Bill Would Regulate Settlement Market
By Donald P. Baker
RICHMOND, Feb. 25 –– Juanita Hicks successfully sued a Roanoke hospital and a physician after her husband, who had been badly beaten in a fight, died shortly after he was discharged from the hospital.
The young widow -- she was 20 at the time, with two young children -- agreed to take part of the settlement in cash and the rest in annual payments of $4,000 for as long as she lived. But five years later, her rented house burned, and because she had no insurance on its contents, she was broke again.
That's when Hicks saw a television commercial by a company in an unregulated industry that is the subject of an intense lobbying battle in the Virginia General Assembly.
The company advertised that it would "buy" her future payments with cash. A short time later, Hicks had struck a deal: In return for signing over $40,000 worth of annual payments, the company wrote her a check for almost $30,000.
For Hicks, the check represented another chance. The money, she said, "kept us floating" during a difficult time, letting her pay off some debts, buy a dishwasher and put a little money away.
But the insurance companies that set up so-called structured settlements of long-term payments are asking lawmakers across the country to step in to protect people from giving up too much when they sell out for cash. Companies such as Richmond-based GE Financial Assurance -- a major issuer of the annual annuities -- want a requirement that judges sign off on such deals.
The state Senate today approved a bill, to be returned to the House for confirmation, that would require such judicial approval and would force the companies to disclose how much money they are making on the deals and how much the claimants are giving up. A similar bill is expected to be introduced in Maryland this legislative session.
The companies that provide the lump-sum payments concede that some regulation of their burgeoning industry may be necessary -- they have agreed in Virginia to disclose their charges to customers -- but they contend that the big insurers are really trying to put them out of a business that helps people in financial distress.
There is a lot at stake. One estimate is that 50,000 people last year opted to sell future payments totaling some $5 billion for cash. Many of those people are attracted to the companies by commercials, some of which feature Judge Wapner of the old television show People's Court.
So far, three states -- Illinois, Kentucky and Connecticut -- have imposed regulations on the advance-payment companies, and others including Virginia are considering them.
The companies that provide the annual annuities say that if the advance payments proliferate, recipients also might be forced to pay taxes that were waived when Congress authorized the long-term settlements in 1982. The Internal Revenue Service has ruled that such periodic payments, which are tax-free to the recipients, cannot be "accelerated, deferred, increased or decreased."
The deal was made tax-free to encourage the claimants -- who often were badly injured and needed the money to pay for medical treatment and drugs for the rest of their lives -- to accept a long-term settlement instead of taking a cash windfall that might be spent unwisely.
Jeffrey R. Grieco, managing director of Stone Street Capital, of Bethesda, said his firm provides "a service that people want" in making the lump-sum payments.
Grieco said many companies, including his, got into the business after first offering similar deals to lottery winners who change their minds and decide they want instant cash instead of payments stretched out over 20 years.
Sen. Richard L. Saslaw (D-Fairfax) said he has concluded that "we must set up some ground rules, but we don't want to put these people out of business. There is no question they provide services that some people want."
That was the message that was delivered to legislators by Hicks, now 28 and the mother of three, who testified about the fresh start she made with the cash from Peachtree Settlements Inc., of Atlanta.
"For the first time in eight years," she said, "I'm able to do some of the little things that make life easier."
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