1-1 By: Harris S.B. No. 277 1-2 (In the Senate - Filed January 18, 2001; January 22, 2001, 1-3 read first time and referred to Committee on Jurisprudence; 1-4 March 28, 2001, reported adversely, with favorable Committee 1-5 Substitute by the following vote: Yeas 7, Nays 0; March 28, 2001, 1-6 sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 277 By: Duncan 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to the transfer, sale, or assignment of structured 1-11 settlements. 1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-13 SECTION 1. Title 6, Civil Practice and Remedies Code, is 1-14 amended by adding Chapter 141 to read as follows: 1-15 CHAPTER 141. STRUCTURED SETTLEMENT PROTECTION ACT 1-16 Sec. 141.001. SHORT TITLE. This chapter may be cited as the 1-17 Structured Settlement Protection Act. 1-18 Sec. 141.002. DEFINITIONS. In this chapter: 1-19 (1) "Annuity issuer" means an insurer that has issued 1-20 a contract to fund periodic payments under a structured settlement. 1-21 (2) "Court" means the court of original jurisdiction 1-22 that authorized or approved a structured settlement. 1-23 (3) "Dependents" includes a payee's spouse, minor 1-24 children, and all other persons for whom the payee is legally 1-25 obligated to provide support, including alimony. 1-26 (4) "Discounted present value" means the present value 1-27 of future payments determined by discounting the payments to the 1-28 present using the most recently published Applicable Federal Rate 1-29 for determining the present value of an annuity, as issued by the 1-30 United States Internal Revenue Service. 1-31 (5) "Gross advance amount" means the sum payable to 1-32 the payee or for the payee's account as consideration for a 1-33 transfer of structured settlement payment rights before any 1-34 reductions for transfer expenses or other deductions to be made 1-35 from the consideration. 1-36 (6) "Independent professional advice" means advice of 1-37 an attorney, certified public accountant, actuary, or other 1-38 licensed professional adviser. 1-39 (7) "Interested party" means, with respect to any 1-40 structured settlement: 1-41 (A) the payee; 1-42 (B) any beneficiary irrevocably designated under 1-43 the annuity contract to receive payments following the payee's 1-44 death; 1-45 (C) the annuity issuer; 1-46 (D) the structured settlement obligor; and 1-47 (E) any other party that has continuing rights 1-48 or obligations under the structured settlement. 1-49 (8) "Net advance amount" means the gross advance 1-50 amount less the aggregate amount of the actual and estimated 1-51 transfer expenses required to be disclosed under Section 1-52 141.003(5). 1-53 (9) "Payee" means an individual who is receiving 1-54 tax-free payments under a structured settlement and proposes to 1-55 transfer payment rights under the structured settlement. 1-56 (10) "Periodic payments" includes both recurring 1-57 payments and scheduled future lump-sum payments. 1-58 (11) "Qualified assignment agreement" means an 1-59 agreement providing for a qualified assignment within the meaning 1-60 of Section 130, Internal Revenue Code of 1986 (26 U.S.C. Section 1-61 130), as amended. 1-62 (12) "Settled claim" means the original tort claim or 1-63 workers' compensation claim resolved by a structured settlement. 1-64 (13) "Structured settlement" means an arrangement for 2-1 periodic payment of damages for personal injuries or sickness 2-2 established by settlement or judgment in resolution of a tort claim 2-3 or for periodic payments in settlement of a workers' compensation 2-4 claim. 2-5 (14) "Structured settlement agreement" means the 2-6 agreement, judgment, stipulation, or release embodying the terms of 2-7 a structured settlement. 2-8 (15) "Structured settlement obligor" means, with 2-9 respect to any structured settlement, the party that has the 2-10 continuing obligation to make periodic payments to the payee under 2-11 a structured settlement agreement or a qualified assignment 2-12 agreement. 2-13 (16) "Structured settlement payment rights" means 2-14 rights to receive periodic payments under a structured settlement, 2-15 whether from the structured settlement obligor or the annuity 2-16 issuer, if: 2-17 (A) the payee is domiciled in or the domicile or 2-18 principal place of business of the structured settlement obligor or 2-19 the annuity issuer is located in this state; 2-20 (B) the structured settlement agreement was 2-21 authorized or approved by a court located in this state; or 2-22 (C) the structured settlement agreement is 2-23 expressly governed by the laws of this state. 2-24 (17) "Terms of the structured settlement" include, 2-25 with respect to any structured settlement, the terms of the 2-26 structured settlement agreement, the annuity contract, any 2-27 qualified assignment agreement, and any order or other approval of 2-28 the court. 2-29 (18) "Transfer" means any sale, assignment, pledge, 2-30 hypothecation, or other alienation or encumbrance of structured 2-31 settlement payment rights made by a payee for consideration, except 2-32 that the term does not include the creation or perfection of a 2-33 security interest in structured settlement payment rights under a 2-34 blanket security agreement entered into with an insured depository 2-35 institution, in the absence of any action to redirect the 2-36 structured settlement payments to the insured depository 2-37 institution, or its agent or successor in interest, or to enforce 2-38 the blanket security interest against the structured settlement 2-39 payment rights. 2-40 (19) "Transfer agreement" means the agreement 2-41 providing for a transfer of structured settlement payment rights. 2-42 (20) "Transfer expenses" means all the expenses of a 2-43 transfer that are required under the transfer agreement to be paid 2-44 by the payee or deducted from the gross advance amount, including 2-45 court filing fees, attorney's fees, escrow fees, lien recording 2-46 fees, judgment and lien search fees, finders' fees, commissions, 2-47 and other payments to a broker or other intermediary, except that 2-48 the term does not include preexisting obligations of the payee 2-49 payable for the payee's account from the proceeds of a transfer. 2-50 (21) "Transferee" means a party acquiring or proposing 2-51 to acquire structured settlement payment rights through a transfer. 2-52 Sec. 141.003. REQUIRED DISCLOSURES TO PAYEE. At least three 2-53 days before the date on which the payee signs a transfer agreement, 2-54 the transferee shall provide to the payee a separate disclosure 2-55 statement, in bold type at least 14 points in size, that states: 2-56 (1) the amounts and due dates of the structured 2-57 settlement payments to be transferred; 2-58 (2) the aggregate amount of the payments; 2-59 (3) the discounted present value of the payments to be 2-60 transferred, which shall be identified as the "calculation of 2-61 current value of the transferred structured settlement payments 2-62 under federal standards for valuing annuities," and the amount of 2-63 the Applicable Federal Rate used in calculating the discounted 2-64 present value; 2-65 (4) the gross advance amount; 2-66 (5) an itemized listing of all applicable transfer 2-67 expenses, other than attorney's fees and related disbursements 2-68 payable in connection with the transferee's application for 2-69 approval of the transfer, and the transferee's best estimate of the 3-1 amount of those expenses; 3-2 (6) the net advance amount; 3-3 (7) the amount of any penalties or liquidated damages 3-4 payable by the payee in the event of any breach of the transfer 3-5 agreement by the payee; and 3-6 (8) a statement that the payee has the right to cancel 3-7 the transfer agreement, without penalty or further obligation, not 3-8 later than the third business day after the date the agreement is 3-9 signed by the payee. 3-10 Sec. 141.004. APPROVAL OF TRANSFERS OF STRUCTURED SETTLEMENT 3-11 PAYMENT RIGHTS. No direct or indirect transfer of structured 3-12 settlement payment rights shall be effective and no structured 3-13 settlement obligor or annuity issuer shall be required to make any 3-14 payment directly or indirectly to any transferee of structured 3-15 settlement payment rights unless the transfer has been approved in 3-16 advance in a final court order based on express findings by the 3-17 court that: 3-18 (1) the transfer is in the best interest of the payee, 3-19 taking into account the welfare and support of the payee's 3-20 dependents; 3-21 (2) the payee has been advised in writing by the 3-22 transferee to seek independent professional advice regarding the 3-23 transfer and has either received the advice or knowingly waived the 3-24 advice in writing; and 3-25 (3) the transfer does not contravene any applicable 3-26 statute or an order of any court or other governmental authority. 3-27 Sec. 141.005. EFFECTS OF TRANSFER OF STRUCTURED SETTLEMENT 3-28 PAYMENT RIGHTS. Following a transfer of structured settlement 3-29 payment rights under this chapter: 3-30 (1) the structured settlement obligor and the annuity 3-31 issuer shall, as to all parties except the transferee, be 3-32 discharged and released from any and all liability for the 3-33 transferred payments; 3-34 (2) the transferee shall be liable to the structured 3-35 settlement obligor and the annuity issuer: 3-36 (A) if the transfer contravenes the terms of the 3-37 structured settlement, for any taxes incurred by the parties as a 3-38 consequence of the transfer; and 3-39 (B) for any other liabilities or costs, 3-40 including reasonable costs and attorney's fees, arising from 3-41 compliance by the parties with the order of the court or arising as 3-42 a consequence of the transferee's failure to comply with this 3-43 chapter; 3-44 (3) neither the structured settlement obligor nor the 3-45 annuity issuer may be required to divide any periodic payment 3-46 between the payee and any transferee or assignee or between two or 3-47 more transferees or assignees; and 3-48 (4) any further transfer of structured settlement 3-49 payment rights by the payee may be made only after compliance with 3-50 all of the requirements of this chapter. 3-51 Sec. 141.006. PROCEDURE FOR APPROVAL OF TRANSFERS. (a) An 3-52 application under this chapter for approval of a transfer of 3-53 structured settlement payment rights shall be made by the 3-54 transferee and shall be brought in the court. 3-55 (b) At least 20 days before the date of the scheduled 3-56 hearing on any application for approval of a transfer of structured 3-57 settlement payment rights under Section 141.004, the transferee 3-58 shall file with the court and serve on all interested parties a 3-59 notice of the proposed transfer and the application for 3-60 authorization, including with the notice: 3-61 (1) a copy of the transferee's application; 3-62 (2) a copy of the transfer agreement; 3-63 (3) a copy of the disclosure statement required under 3-64 Section 141.003; 3-65 (4) a listing of each of the payee's dependents, 3-66 together with each dependent's age; 3-67 (5) notice that any interested party is entitled to 3-68 support, oppose, or otherwise respond to the transferee's 3-69 application, either in person or by counsel, by submitting written 4-1 comments to the court or by participating in the hearing; and 4-2 (6) notice of the time and place of the hearing and 4-3 notification of the manner in which and the time by which written 4-4 responses to the application must be filed to be considered by the 4-5 court. 4-6 (c) Written responses to the application under Subsection 4-7 (b)(6) must be filed on or after the 15th day after the date the 4-8 transferee's notice is served. 4-9 Sec. 141.007. GENERAL PROVISIONS; CONSTRUCTION. (a) The 4-10 provisions of this chapter may not be waived by any payee. 4-11 (b) Any transfer agreement entered into by a payee who 4-12 resides in this state must provide that disputes under the transfer 4-13 agreement, including any claim that the payee has breached the 4-14 agreement, shall be determined in and under the laws of this state. 4-15 The transfer agreement may not authorize the transferee or any 4-16 other party to confess judgment or consent to entry of judgment 4-17 against the payee. 4-18 (c) Transfer of structured settlement payment rights may not 4-19 extend to any payments that are life-contingent unless, prior to 4-20 the date on which the payee signs the transfer agreement, the 4-21 transferee has established and agreed to maintain procedures 4-22 reasonably satisfactory to the structured settlement obligor and 4-23 the annuity issuer for: 4-24 (1) periodically confirming the payee's survival; and 4-25 (2) giving the structured settlement obligor and the 4-26 annuity issuer prompt written notice in the event of the payee's 4-27 death. 4-28 (d) A payee who proposes to make a transfer of structured 4-29 settlement payment rights may not incur any penalty, forfeit any 4-30 application fee or other payment, or otherwise incur any liability 4-31 to the proposed transferee or any assignee based on any failure of 4-32 the transfer to satisfy the conditions of this chapter. 4-33 (e) Nothing contained in this chapter may be construed to 4-34 authorize any transfer of structured settlement payment rights in 4-35 contravention of any law or to imply that any transfer under a 4-36 transfer agreement entered into before the effective date of this 4-37 chapter is valid or invalid. 4-38 (f) Compliance with the requirements in Section 141.003 and 4-39 fulfillment of the conditions in Section 141.004 are solely the 4-40 responsibility of the transferee in any transfer of structured 4-41 settlement payment rights, and neither the structured settlement 4-42 obligor nor the annuity issuer bear any responsibility for, or any 4-43 liability arising from, noncompliance with the requirements or 4-44 failure to fulfill the conditions. 4-45 SECTION 2. This Act takes effect September 1, 2001, and 4-46 applies only to a transfer of structured settlement payment rights 4-47 under a transfer agreement entered into on or after that date. 4-48 * * * * *