HBA-NIK, DMD C.S.H.B. 2691 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2691 By: Counts Civil Practices 4/29/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, a lump sum payment in compensation for serious personal injuries may be dissipated, leaving the injury victim dependent on state and federal assistance programs. However, a structured settlement permits an injury victim to continuously receive assured tax-free payments. Since structured settlements are intended to protect injury victims against dissipation risks and potential tax liability, a structured settlement recipient is prohibited by contract from transferring the payments and ownership of the annuity contract is vested in insurance companies or their affiliates. C.S.H.B. 2691 creates Chapter 140 (Structured Settlements) in the Civil Practice and Remedies Code. This bill sets conditions for the transfer of structured settlement payment rights (payment rights). This bill requires an application for transfer of payment rights to be made by the transfer recipient and authorizes the application to be brought before a proper authority. C.S.H.B. 2691 requires the transfer recipient, within a specified period, to provide notice of the proposed transfer to certain parties. This bill requires that the settlement recipient who proposes the transfer to incur no penalty or pay no application fee. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Title 6, Civil Practice and Remedies Code, by adding Chapter 140, as follows: CHAPTER 140. STRUCTURED SETTLEMENTS Sec. 140.001. DEFINITIONS. Defines "annuity issuer," "interested party," "periodic payments," "qualified assignment agreement," "responsible administrative authority," "settled claim," "settlement recipient," "structured settlement," "structured settlement agreement," "structured settlement obligor," "structured settlement payment rights," "transfer," "transfer recipient,"and "transfer agreement." Sec. 140.002. TRANSFERS OF STRUCTURED SETTLEMENTS ARISING FROM CERTAIN ACTIONS. (a) Provides that this section applies to any transfer of structured settlement payment rights established by a judgment or settled claim arising out of a civil action filed in a federal court, or a court of this state or another state, or an administrative proceeding of another state to resolve a claim for workers' compensation. (b) Prohibits a settlement recipient from entering into a structured settlement transfer agreement and transferring structured settlement payment rights to a transfer recipient before the later of the fifth anniversary of the date of the original structured settlement, or the date that the settlement recipient becomes 25 years of age. (c) Provides that a direct or indirect transfer of structured settlement payment rights made before the date specified by Subsection (b) is not effective and a structured settlement obligor or annuity issuer is not required to make any payment directly or indirectly to a transfer recipient, unless the transfer has been approved by the court of original jurisdiction, a statutory county court, or a responsible administrative authority, based on certain specified findings by the court or responsible administrative authority. Sec. 140.003. APPROVAL OF TRANSFERS. (a) Requires an application for authorization of a transfer of structured settlement payment rights to be made by the transfer recipient and authorizes the application to be brought in the appropriate state court of original jurisdiction, a statutory county court in the county in which the settlement recipient resides, or before any responsible administrative authority which approved the structured settlement agreement. (b) Requires the transfer recipient, at least 20 days before the date of the scheduled hearing on an application for authorization of a transfer of structured settlement payment rights under Section 140.002, to file with the court or responsible administrative authority and serve on any other government authority which previously approved the structured settlement, and each interested party, a notice of the proposed transfer and the application for its authorization. Specifies information to be included in the notice. (c) Prohibits the deadline provided for written responses to the application under Subsection (b)(4) from being before the 15th day after the date the notice is served. Sec. 140.004. DUTY TO INDEMNIFY. Defines "loss." Requires a transfer recipient to indemnify and hold harmless a settlement recipient against loss arising out of the transfer of structured settlement payment rights. Provides that the duty to indemnify applies without regard to the manner in which the action is concluded, and is in addition to any duty to indemnify established by law, contract, or otherwise. Requires a settlement recipient eligible for indemnification to give reasonable notice to the transfer recipient of any claim that the transfer of the structured settlement payment rights has resulted in additional taxes, penalties, or interest to the settlement recipient, annuity issuer, or settlement obligor, unless the transfer recipient has been served as a party or otherwise has actual notice of the action in which the taxes, penalties, or interest are imposed. Sec. 140.005. TRANSFERS OF STRUCTURED SETTLEMENTS NOT ARISING FROM JUDICIAL OR ADMINISTRATIVE ACTION. (a) Provides that this section applies to a transfer of structured settlement payment rights to which Section 140.002 does not apply. (b) Provides that a direct or indirect transfer of structured settlement payment rights to which this section applies is not effective, and a structured settlement obligor or annuity issuer is not required to make a payment directly or indirectly to any transfer recipient of structured settlement payment rights, unless the transfer and transfer recipient has complied with certain requirements. (c) Authorizes a settlement recipient of a structured settlement to which this section applies to rescind and cancel without penalty or further obligation, an agreement to transfer structured settlement payment rights before the end of the seventh business day after the date on which the agreement is made. Authorizes the settlement recipient to exercise the right to rescind and cancel the agreement by giving notice to the transfer recipient by registered mail postmarked not later than the seventh day after the date that the agreement is made. (d) Provides that a transfer to which this section applies is void and unenforceable unless the requirements of this section are satisfied. Sec. 140.006. WAIVER; PENALTIES. Prohibits the provisions of this chapter from being waived. Prohibits a settlement recipient who proposes to make a transfer of structured settlement payment rights from incurring any penalty, forfeit any application fee or other payment, or otherwise incur any liability to the proposed transfer recipient based on any failure of such transfer to satisfy the conditions of Section 140.002 of this chapter. Sec. 140.007. CONSTRUCTION. Prohibits this chapter from being construed to authorize any transfer of structured settlement payment rights in contravention of applicable law or to give effect to any transfer of structured settlement rights that is invalid under applicable law. SECTION 2. Amends Section 25.0003, Government Code, by adding Subsection (f), to provide that a statutory county court has jurisdiction in cases brought under Chapter 140 (Structured Settlements), Civil Practice and Remedies Code. SECTION 3. Effective date: September 1, 1999. Makes application of this Act prospective. SECTION 4. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2691 modifies SECTION 1 in proposed Section 140.001 in the original bill by redefining "interested party" to be the settlement recipient, rather than payee, and a beneficiary irrevocably designated under the annuity contract to receive payments following the settlement recipient's death, rather than the payee's death, and deletes the annuity issuer, the structured settlement obligor, and any other party that has continuing rights or obligations under such structured settlement. This substitute modifies the definition of "settlement claim" to be the original tort claim or workers' compensation claim resolved by a structured settlement, rather than payment. Makes conforming changes. The substitute adds a term "settlement recipient" to mean an individual who is receiving tax-free payments under a structured settlement agreement and proposes to transfer payment rights under the agreement. The substitute modifies the term "transferee" in the original as "transfer recipient" in the substitute, using proposed text for the definition. The substitute also removes the definitions of "applicable law," "dependents," "discounted present value," "favorable tax determination," "independent professional advice," "payee," and "terms of the structured settlement." C.S.H.B. 2691 modifies proposed Section 140.002 of the original bill, by changing the title from "Conditions to Transfers of Structured Settlement Payment Rights," to "Transfers of Structured Settlements Arising From Certain Actions." The substitute adds new text to this section as follows: (a) Provides that this section applies to any transfer of structured settlement payment rights established by a judgment or settled claim arising out of a civil action filed in a federal court, or a court of this state or another state, or an administrative proceeding of another state to resolve a claim for workers' compensation. (b) Prohibits a settlement recipient from entering into a structured settlement transfer agreement and transferring structured settlement payment rights to a transfer recipient before the later of the fifth anniversary of the date of the original structured settlement, or the date that the settlement recipient becomes 25 years of age. The substitute redesignates text from proposed Section 140.002 of the original bill to Subsection (c) of the substitute. The substitute reorganizes the text for the purpose of clarity. The substitute also removes the requirement that the disclosure statement contain the quotient obtained by dividing the net payment amount by the discounted present value of payments. The substitute also removes Subdivisions (3)-(5) of this section of the original bill which enumerated findings relating to the means of the payee, professional advice regarding specified implications of the transfer, and the specified terms of the structured settlement. The substitute adds a new Subdivision (3) to provide that the court or responsible authority find the transfer to be fair, reasonable, and in the best interest of the settlement recipient. Redesignates Subdivision (6) to (4). C.S.H.B. 2691 modifies proposed Section 140.003 of the original bill by redesignating Subsections (1)-(3) as (a)-(c). The substitute modifies the original by specifying that an application is under Section 140.002, rather than this chapter. The substitute modifies Subsection (a) by removing text specifying the venue in which authorization of a transfer may be brought before a court to be the county in which the payee, whose presence in this state will trigger application of this chapter, resides or in any court or before any responsible administrative authority which approved the structured settlement agreement. The substitute adds that the application may be brought in a statutory county court in the county in which the settlement recipient resides, or before any responsible administrative authority that approved the structured settlement agreement. The substitute modifies Subsection (b) by removing the requirement of the transferee to serve a notice and application on the Office of the Attorney General, as well as the requirement for the notice to include a copy of the transfer agreement. In Subdivision (4), the substitute removes the requirement in Subdivision (4) that the application must be filed not less than 15 days after service of the transferee's notice. The substitute adds Subsection (c) to prohibit the deadline provided for written responses to the application under Subsection (b)(4) from being before the 15th day after the date the notice is served, and removes Subsection (3) of the original bill which required the Office of the Attorney General to have standing to raise, appear and be heard on any matter relating to an application for authorization of a transfer of structured settlement payment rights under this chapter. C.S.H.B. 2691 redesignates proposed Section 140.004 of the original bill as Section 140.006 of the substitute. The substitute changes the title from "No Waiver; No Penalties" to "Waiver; Penalties." Redesignates Subsections (1) and (2) in the original as (a) and (b) in the substitute. Makes a conforming change. C.S.H.B. 2691 redesignates proposed Section 140.005 of the original bill as Section 140.007 of the substitute. C.S.H.B. 2691 adds new Section 140.004. For an in-depth analysis, please see the Section-bySection Analysis in this document. C.S.H.B. 2691 adds new Section 140.005. For an in-depth analysis, please see the Section-bySection Analysis in this document. The substitute adds a new SECTION 2 to amend Section 25.0003, Government Code, by adding Subsection (f) to provide that a statutory county court has jurisdiction in cases brought under Chapter 140 (Structured Settlements), Civil Practice and Remedies Code. C.S.H.B. 2691 redesignates SECTION 2 of the original as SECTION 3 and makes nonsubstantive changes for clarification. C.S.H.B. 2691 redesignates SECTION 3 (emergency clause) of the original as SECTION 4 of the substitute.