post-Knudson case

Posted by Matthew Garretson

Question:
Mr. Garretson, I attended and enjoyed your telephone seminar of Feb 3, 2009. I have a follow up question relating to a case post-Knudson wherein a child dart-out victims suffered severe brain damage. The case was settled with the purchase of a structured settlement annuity. Now the ERSIA collection agency is nosing around. Are there any cases of which you are aware that deal with this issue? Any post settlement way to protect the annuity? Thanks in advance for your thoughts.

-Atlanta Attorney

Answer:
There is a lot of misinformation out there about this issue. The idea that it offers any protection comes from a misreading of Great West v. Knudson, and courts all over the country don’t give it any credence. (While that case dealt with a Special Needs Trust and not a structured settlement, the issue is really the same). In Knudson, the lien holder would have prevailed had it sued the trustee as well. Eliminating all doubt is the Wal-Mart v. Shank case (500 F.3d 834) where the 8th Circuit specifically cracked open an SNT to satisfy Wal-Mart’s lien. The logic continues that if a lien holder names the life insurance company (assignment company in the structured transaction), it logically could get “cracked open”. Some commentators have opined that a structure is different than a trust b/c the claimant has not right to the assets, only the right to receive future payments. I see that argument to be non-persuasive – Courts have become much more liberal in construing “tracing” doctrines against claimants in recent cases. (i.e. courts have been tracing money beyond just money in the claimant’s “possession” – like checking accounts – and exploring recovery out of where the money went – like a house or any other assets).