Timing of an MSA Annuity Purchase – Williams v. Liberty Mutual
As if MSAs were not problematic enough, add the timing of your MSA annuity purchase to the list of things you need to thoroughly consider and memorialize in your settlement documents. On June 6, 2012, the Court of Appeals of Louisiana upheld an award of La. R.S. 23:1201(G) penalties stemming from payments made pursuant to a settlement agreement, inclusive of an award for 24% of the annuity purchase price, because the payments were not made within 30 days of settlement approval. Mind you the settlement was approved by the Office or Workers’ Compensation on August 20, 2011 and the annuity purchased on September 28, 2011 so we are talking about 8 days here. The court did note that “while the benefits conferred by the Workers’ Compensation Act are to be liberally construed, penal statutes are to be strictly construed,” so I guess there is not much to argue about here.
In making its determination, the court followed MacFarlane v. Schneider National Bulk Carriers, Inc. (La.App. 4 Cir. 4/30/08), 984 So.2d 185, where the fourth circuit held that La.R.S. 23:1201(G) applied to a settlement which required the employer to provide for funding of a previously established MSA account. The court then distinguished Harrelson v. Arcadia (La.App. 1 Cir. 6/10/11), 68 So.3d 663, writ denied, 11-1531 (La. 10/7/11), 71 So.3d 316 by demonstrating that MSA funding was not required in that case until the suspensive condition of waiting for CMS approval was met. Because there was no such limiting language found in the settlement agreement, the court found that pursuant to Louisiana state law, Liberty was required to purchase the annuity for the future MSA deposits within 30 days of settlement approval, regardless of the fact that the first annuity payment was not due and payable to the claimant for another year.
As a licensed life agent, I know that actually funding an annuity within 30 days can be a challenge. First defense counsel must notify the insurer/employer that the settlement has been approved (many of whom will wait until the order is issued so that it can be forwarded simultaneously), then the broker must be notified and respond with funding instructions. The adjuster then must process the payment request and many carriers will take several days to produce that check through their home office in some other state and ultimately get it back to the broker to send to the life company. Now this is not to say that those with structured settlement experience can’t get this done faster; however, the point is that the process can be naturally slow because it involves so many people and to hold anyone to such a strict penalty seems excessive. We can only hope that this penalty was enforced due to the carrier owing claimant other money and for prematurely cutting off indemnity payments and failing to reimburse travel while waiting on settlement approval.
The take away lesson is to look at the state law to see how this scenario would play out in your settlements. It is abundantly clear that in decisions involving MSAs, courts have routinely used the express terms of the settlement agreement to reach their rulings. Here the settlement agreement only outlined how much was to be paid for – what, not when. Because a suspensive condition as was used in Harrelson could have managed this situation, it is apparent that the court assumed the silence to mean payment within 30 days per state law. It is understandable to not want to write a check for the annuity before you are absolutely certain that CMS and the state are in agreement; however, if you choose to wait, make sure that you make it clear in your agreement why you are waiting to fund the obligation, what the trigger is for payment, and what the alternative course of action is should that term not be met. While it seems like a lot of consideration for a routine task, I am guessing with that 24% penalty on the line, we are going to see a lot more detailed settlement agreements in Louisiana from now on.
JERRY WILLIAMSON, VERSUS, LIBERTY MUTUAL INSURANCE CO., ET AL.
COURT OF APPEAL OF LOUISIANA, THIRD CIRCUIT
12-148 (La.App. 3 Cir. 06/06/12); 2012 La. App. LEXIS 821
June 6, 2012, Decided