In a case that should remind everyone of why Texas bars lump sum settlements of workers’ compensation benefits, the San Antonio Court of Appeals has blocked the transfer of a structured settlement under the Longshore and Harbor Workers’ Compensation Act (LHWCA) to a factoring company, Genex Corporation.
In Re Great Plains Management Corporation (No. 04-21-00110-CV) arose from the injured worker’s assignment of future payments of a lump sum settlement agreement approved by the U.S. Department of Labor to Genex. Under the settlement agreement, the workers’ compensation carrier reinsured payment of the $146,094 lump sum payment with American General Life Insurance Company, which undertook to make the payment in 2025. In 2020 Genex agreed to pay the worker a lump sum of $82,776 in 2020 in exchange for the 2025 payment, a whopping $63,000 discount. Genex then assigned the contract to Great Plains, which filed an application under the Texas Structured Settlement Protection Act (SSPA), for trial court approval of the transfer. As the statute (Chapter 141, CPRC) permits, American General filed its opposition to the transfer, alleging that it violated the SSPA because the LHWCA prohibits assignments of structured settlements. The trial court approved the transfer, and American General appealed.
The court of appeals reversed and remanded to the trial court for determination of reasonable costs and attorney’s fees to be awarded to American General under the SSPA. The court first found that since the SSPA specifically designates annuity issuers such as American General as interested parties with the authority to file objections to a proposed transfer, the court has jurisdiction over the appeal. Moreover, the court reasoned, even in the absence of statutory authorization, the issuer can be a “party” to a suit under the doctrine of virtual representation. This doctrine requires an appellant to show that it is bound by the judgment, its privity of estate, title, or interest appears from the record, and there is an identity of interest between the appellant and a party to the judgment (citation omitted). American General satisfies the test in this case.
Turning to the substance of the case, the court applied the rules of statutory construction to determine whether the LHWCA bars assignment of lump sum settlements. Here the court rejected an 11th Circuit case cited by Great Plains in support of its position that once the carrier bought an annuity to pay a future lump sum, the LHCRA’s anti-assignability provision did not apply. A dissent in that case, however, argued that even though the carrier handed off the liability for the payment to a third party, it still existed and was “due and payable” under the LHCRA. The Pennsylvania Superior Court picked up this reasoning in a case cited by American General with virtually identical facts. Construing Pennsylvania’s Structured Settlement Protection Act, which closely parallels ours, the court found that the plain language of the LHCRA prohibited assignment of benefits or compensation, “either being paid or owed in the future.” The court of appeals agreed: the transfer of the worker’s right to receive a lump sum payment in 2025 violated the LHCRA. For that reason, the trial court improperly approved Great Plains’ application on the basis that it contravened an “applicable statute or an order of any court or other governmental authority” (§141.004, CPRC).
The SSCA entitles an interested party to reasonable costs and attorney’s fees resulting from the transferee’s (Great Plains’) failure to comply with the SSCA. Great Plains attempted to evade this provision by arguing that it only applied to a transferee’s failure to give notice of the application for transfer to the annuity issuer. Citing the language of the statute and authority from the Fifth Circuit, the court of appeals disagreed and remanded to the trial court on that issue.
There are very good policy reasons that the LHCRA prohibits the assignment of lump settlements. For the same reasons, the Texas Workers’ Compensation Act does not permit an injured worker to receive benefits in a lump sum except when the worker has returned to work for at least three months and earns at least 80% of his or her average weekly wage. TCJL supported the enactment of the SSCA in 2001 to protect beneficiaries of structured settlements, particularly minors and people with long-term health care needs, from bad actors in the factoring industry. It’s up to the courts to enforce the SSCA by making sure that transfers are on the up-and-up and in the best interest in the payee (including the payee’s dependents). Kudos to the court of appeals for doing that here.