Assuming presiding Judge John M. Galasso approves the Order of Liquidation and Approval of a Restructuring Agreement for Executive Life of New York (ELNY) as proposed by the Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY's Receiver, will the Liquidation Order grant legal immunity to the Superintendent, as ELNY Receiver, and his agents, including the New York Liquidation Bureau (NYLB or Bureau), for their acts and omissions in managing ELNY's Rehabilitation since 1991?
At least some of the ELNY policyholders and shortfall payees who filed objections took issue with the following proposed paragraph in the Superintendent's proposed Order:
“Judicial immunity is extended to the Superintendent in his capacity as Receiver and his successors in office, the New York Liquidation Bureau, and their respective attorneys, agents, and employees, and such immunity is extended to them for any cause of action of any nature against them, individually or jointly, for any action or omission by any one or more of them when active in good faith, in accordance with this order, or in the performance of their duties pursuant to Insurance law Article 74; . . .”
On March 1, 2012, Eric T. Schneiderman, Attorney General for the State of New York and Attorney for the Superintendent, filed an "Omnibus Reply Memorandum of Law in Response to the Objections to the Proposed Liquidation of ELNY and Distribution of ELNY's Assets Pursuant to the Restructuring Agreement" (Reply Memorandum). Addressing the proposed judicial grant of immunity, the Reply Memorandum argues:
- The Superintendent, as regulator of the insurance industry in the State of New York, is immune for his decision to seek liquidation and the timing of such decision.
- The Superintendent, as Receiver for ELNY, has no liability for actions performed within the scope of his authority pursuant to the Rehabilitation Order, the Rehabilitation Plan Order, and subsequent orders of this Court.
- Any claim against the Superintendent would deplete estate assets without any benefit to ELNY Contract policyholders or payees.
- If the Court does not grant immunity, the Superintendent will be forced to reserve assets in the ELNY estate to pay the costs of defending these meritless claims, which could significantly delay the liquidation of ELNY and the closing of the Restructuring Agreement.
- The injunctions contained in the 1992 ELNY Rehabilitation Order restraining all persons from commencing any action against the Superintendent, as Receiver, should be continued.
- No objector has met its burden of proof to vacate or modify the injunctions granted by the Court.
Peter Bickford Analysis
"... [T]he Bureau acts as the agent for the superintendent of insurance in his separate and private role as liquidator or rehabilitator, marshalling assets, paying claims and, in the case of rehabilitation, managing the business and acting to remove the causes of insolvency to restore the company to the marketplace. The courts have held that the liquidator or rehabilitator “stands in the shoes” of management so that, in theory at least, the Bureau and its employees are subject to the same standards of care and responsibility as any manager of any insurance entity.
"Of course, given the circumstances of taking over an insolvent company, the law provides for certain protections for the estate, such as providing the courts with the authority to issue injunctions or orders 'necessary to prevent interference with the superintendent or the proceeding, or waste of the assets of the insurer, or the commencement or prosecution of any actions, the obtaining of preferences, judgments, attachments or other liens, or the making of any levy against the insurer, its assets or any part thereof.'” (Insurance Law § 7419; Bickford's emphasis)
"These powers are clearly intended for the protection of the estate and its assets, and to allow for an orderly administration of an estate. They are not intended, and have not in the past been used overtly for the personal protection of the rehabilitator or liquidator and his agents – until now."
"By adding this [immunity] paragraph to the form of court order of liquidation or rehabilitation, the Bureau seeks to obtain immunity without any basis in the law, and for which there is no precedent in any of the hundreds of liquidation and rehabilitation petitions filed in the past. This immunity, by the way, is no garden-variety immunity from mere negligence. It bestows absolute immunity – including for gross negligence or intentional acts committed while acting as liquidator or rehabilitator of an estate.
"Once again the current administration of the Liquidation Bureau has acted counter to its own pronouncements of openness and accountability. The Bureau repeatedly states that it is protecting the interests of policyholders and claimants of insolvent estates, and has publicly invoked its “fiduciary” role more than a few times. In the law, of course, fiduciaries are held to a higher standard of care than mere managers. Not only is the Bureau not prepared to assume even the most basic standard of care for its actions or inactions, the Bureau seeks to escape any and all responsibility.
"Add this unprecedented immunity to the lack of existing institutional oversight or regulation, and you have the perfect setting for unbridled and undiscoverable abuse."
"The regulatory oversight of a licensed company should not end with the entering of an order of liquidation or rehabilitation. It makes no sense that when an insurance entity is placed in receivership the commissioner ceases to be the regulator and becomes the manager of an unregulated insurance business. Why shouldn’t the superintendent as receiver be held to the same standards that he imposes on the rest of the industry as its regulator? Why shouldn’t he apply his own rules to himself?"
The ELNY Liquidation Hearing concluded March 29, 2012 and awaits Judge Galasso's decision.
For additional Peter Bickford commentary and analysis, see "The Trouble with ELNY" , S2KM's review of a recent Bickford article. For S2KM's complete reporting about the ELNY Liquidation, see the structured settlement wiki.