Court Opinion

ID: 9750168
Source: CourtListenerOpinion
Date Created: 2023-08-28 14:26:24.927884+00
Date Added: 2024-06-11T07:26:03.496482
License: Public Domain

DAVIS, Acting P. J., Concurring.
Predictably, I find the majority quite persuasive. Nevertheless, I feel compelled to write separately to address the issue of satisfaction of judgment through annuity funding. Concerns about judicial restraint and the procedural posture of this case make the deferential tone of the majority on this issue appropriate. In this concurrence, I am not under these shackles, and my aim is to raise awareness, I hope legislative awareness, about this issue and about a possible framework for considering it.
A natural tension exists between the health care provider and his or her insurer in the application of Code of Civil Procedure section 667.7. (All further references to undesignated sections are to the Code of Civil Procedure.) The health care provider wants the insurer to pay the judgment off —now. The insurer, on the other hand, wants to defer payment. In other words, while the health care provider seeks to put the judgment behind him or her as soon as possible, the insurer wants to put the judgment in front of it for as long as it can. The present case aptly illustrates this tension as Emily’s future economic needs span a 75-year period.1
This tension threatens the vitality of section 667.7. But any remedy must account for the section’s twin aims: to ensure payments to a medically *984injured plaintiff when needed while reducing the cost of medical malpractice insurance. (§ 667.7, subd. (f); Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8 Cal.4th 100, 111-112 [32 Cal.Rptr.2d 263, 876 P.2d 1062] (Western Steamship).) The National Conference of Commissioners on Uniform State Laws has given thought to this dilemma. In their 1990 Uniform Periodic Payment of Judgments Act (Uniform Act), they have resolved it by allowing a periodic-payment judgment to be satisfied if all lump-sum amounts, including costs and interest, have been paid and if the periodic amounts are funded by a qualified annuity funding plan backed by a security arrangement. (14 West’s U.Laws Ann. (1994 pocket pt.) Uniform Act, § 16; see also id., §§ 10, 11, 18.)
Although California has not adopted the Uniform Act, the concept of annuity funding is well established in this state for structured settlements and has been mentioned in the context of periodic-payment judgments. (See Schneider v. Kaiser Foundation Hospitals (1989) 215 Cal.App.3d 1311, 1317-1320 [264 Cal.Rptr. 227]; Franck v. Polaris E-Z Go Div. of Textron, Inc. (1984) 157 Cal.App.3d 1107, 1119 [204 Cal.Rptr. 321]; Atkins v. Strayhorn (1990) 223 Cal.App.3d 1380, 1398-1399 [273 Cal.Rptr. 231].) Indeed, Emily’s counsel proposed an annuity to fund the periodic-payment judgment here. For reasons discussed below, I think the annuity approach outlined in the Uniform Act, with slight modifications, is workable in a case like the present one and could result in a satisfaction of judgment being entered on a section 667.7 periodic-payment judgment.
The Uniform Act requires, for satisfaction purposes, that a periodic-payment judgment be funded by a court-approved “qualified funding plan,” which means that a “qualified insurer” ultimately must be responsible for the obligation owed to the plaintiff. (Uniform Act, §§ 10(a), 11, 18(b).) Under the Uniform Act, a defendant’s liability insurer can create a qualified annuity funding plan by purchasing an annuity contract(s) from a “qualified insurer” and having the judgment creditor take a perfected security interest in the annuity contract(s). (Uniform Act, § 11(a)(2).)
*985The “qualified insurer” criteria set forth in the Uniform Act would work here (see Uniform Act, § 18(b)(2)-(b)(4)), but the annuity security arrangement set forth in the Uniform Act (i.e., the perfected security interest in the annuity contract) would not. The annuity security arrangement would not work because, as the comment to section 11 of the Uniform Act notes, “the annuity-contract option is not available [presently] because a security agreement would make the periodic payments taxable.” (14 West’s U.Laws Ann., supra, Uniform Act, § 11, com., p. 31.) Dr. Watkins has suggested another security arrangement that would work here: his malpractice insurer would buy an annuity or annuities from a “highly-rated” life insurer (i.e., a “qualified insurer” under the Uniform Act—see immediately below) “with the performance of the payment obligations guaranteed by an additional highly-rated [i.e.,’qualified’] insurer.” For an insurer to be considered a “qualified insurer” under the Uniform Act, it must meet the following criteria (Uniform Act, § 18(b)(2)-(b)(4).):
(a) be an insurer admitted to write insurance in the state;
(b) have a minimum of $100 million of capital and surplus, exclusive of any mandatory security valuation reserve; and
(c) have one of the following ratings from two of the following rating organizations:
(i) A.M. Best Company: A+, A+g, A+p, A+r, or A+s;
(ii) Moody’s Investors Service Claims Paying Rating: Aa3, Aa2, Aal, or Aaa;
(iii) Standard & Poor’s Corporation Insurer Claims-Paying Ability Rating: AA-, AA, AA+, or AAA;
(iv) Duff & Phelps Credit Rating Company Insurance Company Claims Paying Ability Rating: AA-, AA, AA+, or AAA.
Based on the authority discussed below, I think a satisfaction of judgment could be entered on a section 667.7 periodic-payment judgment like the one in this case if the following requirements were met: if an annuity or annuities were purchased from a “qualified insurer” (meeting the criteria just specified); if a security arrangement were in place (as suggested by Dr. Watkins); if both the annuity purchase and the security arrangement were approved by the trial court in a judgment; and if all the lump-sum judgment amounts had been paid (including costs and interest). (See Uniform Act, § 16.)
Under former section 675, a court could enter satisfaction of judgment whenever a judgment was “satisfied in fact.” (Former § 675, subd. (a); George S. Nolte Consulting Civil Engineers, Inc. v. Magliocco (1979) 93 Cal.App.3d 190, 193 [155 Cal.Rptr. 348] (Nolte).) In Nolte, the plaintiff engineer won a $6,000 judgment that could be increased by an additional *986$4,000 if the development plans he drafted for the defendant’s property were ever used. After the defendant sold the property to a third party (and plaintiff’s plans were not used by the third party in developing the property), the trial court entered satisfaction of judgment upon the $6,000 payment, finding that the contingent liability of plan use would not occur. The appellate court upheld the order directing entry of satisfaction of judgment, stating: “A judgment creditor may not refuse to acknowledge satisfaction of a judgment without just cause [citing former § 675]. In determining whether a judgment has been satisfied in fact under section 675, a court may take into account whether the judgment would otherwise remain unsatisfied indefinitely, impairing the debtor’s credit, deterring others from trading with the debtor, or restraining the alienation of property subject to the judgment.” (93 Cal.App.3d at p. 194.)
Section 724.010, subdivision (a), which is based upon former section 675, no longer contains section 675’s “satisfied in fact” language.2 Nevertheless, the legislative committee comment to section 724.010 states in part that “[subdivision (a) of Section 724.010 is drawn from language that was contained in subdivision (a) of former Section 675 .... Subdivision (a) of Section 724.010 is not an exclusive statement of the methods for satisfying a money judgment. See, e.g., . . . George S. Nolte Consulting Civil Engineers, Inc. v. Magliocco, 93 Cal.App.3d 190, 155 Cal.Rptr. 348 (1979) (entry of satisfaction ordered where trial court determined that $4,000 contingent liability could be disregarded since contingency would not occur) . . . .” (Legis. committee com., Deerings Ann. Code Civ. Proc. (1983 ed.) § 724.010, p. 68; see also Pierson v. Honda (1987) 194 Cal.App.3d 1411, 1414 [240 Cal.Rptr. 148]; Schumacher v. Ayerve (1992) 9 Cal.App.4th 1860, 1863 [12 Cal.Rptr.2d 417].)
Together, the qualified annuity funding plan and security arrangement discussed above is analogous to former section 675’s condition of “satisfied in fact.” Section 18 of the Uniform Act defines a “qualified insurer” along financially secure lines; the comment to section 18 notes that “[t]he schedule of payments in a periodic payment judgment may extend as far as 70 or 80 years into the future [as is the case here]. Claimants are entitled to the assurance that insurers participating in the funding of such long-term obligations are of exceptional financial strength.” (14 West’s U.Laws Ann., supra, Uniform Act, § 18, com., p. 37).) And another commentator in this area has stated: “ ‘The [Uniform Act] is, without question, more sophisticated than any periodic payment statute currently in existence. In particular, *987the attention paid to ensuring that funding mechanisms for periodic payment judgments are financially secure . . . put[s] the Act in a league by itself.’ ” (Hindert et al., Structured Settlements and Periodic payment Judgments (1992) § 9.03, p. 9-29, as quoted in Horvitz & Levy, MICRA Manual, supra, at p. 112.)
Finally, as a last measure of security, there is precedent in California for setting aside a satisfaction of judgment if the consideration for the satisfaction fails. (See Argue v. Wilson (1935) 3 Cal.App.2d 645 [40 P.2d 297] [satisfaction of judgment vacated where the insurance company that had prepared the check for the judgment amount in exchange for the satisfaction was taken over by a receiver before the check was honored]; see also Kinnison v. Guaranty Liquidating Corp. (1941) 18 Cal.2d 256, 265 [115 P.2d 450]; Kachig v. Boothe (1971) 22 Cal.App.3d 626, 632 [99 Cal.Rptr. 393]; Remillard Brick Co. v. Dandini (1950) 98 Cal.App.2d 617, 622 [220 P.2d 927].) From Argue it can be argued that the section 667.7 judgment creditor is not left unprotected even in the unlikely event that annuity payments stop due to insolvency (an extremely unlikely event where one “qualified insurer’s” performance is being guaranteed by another).
I think a satisfaction of judgment could be entered in a case like this one if the requirements set forth above were met. But my conclusion incorporates standards that should be enacted by the Legislature and not by the judiciary.
A petition for a rehearing was denied October 25, 1995, and appellant’s petition for review by the Supreme Court was denied January 24, 1996.

The health care provider does benefit through lower insurance premiums resulting from deferred payment of judgments. But this benefit is generally not as immediate or as dramatic as the detriment of a loan being denied because a large, unsatisfied judgment appears on the health care provider’s credit report.
One commentator has suggested that this tension may be overblown because, although a recorded section 667.7 periodic judgment creates a judgment lien on real property (§ 697.320, *984subd. (a)(2)), the lien is not effective for any payment installment until the payment is due under the terms of the judgment (§ 697.350, subd. (c)). (See Horvitz & Levy, MICRA Manual (1993) pp. 126-127, fn. 60.) This commentator also notes that section 724.220 allows a health care provider to prove to a prospective lender that all matured payments have been paid—by obtaining an acknowledgment of satisfaction of matured installments from the plaintiff. (Horwitz & Levy, MICRA Manual, supra, at p. 127.)
As noted above, however, the tension to which I refer is a natural and practical one based principally upon timing. The statutory sections on judgment liens and partial satisfactions quoted in Horvitz and Levy’s work do little to counteract this timing concern, and their intricacies may be difficult to convey in simple terms to a loan officer whose eyes are glazing over.

Section 724.010, subdivision (a), reads: “A money judgment may be satisfied by payment of the full amount required to satisfy the judgment or by acceptance by the judgment creditor of a lesser sum in full satisfaction of the judgment.”