Best Laid Plans…How An Anti-Assignment Provision May Help To Preserve Your Good Intentions

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October 10, 2013
Carmel Cosgrave
SmithAmundsen Health Care Alert

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The case is over and after tough negotiations, the parties have agreed to a structured settlement. You believe you have reached the best possible agreement for your organization and hopefully provided long-term security for the plaintiff and their family. What if shortly after, you found that a portion, perhaps a substantial portion, of the money you thought would be paid to meet the plaintiff’s needs was now being paid to a third party you have never even met.

“Factoring companies” are organizations that work by agreeing to pay a plaintiff a lump-sum now in return for the right to future structured settlement payments. A recent Appellate Court decision, Settlement Funding, LLC v. Brenston, 2013 IL App (4th) 120869, explained that the Illinois legislature was concerned over the growing number of such companies “…using the allure of quick and easy money to induce settlement recipients to cash out their future payments at substantial discounts…” thereby depriving plaintiffs of the much needed long-term security these agreements provide.

The legislature responded to these concerns by enacting the Structured Settlement Protection Act of 2004 (213 ILCS 153/1 et seq) (the act). The act provides that a court may order transfer of the right to future payments under an existing structured settlement plan if 1) the proposed transfer is in the best interest of the payee; 2) the payee has been advised in writing to seek independent professional advice and received it or knowingly waived it in writing; and 3) the transfer does not contravene any applicable statute. If these requirements and other formalities are met, the court has the authority to approve the transfer.

In Brenston, Settlement Funding (SF), a factoring company, filed a petition to transfer structured settlement payments the plaintiff was to receive from the University of Illinois Chicago Hospitals, after a medical negligence action, to them in exchange for a lump-sum payment to the plaintiff. The “pro-se” plaintiff signed an affidavit stating her intention to transfer her right to future payment so that she could pay off her mortgage, school loans and other bills. The suggested pay-out resulted in a substantial loss of funds to the plaintiff over the life of the agreement. The Circuit Court of Sangamon County approved the petition and ordered the transfer. However three years later, the plaintiff now represented by counsel, brought an action to void the prior order on the grounds that SF had violated the act and asserting that anti-assignment clauses in the agreements prevented the court from exercising jurisdiction over the petition for transfer. The Circuit Court dismissed the plaintiff’s motions on multiple grounds and the plaintiff appealed. The Fourth District Appellate Court found that the two original settlement agreements in the underlying medical negligence action had strict anti-assignment clause language. According to the court, SF had misrepresented a number of the facts related to their compliance with the act and had neglected to mention the existence of the anti-assignment clauses entirely.

The decision held that the lower court had a duty to enforce the anti-assignment provisions of the settlement agreements. Because of these provisions, the act did not apply and therefore the lower court had no authority to approve the petition under the act. The court concluded that SF had perpetrated fraud such that the “judicial system could not perform the impartial task of adjudicating cases.” As the Circuit Court was without authority and the plaintiff, via the anti-assignment clause, did not have the right to enter into an agreement with SF, the court reversed and ordered that the plaintiff be restored to her previous economic position.

All providers and claims personnel know that there are times when money will be paid on behalf of their organization or insured. The insertion of an anti-assignment clause in your settlement agreement may prevent the frivolous or even fraudulent, transfer of that money to a third party by an unwary plaintiff.