Most structured settlement agreements and/or related annuity contracts contain “anti-assignment” clauses – language asserting that the rights to the future payments cannot be assigned or transferred away. At first glance, these clauses seem to preclude assignment and factoring of structured settlement payments. Yet, the entire structured settlement factoring industry is based on the principle that such payments can be assigned. How can someone sell their structured settlement payments when the contracts say they cannot?

First, the law generally disfavors any restrictions on alienability, or people’s rights to do what they want with their property. The right to receive structured settlement payments belongs to the structured settlement recipient. When the former personal injury plaintiff agreed to settle his claims and enter into the periodic payment agreement, he received the right to the future payments. That “right” is property, just like a car or house. As a matter of public policy, generally, the law will favor the owner’s ability to sell or transfer his own property.

Second, under most state’s common laws, these restrictive clauses are considered simply part of the contract, like any other. Therefore, they do not prevent an assignment, but the violation thereof may give rise to a breach of contract action. This simplistic sounding statement is extraordinarily significant. A necessary element of any breach of contract lawsuit is proof of damages resulting from the breach. If a contract or part thereof is breached, without any party suffering a loss, then there can be no action for breach of contract. In other words, if the other party to the structured settlement agreement, typically an insurance company, cannot show that they are damaged by the assignment, then the anti-assignment language has no effect. For the insurance company issuing the checks, the assignment, or factoring, of structured settlement payment rights, is really equivalent to a change of address. In most cases, there is no damage caused by the assignment, and therefore no breach of contract.

Finally, today all structured settlement factoring transactions are accomplished pursuant to federal and state laws, and all must be approved by a court. Although not explicit, many courts have found that these laws, enacted for the most part since 1999, trump the contract’s anti-assignment language. These laws recognize the structured settlement recipient’s right to sell his property, given certain guidelines and protections.

For the same reasons, except for the federal and state statutes, single premium annuities and/or annuity payment rights that are not part of a structured settlement are also generally assignable, even though they may contain the same anti-assignment restrictions mentioned above. Because no court approval is required to sell these payments, the annuity purchase can be accomplished much faster.

Obviously, this has been a general discussion of the subject, and volumes could be filed with the details and exceptions to everything that has been said. Anyone interested in more detail should contact me at mbracy@setcap.com. I’d be happy to discuss this with you further.

Click on the following links to learn more about Settlement Capital, our Structured Settlement Factoring Program and our Single Premium Annuity Financing Program or contact Kirk D. Hughes directly.