Enforcing and Reforming Structured Settlement Protection Acts : How the Law Should Protect Tort Victims

Congress passed the Periodic Payment Settlement Act of 1982 to incentivize structured settlements. The Act sought to encourage tort victims with serious injuries to agree to settlements that offered the best prospect of long-term financial security. But Congress failed to predict the development of a robust secondary market for settlement payment streams: Since the early 1990s, factoring companies have aggressively and unscrupulously purchased billions of dollars' worth of settlement payments from tort victims, often at great profit. This massive transfer of wealth from injured victims has fundamentally undermined congressional policy and left tens of thousands of victims and their dependents without the financial security structured settlements purported to offer. To regulate the industry, Congress and forty-nine state legislatures developed a legislative scheme that requires state court approval of settlement transfers and limits approval to those found to be in the “best interest” of the tort victim. This Note argues that this legislative scheme has fundamental substantive and procedural flaws that prevent it from achieving its purpose. As a solution, this Note suggests, based on generally accepted contract law principles, that courts recognize that insurance companies charged with dispensing settlement streams have a contractual obligation to object to transfer petitions in certain circumstances. Additionally, this Note recommends that courts and legislatures take steps to increase the transparency and quality of the secondary market. Together, these reforms will help protect tort victims from sordid factoring industry business tactics while also allowing tort victims the opportunity to sell their payment streams at substantively fair prices