THE NEW METHOD OF STRUCTURING SETTLEMENT AGREEMENTS

Abstract

The new method of structuring settlement agreements makes structured settlements available to all insurers who were previously unable to structure. The Advance Income Tax Ruling issued by Revenue Canada concerning the new method is unique in that it deals with the tax effect of a structure for the defendant and its casualty insurer and not merely its tax effect for the plaintiff. The previous impediments to the use of structures for self-insurers, foreign insurers and reinsurers and the administration cost of structured settlement agreements for all insurers are avoided. The new method of structuring settlements requires the defendant or its casualty insurer to conditionally assign the performance of the structure. To avoid any adverse tax consequences and to meet all other regulatory requirements, the assignee must meet certain financial conditions; be an insurance corporation; and, the conditional assignment agreement must be in the form of an insurance contract.