The Georgia Court of Appeals recently decided the appeal of a contract dispute involving an insurer’s obligation to make payments under a structured settlement agreement.
After a traffic accident in the 1980’s, the injured plaintiff reached a settlement with the other driver’s insurer wherein the insurance company agreed to make monthly payments to the plaintiff for life. The insurance company bought an annuity to make the settlement payments and, in addition, purported to assign its liability to make payments to the plaintiff to the annuity company’s parent company. After the annuity company became insolvent and was placed under a receivership, the amount of payments to the plaintiff was eventually reduced to significantly lower than what was contractually provided. The plaintiff sued the insurance company for the difference, and the trial court granted summary judgment in the plaintiff’s favor.
The insurance company appealed, arguing that the terms of the settlement, release, and assignment of liability barred the plaintiff from bringing her lawsuit.
Background of the underlying accident case
The plaintiff was severely injured in an automobile accident in Connecticut in 1982. She brought an action against the other driver (defendants) to recover for her injuries. In 1985, the parties reached a structured settlement to resolve her claims wherein the defendants, through the insurance company, agreed to pay her $1,700 per month for life, increasing at 4% per year, as well as various additional lump sum payments during certain years. The settlement provided that
[i]n consideration of the undertaking and the payments to [the plaintiff] of the sums of money set forth below, [the plaintiff] does hereby release and discharge the defendant above named and any of their officers, servants, agents, employees or insurance carriers from any and all actions, causes of action, obligations, costs, damages, losses, claims, liability and demands of whatsoever character including . . . any and all causes of action arising, or which may arise in the future . . . from an incident occurring on or about November 14, 1982[.]
On the same day that the parties signed the settlement, the insurance company and the plaintiff also signed a document called “Assignment,” which said:
- In consideration of the tendering of a lump sum premium payment by [the insurance company] (“Assignor”) to the annuity company Corporation . . . (“Assignee”), Assignee assumes, and Assignor assigns to Assignee, the liability of Assignor to make periodic payments in the amounts and at the times set forth in the Schedule of Payments . . . to [the plaintiff/”Payee”] as damages on account of personal injury or sickness. Payee agrees that, by reason of such assumption and assignment, Assignor is fully released from its liability to make all periodic payments. . . . This Agreement . . . is intended to constitute a qualified assignment within the meaning of Section 130 (c) of the Internal Revenue Code.
The agreement also provided:
- Assignee’s obligation to make payments shall not be greater than Assignor’s obligation to make such payments. To the extent that Assignor’s obligation to make any payment (or any portion thereof) is invalid, unenforceable, or subject to any defenses, Assignee’s obligation shall be equally invalid, unenforceable, or subject to such defenses.
Both documents stated that Connecticut law would apply.
Not enough money to pay the plaintiff when the company went under
According to the insurance company’s business records, on June 19, 1985, the insurance company paid the annuity company $1,000 “for the assignment.” It also paid $299,000 to the annuity company to buy a policy that would fund the payments to the plaintiff. In 1991, the annuity company became insolvent, and as part of its rehabilitation plan, the plaintiff continued to get the full amount of the payments due through July 2013. But in 2011, the New York Liquidation Bureau announced that, due to the hardship of the 2008 financial market collapse, there were no longer enough funds to continue paying all of the company’s annuities at full value. As a result, payments would be reduced, and in August 2013, the plaintiff’s payments were reduced to about 40% of the value provided for in the settlement.
The plaintiff filed the lawsuit against the insurance company, alleging that it was liable to pay the remaining balance, which she said was $52,000 at the time of the action. The plaintiff filed a motion for partial summary judgment as to liability, alleging the insurance company was liable to make up any deficiency in the payments and that its purported assignment of liability was invalid. The trial court granted her motion and concluded that:
- Any ambiguity would be construed against the insurance company as the drafter of the contract;
- The plain language of the release and assignment didn’t absolve the insurance company of liability; and
- In any event, the insurance company’s purported assignment to the annuity company of its liability and the responsibility to make payments under the settlement agreement failed because it was an illusory promise.
The trial court concluded that the insurance company was still liable to make the payments under the agreement. On appeal, the insurance company raised multiple arguments that the settlement agreement’s release provisions released it from any liability and any further claims from the plaintiff.
The opinion of the Court of Appeals
Presiding Judge M. Yvette Miller wrote for the Georgia Court of Appeals and concluded that the insurance company’s arguments were misplaced because the Release only applied to the actual defendants and did nothing on its own to release the insurance company from liability. Under Connecticut law,
[i]n ascertaining the contractual rights and obligations of the parties [to a contract], we seek to effectuate their intent, which is derived from the language employed in the contract, taking into consideration the circumstances of the parties and the transaction. We accord the language employed in the contract a rational construction based on its common, natural and ordinary meaning and usage as applied to the subject matter of the contract. Where the language is unambiguous, we must give the contract effect according to its terms.
With this, Judge Miller addressed the insurance company’s three arguments.
Was the Insurance Company Released from Liability?
The insurance company pointed to the release provision of the Release and Settlement Agreement and argued that any claims were released under that provision.
But Judge Miller found that this provision explicitly released the other driver and the insurance company from any liability for the underlying personal injury suit “[i]n consideration of the undertaking and the payments to [the plaintiff] of the sums of money set forth below.” Therefore, the agreement clearly didn’t absolve the insurance company from continuing to make payments to the plaintiff.
In fact, the judge said the whole point of this provision was to establish the plaintiff’s right to receive payments in exchange for foreclosing any underlying tort remedies.
Could the Insurance Company Assign Liability?
Next, the insurance company said the Release allowed it to assign liability to another entity provided that it could secure a “qualified assignment” under the Tax Code. This provision stated:
The Parties hereto acknowledge and agree that Defendants may make a “qualified assignment” (within the meaning of section 130 (c) of the [Tax Code]) of its liability to make said periodic payments. Such assignment, if made, shall be accepted by [the plaintiff] without right of rejection and shall completely release and discharge Defendant from such obligations hereunder as are assigned.
However, Judge Miller reasoned that this provision specifically noted that only the “defendants” were allowed to make such an assignment, and the Settlement Agreement separately defined the defendants to only include the other driver—not the insurance company. In any event, this provision only provided that an assignment of liability to make the periodic payments was possible. It clearly didn’t dissolve or assign that liability in and of itself, the Court said. This provision on its own therefore didn’t absolve the insurance company of liability to make the periodic payments.
Thus, the Court of Appeals concluded that nothing in the settlement agreement itself absolved the insurance company of liability to make further payments to the plaintiff.
Did the Assignment Release the Insurance Company from Settlement Payments?
The insurance company finally asserted that the terms of the Assignment released it from any further obligation to make the structured settlement payments and that the Assignment was valid and supported by consideration. Judge Miller agreed with the insurance company that the trial court erred by concluding that the assignment was void due to an illusory promise.
Here, the Assignment provided that the annuity company assumed “the liability of the insurance company to make periodic payments in the amounts and at the times set forth in the Schedule of Payments… to [the plaintiff.]” Additionally, under the Assignment, the plaintiff agreed that, “by reason of such assumption and assignment, [the insurance company] is fully released from its liability to make all periodic payments.” And the plaintiff signed and explicitly consented and agreed to the Assignment.
The plaintiff argued that the Assignment was invalid. But the relevant section of the agreement provided that
Assignee’s obligation to make payments shall not be greater than Assignor’s obligation to make such payments. To the extent that Assignor’s obligation to make any payment (or any portion thereof) is invalid, unenforceable, or subject to any defenses, Assignee’s obligation shall be equally invalid, unenforceable, or subject to such defenses.
Judge Miller and the Court of Appeals said that this section didn’t create a condition of the contract that is within the control of the promisor but instead merely reflects the “hornbook law . . . that an assignee stands in the shoes of the assignor . . .” so that the “assignee has no greater rights or immunities than the assignor would have had if there had been no assignment.” Nothing in that section absolved the annuity company of any obligation to make payments to the plaintiff in a way that would render the promise to make those payments illusory, the judge wrote. Instead, the clause merely reserved for the annuity company any rights and defenses that the insurance company may otherwise have presented. In other words, this section didn’t provide the annuity company with the unfettered right to cancel the agreement at will but instead limits such ability to assert whatever rights and defenses the insurance company could have raised. Consequently, the Assignment wasn’t invalid due to an illusory promise, and the trial court erred in finding it to be unenforceable on that ground.
The Court of Appeals concluded that the plain terms of the settlement agreement didn’t absolve the insurance company of liability, but that the purported assignment of liability to the annuity company was not void due to an illusory promise. The Court affirmed the trial court’s grant of summary judgment in part, reverse in part, and remanded the case for the trial court to address the remaining unresolved arguments in the plaintiff’s motion for summary judgment. NGM Ins. Co. v. Abate, 2023 Ga. App. LEXIS 141 (Ga. App. March 14, 2023).
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