and selling of injured individuals' payment streams can pose a hazard to existing recipients of structured settlements and to the public assistance programs on which recipients must often rely, once they have traded away secure income from structured settlements. The market also threatens the viability of structured settlements for injury victims who may need them in the future. This legislation seeks to curtail this practice by limiting transfers of structured settlement payments to true hardship cases. [Sponsors Mem, Bill Jacket, L 2002 ch 357, 2002 Session Laws 2036, emphasis added].

Far from authorizing transfers, the SSPA sought to limit them. It cannot have the effect urged by the petitioner. If prior to the act a clause such as the one at issue here barred assignment-an argument implicitly conceded by petitioner-it should operate just as effectively afterwards. The court sees no reason not to give full effect to the clear words of the contract and thereby assist the petitioner in what the legislature itself saw as an attempt to circumvent contractual protections. The petition is dismissed. No costs or disbursements are payable.


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