HBA-DMH C.S.S.B. 277 77(R) BILL ANALYSIS Office of House Bill AnalysisC.S.S.B. 277 By: Harris Civil Practices 4/20/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Structured settlements are currently used to provide long-term financial security to persons who have suffered serious injuries. A lump-sum payment for compensation of serious personal injuries may be quickly dissipated, leaving the injured person to depend on state and federal assistance programs. Specialized financing firms, sometimes known as "factoring companies," have promoted unregulated secondary market purchases of structured settlements payments from injured persons, often at significant discounts. C.S.S.B. 277 regulates transfers of structured settlement payments while upholding the payment's fundamental purpose of ensuring long-term payments to injured victims. 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. ANALYSIS C.S.S.B. 277 amends the Civil Practice and Remedies Code to establish the Structured Settlement Protection Act (Sec. 141.001). The bill requires a transferee to provide to a payee a separate disclosure statement that contains specified statements at least three days before the date on which the payee signs a transfer agreement (Sec. 141.003). The bill prohibits any direct or indirect transfer of structured settlement payment rights (rights) from being effective and any structured settlement obligor (obligor) or annuity issuer (issuer) from being required to make any payment directly or indirectly to any transferee of rights unless the transfer has been approved in advance in a final court order based on express findings by the court (Sec. 141.004). Following a transfer of rights, the bill requires the obligor and the issuer, as to all parties except the transferee, to be discharged and released from any and all liability for the transferred payments. The bill requires the transferee to be liable to the obligor and the issuer under certain conditions and requires the transferee to be liable to the payee under similar conditions. Also following the transfer of rights, the bill authorizes neither the obligor nor the issuer to be required to divide any periodic payment between the payee and any transferee or assignee or between two or more transferees or assignees and authorizes any further transfer of rights by the payee to be made only after compliance with all of the requirements of the Act (Sec. 141.005). C.S.S.B. 277 requires an application under the Act for approval of a transfer of rights to be made by the transferee and to be brought in the court. At least 20 days before the date of the scheduled hearing on any application for approval of a transfer of rights, the bill requires the transferee to file with the court and serve on all interested parties a notice of the proposed transfer, the application for authorization, and certain other information with the notice (Sec. 141.006). The bill prohibits any provisions of the Act from being waived by any payee. The bill requires that any transfer agreement entered into by a payee who resides in this state must provide that disputes under the transfer agreement be determined in and under the laws of this state. The bill prohibits the transfer agreement from authorizing the transferee or any other party to confess judgment or consent to entry of judgment against the payee. The bill prohibits the transfer of rights from extending to any payments that are life-contingent unless, prior to the date on which the payee signs the transfer agreement, the transferee has established and agreed to maintain procedures reasonably satisfactory to the obligor and the issuer for periodically confirming the payee's survival and giving the obligor and the issuer prompt written notice in the event of the payee's death. The bill prohibits a payee who proposes to make a transfer of rights from incurring any penalty, forfeiting any application fee or other payment, or otherwise incurring any liability to the proposed transferee or any assignee based on any failure of the transfer to satisfy the conditions of the Act. Nothing contained in the Act may be construed to authorize any transfer of rights in contravention of any law or to imply that any transfer under a transfer agreement entered into before the effective date of the Act is valid or invalid. Compliance with the requirements of disclosure to a payee and fulfillment of the conditions of an approval of transfers of rights are solely the responsibility of the transferee in any transfer of rights, and neither the obligor nor the issuer bear any responsibility for, or any liability arising from, noncompliance with the requirements or failure to fulfill the conditions (Sec. 141.007). EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.S.B. 277 expands the definition of "court" to also mean a statutory county court or a district court located in the county in which the payee resides, if the court of original jurisdiction that authorized or approved a structured settlement no longer has jurisdiction to approve a transfer of payment rights under the structured settlement. The substitute further modifies the original bill by requiring, following the transfer of structured settlement payment rights, a transferee to be liable to a payee if the transfer contravenes the terms of the structured settlement, for any taxes incurred by the payee as a consequence of the transfer and for any other liabilities or costs, arising as a consequence of the transferee's failure to comply with the Structured Settlement Protection Act.