Set forth below are summaries of recent developments involving structured settlement payment rights. If you have any questions, comments, or additional cases or materials you would like us to consider, please feel free to send us a reply. Executive Life Insurance Company of New York (“ELNY”) (In Rehabilitation)

During the course of an audit in the spring of 1991, the New York Insurance Department became concerned about some of ELNY’s assets. Consequently, the New York Insurance Commissioner required ELNY’s parent company, Executive Life Insurance Company of California (“ELIC”), to transfer assets to ELNY to compensate for a perceived imbalance. This transfer resulted in an imbalance for ELIC, and shortly thereafter, the Insurance Departments of California and New York took their respective companies under conservation. In 1992, the New York Insurance Department decided to rehabilitate ELNY. Certain lines of business were sold off, and a plan was created to manage the remaining lines, including structured settlement annuities. At the time of its rehabilitation, ELNY reportedly had issued approximately 8,500 structured settlement annuities.

Over the past several weeks, the New York State Insurance Department has notifi ed certain property and casualty insurance companies that own structured settlement annuities issued by ELNY and certain guaranty associations that there will be a shortfall in ongoing payments from annuities issued by ELNY. Although it is unclear how many annuities remain in force, we understand that the total shortfall may amount to as much as $600 million. Whether the property and casualty insurance companies are liable for the shortfall depends on many facts, including but not limited to whether the parties executed qualifi ed assignments and/or whether the underlying structured settlement agreements operated to release the property and casualty insurers from the periodic payment obligations.

At present, all 50 states have guaranty associations to help protect against the insolvency of life insurance companies. The legislation that created these associations is, in large part, modeled after the National Association of Insurance Commissioners’ Life and Health Insurance Guaranty Association Model Act. There are, however, some signifi cant differences between different states’ programs with respect to the treatment of structured settlement annuities, specifi cally with respect to the issues of: (1) whether the guaranty association of the state of domicile of a payee, or the state of domicile of a contract owner, will be called upon to pay benefi ts to a claimant; and (2) whether the claimant entitled to obtain relief is the contract owner or the payee.

We will keep you advised of additional developments as we learn of them. In the meantime, we are available to discuss these issues, so please feel free to contact us if you have any questions or comments.

Transamerica Assurance Corp. v. Settlement Capital Corp., No. 06-5601, 2007 U.S. App. LEXIS 12940 (6th Cir., June 5, 2007)

This case addresses the validity of a state court order approving a structured settlement factoring transaction where the United States Government is the owner of the subject annuity. The payee had fi led a personal injury claim against the United States pursuant to the Federal Tort Claims Act, and the suit was settled by way of a structured settlement, which the United States funded by purchasing an annuity from Transamerica Assurance Corporation (“Transamerica”).

The payee subsequently entered into a factoring transaction with Settlement Capital, and Settlement Capital sought Florida state court approval of the proposed transfer pursuant to the Florida Structured Settlement Protection Act (the “Florida Act”). As required by the Florida Act, Settlement Capital provided notice of the proposed transfer to the United States and Transamerica. Neither the United States nor Transamerica objected to the proposed transfer, and an order approving the transfer was entered by the state court. Subsequently, however, the U.S. Department of Justice (the “DOJ”) took the position that the court lacked jurisdiction to enter an order that purported to alter the United States’ contractual rights. Specifi cally, the DOJ stated that the court order would alter the anti-assignment language in the settlement agreement, as well as the language in the annuity giving the United States the sole right to designate the payee.

The DOJ also sent a letter to Transamerica directing it not to change the payee designation.1

In light of the confl icting claims, Transamerica initiated an interpleader action in the U.S. District Court for the Western District of Kentucky, naming the payee, Settlement Capital and the United States as defendants. In its decision on crossmotions for summary judgment, the district court held that the Florida court’s order was void, as having been entered without jurisdiction and without a waiver of the United States’ sovereign immunity.

On appeal, the Court of Appeals for the Sixth Circuit framed the issue as to whether the “doctrine of federal sovereign immunity deprives a state court of jurisdiction to approve a transfer of structured-settlement payment rights” when the United States owns the involved annuity. Relying on Supreme Court precedent, the court of appeals explained that the issue turned on whether the state court decision (1) “compel[s] or require[s] action from the sovereign” or (2) “expend[s] itself on the public treasury or domain, or interfere[s] with the public administration.” The court of appeals held that the Florida court’s order did both and, therefore, the court of appeals affi rmed the federal district court’s order. The court of appeals noted that, “[a]lthough a single instance of compelling the government to fi le paperwork might seem trifl ing, the core administrative concern is national in scale, and…compulsion itself is the vice that implicates federal sovereign immunity.”2