Building with Columns

U.S. still obligated to make structured settlement periodic payments when annuity company had a shortfall

The United States remains obligated to make periodic payments even though it paid for annuities to make those structured settlement payments.  This situation arose because the annuity issuer, Executive Life Insurance Company of New York, failed to make all of the future payments.

In Langkamp v. U.S. the United States Court of Appeals reversed and remanded the United States Court of Federal Claims’ decision that the U.S. had no continuing liability for future structured settlement payments.

Due to financial difficulties of the annuity issuer, the plaintiff suffered a shortfall of approximately 60% of the future structured settlement payments.  The lower court denied Langkamp’s claim for damages saying that the disbursement of funds and the purchase of the annuities was the only obligation of the U.S.  The U.S. Court of Appeals, however reversed this stating in part that, the STIPULATION FOR COMPROMISE SETTLEMENT says that the U.S. will pay “… the sum of $239,425.45 as an upfront payment…and a structured settlement for the benefit of Trevor Landkamp”.

The court of appeals further reasoned that, “Therefore, the fact that the Settlement Agreement recites that the United States ‘will pay… a structured settlement,’ … means that the government is required to make payments over time, not that another named third-party will have sole responsibility for the future periodic payments.”

Judge Mayer of the court of appeals further said that, “But the fact that payments under a structure settlement agreement can be funded through the purchase of an annuity does not resolve the dispositive issue presented here – which is whether the specific language of the agreement imposes an obligation on a defendant to make periodic payments independent of such a purchase.”

The court of appeals then concluded that, “Considered as a whole, the Settlement Agreement plainly ties the government’s release from liability to its promise to disburse both an initial cash payment and specified future structured settlement payments.

For structured settlements using an annuity, the U.S. has not always followed the usual procedure of obligating itself to make periodic payments in a settlement agreement, and then assigning that obligation to an assignment company.  The assignment company then normally purchases an annuity from a related life insurance company to make the future payments.  The annuity is issued and pays the injured person.  The obligation remains with the assignment company which is usually guaranteed by the annuity company.  This is the standard transaction for the vast majority of structured settlements using annuities.

In contrast, some settlement agreements have said that the U.S. will, “agree to purchase annuities”, as in Shaw v. U.S. 900 F.3d 1379, 1381 (Fed. Cir. 2018).  Also, in past structured settlements involving the U.S., settlement language does not normally specifically say that the U.S. has an obligation to make periodic payments.  Also, it appears that that there was no language assigning the periodic payment obligation to a third party in this and other U.S. cases involving structured settlements.  However, in this case, the key difference appears to be that there is settlement language that says that the U.S. will pay a structured settlement.

Therefore, in this instance, the U.S. Court of Appeals has cut through some ambiguity and ruled that in this matter the government is required to make payments over time.  This conclusion was based on the evidence that there was no other party mentioned in the settlement agreement obligated to make any structured settlement payments to the plaintiff and most importantly that the U.S. promised to pay a structured settlement for the benefit of the plaintiff.