For years, settlement purchasers and the insurance industry fought over whether structured settlement payments could legally be assigned. One federal appeals case was seen by buyers as the final piece of the puzzle.
The ruling in Jacquette v. Continental Casualty
In Victor Jacquette; First England Funding LLC v. Continental Casualty Company (No. 99-6005), the 3rd U.S. Circuit Court of Appeals ruled that the anti-assignment clause in a structured settlement was unenforceable because it “did not expressly limit Jacquette’s power to assign.”
The case centered on Continental’s refusal to honor the assignment of Jacquette’s structured settlement, which he had sold to First England. Like many insurance companies, Continental relied on the anti-assignment clause in the settlement contract. It said the monthly payments “shall not be subject to assignment, transfer, commutation or encumbrance.” The court ruled that the clause did not affect Jacquette’s power to assign the payments.
The wording that would have made the clause enforceable
According to the court, the clause would have been valid only if it had said one of the following:
- That any assignment or transfer of the monthly payments would be considered “void” or “invalid.”
- That the “non-assigning party shall not recognize any such assignment.”
In other words, a clause that merely says payments are not subject to assignment limits the right to assign, but not the power to do it. To stop an assignment, the clause has to say the assignment itself has no effect.
What buyers saw in the decision
Peachtree Settlement Funding, a Georgia company that buys structured settlements and lottery receivables, saw the case as a possible turning point in its industry’s legal battle with insurers.
“This is the case we have been waiting for,” said Tim Trankina, Peachtree’s CEO at the time. “The battle against the insurance industry is now reaching a pinnacle, and the repercussions from this case may be an opening of the floodgates. By ruling that an ‘anti-assignment’ clause is unenforceable, the courts are helping to create greater stability, which will ultimately benefit the consumer through reduced transaction costs.”
Trankina pointed to Judge Weiss’s concurring opinion as perhaps the most important part of the ruling. “What makes this case so substantial in our minds is that it affirmatively establishes the rights of the consumer over his property,” he said.
“Structured settlements can be a good option for consumers, but they do not allow for flexibility if the victim’s needs change. A payment schedule that may have made sense when the victim was 25 years old may not make sense seven years later when that person gets married, starts a family and needs $20,000 for a down payment on a home. Life’s changing circumstances require that there be some flexibility, and that is where settlement purchasers come in.”
