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THE PLAINTIFF, AFTER ASSIGNING HIS RIGHTS TO A STRUCTURED SETTLEMENT IN RETURN FOR LUMP SUM PAYMENTS, COULD NOT SUE THE INSURER PAYING THE SETTLEMENT ANNUITY FOR FAILING TO OBJECT TO THE ASSIGNMENT, WHICH WAS PROHIBITED BY THE SETTLEMENT AGREEMENT; PLAINTIFF UNSUCCESSFULLY ARGUED THE INSURER’S FAILURE TO OBJECT TO HIS ASSIGNMENT OF THE SETTLEMENT PAYMENTS CONSTITUTED A BREACH OF AN IMPLIED COVENANT OF GOOD FAITH (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Troutman, over an extensive dissent, determined that the plaintiff, Cordera, who had received a settlement award for lead poisoning, could not sue the insurer for failing to stop him from “selling” the rights to his 30-years-of-monthly-settlement-payments worth about $950,000 for about $270,000. The transactions were approved by a Florida court. Plaintiff unsuccessfully argued the defendant insurer’s failure to enforce the non-assignment provision of the settlement agreement (which prohibited the assignment of the settlement proceeds) was a breach of an implied covenant of good faith:

The United States Court of Appeals for the Eleventh Circuit certified to this Court a question requiring us to consider whether a plaintiff sufficiently pleads a cause of action for breach of the implied covenant of good faith and fair dealing under New York law by alleging that, during a Structured Settlement Protection Act proceeding, defendants (i.e., the structured settlement obligor and the issuer of an annuity funding the settlement) failed to enforce the anti-assignment provisions contained in structured settlement and qualified assignment agreements. Based on our reformulation of the question, we conclude that such allegations do not state a cognizable cause of action for breach of the implied covenant. * * *

Cordero claims that the anti-assignment provisions provide that reasonable expectation because they can be read to require issuers and obligors to protect plaintiffs from their own actions by objecting to their attempts to make further assignments. This theory is, of course, dependent on the view that the anti-assignment provisions in structured settlement and qualified assignment agreements are, at least in part, for a plaintiff’s benefit. Even assuming that is true, however, a reasonable person in the position of such a plaintiff would not be justified in believing, at the time the agreements were made, that the anti-assignment provisions required the issuer and obligor to object to any attempt the plaintiff made to execute prohibited assignments as part of [a] proceeding in which the court is charged with determining whether the transfer is “in the best interest of the payee” … . Cordero v Transamerica Annuity Serv. Corp., 2023 NY Slip Op 02091, CtApp 4-25-23

Practice Point: The insurer paying out settlement proceeds to an injury plaintiff is not obligated to object to the injured parties assignment of the settlement payments in return for a lump sump, even though the settlement agreement prohibits such an assignment. Here the plaintiff unsuccessfully argued the insurer’s failure to object was a breach of an implied covenant of good faith.

 

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