What is the New York Liquidation Bureau (NYLB) and what role will the NYLB play if and when Executive Life Insurance Company of New York (ELNY) is liquidated?
According to its Mission Statement: NYLB "acts for the Superintendent of Insurance as the court appointed fiduciary and Receiver of impaired and insolvent insurance companies, to maximize assets and resolve liabilities, return rehabilitated companies to the marketplace or distribute the proceeds of the company in a timely manner to creditors."
The NYLB website adds:
- NYLB is "a unique entity. Receiving no funding from taxpayers, it carries out the responsibilities of the Superintendent of Insurance as Receiver, and acts on his behalf in the discharging of his statutorily defined duties to protect the interests of the policyholders and creditors of insurance companies that have been declared impaired or insolvent.
- "The NYLB has performed this function since 1909, when the New York State Legislature passed the law mandating that the Superintendent assume the separate responsibility of Receiver. In the case of each insurance company in receivership, the Superintendent as Receiver is appointed by the New York State Supreme Court. The Court approves all of the actions of the Superintendent, and by extension those of the NYLB."
The New York Court of Appeals held in 2007 in the case Dinallo v. DiNapoli that, in his capacity as liquidator of insurance companies, the superintendent of insurance is not a state officer and that the NYLB, acting as the superintendent/liquidator's agent, is not a state agency and therefore is not subject to state audit.
The Court of Appeals reasoned: "[t]he Bureau does not perform a governmental or proprietary function 'for the state', but rather runs the day-to-day operations of private businesses in liquidation pursuant to Supreme Court order. The Bureau is not part of the Insurance Department's budget, operates without the benefit of state funds, maintains its own errors and omissions coverage, and is represented by its own private counsel, not the Attorney General, as is normally the case when a state agency is sued. Thus, the Bureau is not a 'state agency' within the ambit of State Finance Law § 8(2-b)(a)."
The Court of Appeals added: "When acting as liquidator of a distressed insurer, the Superintendent operates as a statutory receiver who stands in the shoes of a private entity and 'takes immediate possession and control of the assets and proceeds to a liquidation of its affairs' .... Indeed, the Superintendent as liquidator occupies a legal status that is 'separate and distinct from the superintendent of insurance as the public official charged with regulating the insurance industry generally' .... Thus, while the Superintendent's role as liquidator is judicial and private, his role as regulator and supervisor is administrative and public. Consequently, the Superintendent as liquidator is not a state officer but rather one who acts on behalf of a private entity."
New York attorney Peter Bickford has written a series of blog posts (titled "Insolvency Process in New York") which are highly critical of the NYLB. According to Bickford, the NYLB had (as of 2007) more than 450 employees ("most of whom are protected by union contracts") and an annual budget of more than $100 million.
Bickford's primary complaint about the NYLB is that the "receivership process in New York lacks meaningful transparency and accountability." Although the NYLB has promoted "a new era of openness and accountability" (including external audits beginning in 2006), Bickford maintains the opposite is true. As a primary example, Bickford highlights the NYLB's "recent unprecedented use of the courts to further insulate itself from outside scrutiny and accountability". As evidence, Bickford points to the following provision which he states now appears in liquidation and rehabilitation orders issued by New York courts:
“The Superintendent as [rehabilitator] [liquidator] of [the company], his successors in office and their agents and employees are relieved of any liability or cause of action of any nature against them for any action taken by any one or more of them when acting in accordance with this Order and/or in the performance of their powers and duties pursuant to Article 74 of the New York Insurance Law."
By adding this paragraph to court orders of liquidation or rehabilitation, Bickford claims "the [NYLB] seeks to obtain immunity without any basis in the law", and for which he maintains there is no precedent. This immunity, according to Bickford, "bestows absolute immunity – including for gross negligence or intentional acts committed while acting as liquidator or rehabilitator of an estate."
How do Bickford's criticisms of the NYLB square with the rehabilitation, and anticipated liquidation, of ELNY?
- As of today, 20 years following its 1991 Order of Rehabilitation, the ELNY profile that appears on the NYLB website is threadbare.
- Without any public explanation, the much ballyhooed 2007 announcement of "an agreement in principle", whereby various insurers and guarantee associations apparently had agreed to pay $650 to $750 million to fund future ELNY payments (which is not publicly available), has never materialized.
- The participants in the agreement, which apparently included Allianz, Fireman’s Fund, Allstate, State Farm and Travelers among other liability insurers who previously purchased ELNY annuities to fund structured settlements, have signed confidentiality agreements with the NYLB.
In a separate blog post, Bickford quotes from a Business Insurance article reporting statements by Mark Peters, who then served as the NYLB Superintendent, about the ELNY 2007 agreement in principle:
“The contributions will be enough to offset the $2 billion deficit that ELNY is predicted to face in 12 to 15 years, regulators say. The deficit results largely from an overly optimistic assumption in ELNY’s 1992 rehabilitation plan that the estate would earn 10% annually on its invested assets, Mr. Peters said. The actual return was between 7% and 8%. The Liquidation Bureau is now assuming a future annual return of just over 6%, he said. Most of ELNY’s contracts will run off within 35 years, with the last contract expiring in about 70 years, he said.”
In his blog post, Bickford takes issue with Peter's ELNY explanation, stating in part:
- "Inadequate interest rate assumptions cannot begin to account for the purported deficit."
- "The 1992 plan of rehabilitation does not include interest rate assumptions."
- "The 1992 plan of rehabilitation specifically stated that that the cash flows from investments 'are projected to be sufficient to cover current [covered annuity] payouts for at least ten (10) years.'”
- "So if it is not the interest rate assumptions causing the purported deficit, what is causing it?"
ELNY sold an estimated 8,000 structured settlement annuities prior to entering rehabilitation. To date, all related ELNY structured settlement payments have been paid in full. The most recent financial statements for ELNY (as of December 31. 2010) show assets of $905,945,200 compared with liabilities of $2,474,317,342 resulting in a negative surplus of $1,568,372,142. New York Governor Andrew Cuomo recently appointed Jonathan Bing to serve as Special Deputy Superintendent of the NYLB.
On June 23, 2011 the Superintendent of the New York Insurance Department filed a motion to postpone the previous deadline for filing a proposed order and plan of liquidation for ELNY with the New York State Supreme Court of Nassau County from July 1, 2011 to August 10, 2011 "in order to present a comprehensive and consensual proposed Plan of Liquidation that maximizes the potential benefits for ELNY's structured settlement and other annuitants."
Thanks to John Darer whose earlier ELNY blog posts introduced S2KM to Peter Bickford's writing.
S2KM's complete ELNY reporting and analysis appear on the structured settlement wiki.