Beyond Structured Settlements

ELNY Notice of Appeal

Attorney Edward Stone has filed a Notice of Appeal with the Appellate Division of the Supreme Court of the State of New York, Second Department, challenging the Executive Life of New York (ELNY) Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012.

The appeal, filed May 30, 2012 on behalf of 18 ELNY structured settlement shortfall victims as objectors:

• Alleges Judge Galasso "erroneously denied objectors' request to reject the proposed agreement of restructuring in connection with the [ELNY] liquidation";
• Further alleges Judge Galasso's order:
  • "[I]mproperly grants and/or continues certain injunctions and immunities and discriminates against the objectors";
  • "[C]reates impermissible sub-classes of claimants"; and
  • "[R]eflects the courts erroneous denial of objectors' requests to adjourn the hearing ... due to a lack of proper notice of such hearing."
• Seeks to compel:
  • The Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY's rehabilitator, "to provide certain discovery necessary to, among other things, allow objectors to demonstrate why the plan should not be approved and submit a viable competing restructuring plan";
  • Judge Galasso "to unseal certain documents submitted to the court by the rehabilitator"; and
• Further seeks to allow the objectors "to present evidence (in the form of live testimony by certain witnesses) rebutting the receiver's experts and otherwise showing that the proposed-liquidation plan should not have been approved."

In an exclusive interview with S2KM, Attorney Stone characterized the appeal as "the next step in a crusade by some of the ELNY shortfall victims against an unfair and discriminatory restructuring plan".

Stone added: "Judge Galasso's decision came as no surprise as the Liquidation proceedings were carefully orchestrated to yield a predetermined result" according to Stone. No one who attended the hearing actually believed that the objectors had a chance to prevent the Superintendent from pushing through its plan."

Stone alleges:

• Objectors were "denied the right to call witnesses and were repeatedly rebuffed in their efforts to obtain critical data used by the Superintendent's actuaries to project future liabilities."
• Judge Galasso "ordered injunctions and immunities to continue what appears to be a massive coverup. The New York Liquidation Bureau took a solvent life insurance company and rendered it insolvent at the expense of the shortfall victims. Why is the Bureau entitled to a free pass after decades of waste and mismanagement?"

Stone said he hopes the New York State Supreme Court Appellate Division will "set the record straight" and provide ELNY shortfall victims access to the data used by the Superintendent and NOLHGA to formulate the proposed ELNY restructuring plan approved by Judge Galasso.

"I am convinced that my team can quickly come up with a better plan that is less discriminatory if we are allowed access to original source materials containing the real ELNY payment schedules," Stone stated. "This data should have been made available to the shortfall victims."

For S2KM's complete and continuing reporting about the Executive Life of New York Liquidation, see the structured settlement wiki.

Mixed ELNY Reactions

In an article titled "Loss for Policyholders", written by James Campbell and published April 17, 2012 in the Wall Street Journal (WSJ), Executive Life of New York (ELNY) stakeholders expressed contrasting reactions to Judge John M. Galasso's decisions to:

• Approve the ELNY Restructuring Agreement proposed by the Superintendent of the New York State Department of Financial Services (Superintendent); and
• Grant judicial immunity to the Superintendent, as ELNY's Receiver, and the New York Liquidation Bureau (NYLB) "for any action or omission by any one or more of them when acting in good faith, in accordance with this Order, or in the performance of their duties pursuant to Insurance Law Article 74 ..."

Shortfall Payee

Eric Rabinowitz, a 43-year-old Manhattan man, who received an ELNY-funded structured settlement in 1983 after being blinded in his right eye during a cataract operation, told the WSJ: "They hung us out to dry and they knew for years that this thing didn't get properly protected and yet they gave us a few weeks to lawyer-up in holiday season."

Shortfall Payee Attorney

Connecticut attorney Edward Stone represents 12 payees whose combined ELNY benefits, according to the WSJ article, will be cut by $20 million under the approved plan. The article quotes Stone as saying: "Their benefits are being cut by more than 50%. One of my clients is being cut by 58%. This will mean major changes, and it may impact their ability to get medical care. One of my clients will have to file bankruptcy because the guarantees they were promised are not really guarantees at all."

According to Schedule 1.15 of the ELNY Restructuring Agreement, 1459 structured settlement payees will experience shortfalls ("uncovered amounts") as a result of ELNY's liquidation and restructuring even after state guaranty association contributions and voluntary enhancements by life insurance companies.

Stone also informed the WSJ: "the judge rejected his bid to call a number of witnesses to probe the [NYLB's] management of the company, including a former ELNY president, an actuary, a forensic accountant and a fraud expert."

Spokesman for Superintendent

David Neustadt, a spokesman for the Superintendent, disagreed with Stone's suggestion that the Superintendent and the NYLB might be guilty of mismanaging ELNY during the 20 plus years they supervised ELNY's Rehabilitation. "This is an absurd and baseless suggestion from a small-group of self-interested plaintiff's lawyers seeking to enrich themselves," Neustadt said.

Structured Settlement Industry Spokesman

Eric Vaughn, Executive Director of the National Structured Settlement Trade Association (NSSTA) "defended the structured-settlement industry, amid the failure of the ELNY rehabilitation" according to the WSJ article. Vaughn stated: "The Executive Life insolvency remains the only instance where any insurer of structured-settlement annuity has not made all payments in full and on time." In addition, according to Vaughn, "several hundred of the structured-settlement recipients might be able 'to recover shortfalls from the original insurers and other parties that have continuing responsibility under settlement agreements.'"

For S2KM's complete and continuing reporting about the ELNY liquidation, see the structured settlement wiki - and more specifically related to this blog post:

• The ELNY Due Process Issue - have anticipated shortfall victims received due process?
• The ELNY Immunity Issue - including and featuring Peter Bickford's analysis.
• ELNY Objections and Replies - summarizing arguments in the Superintendent's Reply Memorandum.

ELNY Liquidation Order

S2KM's summary of Judge John M. Galasso's Memorandum Decision for Executive Life of New York (ELNY) left open the question of whether Judge Galasso had granted judicial immunity to the Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY's Receiver.

Immunity Issue

The corresponding Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by Judge on April 16, 2012 confirms the grant of immunity as follows:

"Judicial immunity is extended to the 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 acting in good faith, in accordance with this Order, or in the performance of their duties pursuant to Insurance Law Article 74 ..."

A copy of both Judge Galasso's ELNY Decision and the ELNY Liquidation Order are posted on the structured settlement wiki.

Although expected, this judicial grant of immunity is controversial because, according to some legal experts:

• New York insurance laws do not specifically grant legal immunity to the Superintendent, as Receiver.
• ELNY was not judicially determined to be insolvent until Judge Galasso signed the April 16, 2012 Order.
• The Superintendent and its agents, including the NYLB, have "managed" ELNY since it first entered Rehabilitation in 1991.

For background about the immunity issue, see "The Trouble with ELNY", S2KM's review of an article by Peter Bickford.

Factoring Companies

Neither the ELNY Memorandum Decision nor the Liquidation Order address another controversial ELNY issue: whether participating state guaranty associations (PGAs) will provide coverage for ELNY structured settlement annuities where payment rights have been transferred to factoring companies and subsequently sold to investors as securities.

One result of protecting factoring companies and ELNY structured settlement payment right investors could be a reduction in funds available to other ELNY shortfall victims. Some industry experts have estimated that payment rights from as many as 1000 of ELNY's 4168 structured settlement annuities (SSAs) have been transferred to factoring companies and their investors.

According to Schedule 1.15 of the ELNY Restructuring Agreement, 1459 SSAs will experience shortfalls ("uncovered amounts") as a result of ELNY's liquidation and restructuring even assuming state guaranty association contributions and enhancements.

No Closing Date Set

Neither the ELNY Memorandum Decision nor the Liquidation Order identify a closing date for the ELNY Restructuring Agreement. Until that date, the Receiver is directed to continue full payment of all benefits for all ELNY contracts. The Court will retain subject matter jurisdiction over the Restructuring Agreement and ELNY successor company, Guaranty Association Benefits Company (GABC).

The ELNY Liquidation Order requires that all claims against ELNY must be presented to the Receiver within four months of ELNY's Liquidation Date. However, all ELNY policyholders and "holders of Claim-Overs" who appear on ELNY's books and records as of Liquidation Date are deemed to have satisfied this requirement.

The ELNY Liquidation Order requires the Receiver to provide notice of the Order to all ELNY creditors, policyholders and other interested parties and provides a Notice Form as an Exhibit.

The ELNY Due Process Issue

Assuming presiding Judge John M. Galasso signs 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, a critical issue arises:

Will the ELNY structured settlement shortfall payees have been afforded "due process" before being deprived of a percentage of their payment rights?

The Fifth and Fourteenth Amendments to the United States Constitution provide in part:

• Fifth Amendment - "No person shall be ... deprived of life, liberty, or property, without due process of law;"
• Fourteenth Amendment Section 1 - "No State shall ... deprive any person of life, liberty, or property, without due process of law."

The United States Supreme Court has interpreted these clauses as creating two doctrines: substantive due process and procedural due process.

Substantive Due Process

Substantive due process addresses whether the government has an adequate reason for taking away a person's life, liberty or property. The most obvious, and presumably adequate, reason why the ELNY liquidation hearing could result in some persons (shortfall payees) being deprived of property (percentage of their annuity payments) is that ELNY is insolvent.

ELNY does not have sufficient assets to meet all of its future payment liabilities. Because of variations in state guaranty association laws (primarily coverage caps) as well as individual ELNY contracts (size of annuities), approximately 15 percent of ELNY's annuity payees (mostly structured settlement payees) anticipate shortfalls while the other 85 percent expect to receive 100 percent of their promised future payments from ELNY's successor company, Guaranty Association Benefits Company (GABC).

Alternative Legal Recourse

Some of the structured settlement shortfall payees should have recourse against defendants and/or liability insurers who funded their structured settlement using a "buy and hold" methodology. Other structured settlement payees, whose structured settlements were funded with qualified assignments, likely would not have similar secondary payment options because First Executive Corporation (FEC), the purchaser and owner of their annuities, declared bankruptcy in 1991 and no longer exists. For an explanation of the difference between "buy and hold" funding and qualified assignments, see this prior S2KM blog post.

Although ELNY shortfall victims (including both policyholders and payees) might have a legal claim against the Superintendent, as Receiver, and his agents, including the New York Liquidation Bureau (NYLB), the Superientent's proposed Liquidation Order includes an immunity clause intended to protect the Superintendent and his agents from any legal claims that they mismanaged the ELNY Rehabilitation and are responsible for ELNY's insolvency. For additional information about the ELNY immunity issue, see this prior S2KM blog post.

Procedural Due Process

Procedural due process addresses whether the government has followed adequate procedures in taking away a person's life, liberty or property. A denial of procedural due process occurs only when there is a denial of life, liberty or property without adequate procedures. For many ELNY structured settlement payees, the probable result of the ELNY Liquidation Order and Restructuring Agreement will be to deny them of a portion of their future structured settlement payment rights. The key question for purposes of procedural due process is whether the procedures that could result in this loss of property have been "adequate".

Structured settlement payees who anticipate shortfalls and their attorneys have argued "no" - the procedures have not been adequate and therefore they anticipate suffering an unconstitutional taking of their property because of:

• Inadequate notice - ELNY's financial records indicate ELNY became insolvent as early as 2002. Former New York Governor Eliot Spitzer held a press conference in 2007 announcing "an agreement in principle" that all future ELNY payments would be paid in full and on time. The NYLB mailed letters to individual ELNY annuity payees on December 7, 2011: 1)  notifying them about the proposed ELNY Liquidation and Restructuring Agreement; and 2) alerting them of anticipated shortfalls for specific ELNY annuity contracts and a January 16, 2012 deadline for filing written objections. Responding to objections of inadequate notice, the Superintendent has argued the ELNY notice and briefing schedule balanced the need for a prompt resolution of ELNY’s deepening insolvency against the ability of affected parties to review and object to the proposed liquidation and Restructuring Agreement.
• Denial of information - ELNY shortfall victims and their attorneys claim they have received inadequate information to properly evaluate the proposed Restructuring Agreement in order to propose possible improvements and/or alternatives. The Superintendent's response: this objection does not constitute grounds for rejecting the Restructuring Agreement because the information sought has been provided or is premature and unnecessary for the Court’s consideration and approval of the Restructuring Agreement. The Superintendent further points out the objectors have not offered a competing plan. During the ELNY hearing, Judge John Galasso denied a motion by attorneys for the structured settlement shortfall victims to gain access to source materials utilized by Jack Gibson, the Superintendent's expert, who testified: 1) GABC is "financially viable"; 2) the Superintendent's proposed plan was "the best plan"; and 3) all ELNY shortfall victims will be better off under the proposed Restructuring Agreement than under a straight liquidation.
• Denial of witnesses - Judge Galasso refused to allow attorneys for ELNY shortfall payees to introduce several expert witnesses stating "they wouldn't help". Among the witnesses not permitted to testify:
  • A former Chief Executive Officer of ELNY.
  • Two expert actuaries.
  • Two forensic accountants one of whom is also an insurance fraud investigator.

In an article published in the Touro Law Review (Vol 16 page 871), titled "Procedural Due Process Claims", constitutional legal expert Erwin Chemerinsky highlights the following three-part balancing test the United States Supreme Court articulated in Mathews v. Eldridge (1976) to determine whether an individual has been denied procedural due process:

• The more important the interest to the individual, the more procedural protections the reviewing court is going to require.
• The reviewing court must balance the ability of additional procedures to increase the accuracy of the fact finding; how likely is it that the additional procedures will reduce the risk of erroneous deprivation?
• Whether the government's interest in administrative efficiency is such that the more expensive the procedures would be, the less likely it would be that the reviewing court would require them.

For S2KM's complete reporting about the ELNY Liquidation Hearing, see the structured settlement wiki.

The ELNY Immunity Issue

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?

Objection

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; . . .”

Superintendent's Reply

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

In a 2009 article consolidating a series of blog posts about "The Insurance Receivership Process in New York", attorney Peter Bickford provides an alternative perspective on the immunity issue:

"... [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."

Bickford continues:

"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."

Bickford concludes:

"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.

New York Liquidation Hearing - 9

Following 11 days of hearings at the Nassau County New York Supreme Court, presiding Judge John M. Galasso is deciding whether to sign an 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.

The ELNY hearings have raised a variety of issues not all of which Judge Galasso will be expected or required to address:

• Will Judge Galasso approve the ELNY Liquidation Order and Restructuring Agreement as proposed by the Superintendent? 
• Does Judge Galasso have any other options?
• Why wouldn't Judge Galasso appoint a "Special Master" to consider objections and/or alternatives to the proposed ELNY Restructuring Agreement?
• Would his denial of the proposed Order necessarily result in a "statutory liquidation" under New York law?
• What would a statutory liquidation mean for: 1) ELNY annuity policyholders and payees; 2) NOLHGA and the participating Guaranty Associations (PGAs); 3) New York Governor Andrew Cuomo and Superintendent Benjamin Lawsky; 4) the structured settlement industry?
• Would any of the ELNY structured settlement shortfall payees be better off under a statutory liquidation?

Assuming Judge Galasso does approve the proposed Order:

• Will the Liquidation Order grant legal immunity to the Superintendent, as ELNY Receiver, and his agents, including the New York Liquidation Bureau (NYLB), for their acts and omissions in managing ELNY's Rehabilitation since 1991?
• What is the legal justification for any such grant of immunity?
• Did Judge Galasso commit reversible errors when he denied various motions by attorneys representing ELNY structured settlement payees who expect to experience shortfalls under the proposed Restructuring Agreement?
• Would attorneys for the ELNY shortfall payees appeal the result?
• What would be the basis for their appeal?
• Assuming an appeal bond is required, how much would it cost?
• Assuming the ELNY shortfall payees won an appeal, what would they hope/expect to accomplish with a new hearing?
• Besides an appeal, what other options, if any, exist for ELNY structured settlement shortfall payees?

Additional issues raised, but not definitively resolved, during the ELNY hearing:

• When did ELNY become insolvent?
• Who was responsible for ELNY's insolvency?
• How many of the ELNY structured settlement shortfall annuities are funded with Qualified Assignments as opposed to "Buy and Hold" funding?
• Who are the defendants, liability insurers and/or brokers who purchased or funded ELNY annuities with anticipated shortfalls?
• Which PGAs will contribute to specific ELNY contracts?
• Which life insurance companies have offered to make voluntary contributions and/or enhancements to Guaranty Association Benefits Company (GABC)?
• Why would they contribute anything? And, why won't they contribute more?
• How much additional money would be required to make all ELNY structured settlement payees whole?
• What impact, if any, will the ELNY Liquidation have upon:
  • The structured settlement industry?
  • The existing state insurance regulatory system?
  • The insurance liquidation process in New York?

For additional S2KM reporting about the ELNY liquidation, see the structured settlement wiki.

ELNY Liquidation Hearing - 5

Attorney Edward Stone ignited a firestorm of objections yesterday from Sidley Austin attorneys representing the Superintendent of the New York State Department of Financial Services (Superintendent), as Receiver for Executive Life of New York (ELNY), when he introduced Douglas A. Hartz as an expert witness on behalf of ELNY structured settlement shortfall victims.

Hartz, a consultant, federal receiver and special deputy receiver, is the principal member of Insurance Regulatory Consulting Group (IRCG) which "focuses on insurance regulation, and the transactions and issues involving troubled or insolvent insurance companies."

According to his Curriculum Vitae, which Stone entered an an exhibit, Hartz has administered or assisted in the receivership proceedings of numerous insurers and directed the closure of estates with long-tail claims. He has also developed:

• Procedures for internal audit and accounting analysis (including reinsurance) leading to the recovery of millions of dollars in estate assets.
• A system of insurer liquidation accounting that has, in large part, served as the model for the NAIC Global Receivership Information Database financial reporting requirements.
• Claims and reinsurance tracking systems that meet fiduciary, statutory and guaranty fund requirements

Although Sidley Austin attorneys objected vociferously on the basis of both procedure (lack of notice) and substance (lack of New York liquidation expertise), presiding Judge John M. Gallaso overruled the objections and allowed Hartz to testify. Stone's direct examination of Hartz, and Sidley Austin's related objections, consumed the entire ELNY court hearing on Monday.

Stone's examination of Hartz focused on the methodology Hartz would utilize and the source materials he would require if Hartz were asked to develop an alternative restructuring plan for ELNY. Although the Sidley Austin attorneys objected, arguing lack of relevance, Judge Galasso also permitted Stone to introduce ELNY financial statements from 1989 which showed that ELNY contributed $40 million to capital and surplus and had cash and other liquid assets of close to $600 million in 1989.

Strategic Objective

Following yesterday's hearing, Stone provided S2KM with this exclusive statement:

"My strategic objective is to get our expert (Hartz) to convince the judge to consider whether an alternative restructuring plan for ELNY is feasible and whether such a plan is more fair and equitable than the Superintendent's proposed plan. The Superintendent's attorneys keep saying 'it can't be done'. But they refuse to show us the existing (ELNY) payment schedules or the proposed (GABC) payment schedules. To propose an alternative plan on behalf of the shortfall victims, my experts and I need to see those payout schedules and related source materials.

"After reviewing those payment schedules and source materials, we want the opportunity to propose an alternative plan that considers some combination of the following: 1) converting (discounting) large deferred lump sum payments to up front cash; 2) converting life contingent payments to period certain payments; 3) introducing a third party company or liquidation trustee to purchase and/or manage ELNY. The best way to restructure ELNY is to make all payments finite - and get rid of the perpetual ELNY machine.

"We object to any judicial grant of immunity for the Superintendent, in his role as ELNY's Receiver, or to his agents including the New York Liquidation Bureau (NYLB). ELNY was solvent when the Superintendent and the NYLB assumed management responsibilities for ELNY in 1991. We want an independent third party to be able to pursue causes of action on behalf of the ELNY estate. We intend to submit an expanded witness list with affidavits on Tuesday."

For S2KM's complete reporting about the ELNY liquidation hearing, see the structured settlement wiki.

ELNY Liquidation Hearing - 4

The Executive Life of New York (ELNY) Liquidation Hearing enters its seventh day today before Judge John M. Galasso in Room 35 of the Nassau County State Supreme Court Building in Mineola, New York. This blog post provides a summary update for S2KM readers. Note: see also the Addendum.

Days 1 and 2 - Attorneys for ELNY's Receiver, the Superintendent of the New York State Department of Financial Services (Superintendent), and the National Organization of Life and Health Guaranty Associations (NOLHGA) present their case for ELNY's liquidation and approval of a proposed Restructuring Agreement to create successor company Guaranty Association Benefits Company (GABC). They present two witnesses: Jonathan Bing, Special Deputy Superintendent of the New York Liquidation Bureau (NYLB), and expert witness Jack Gibson, a Managing Director of Towers Watson.

Attorneys for ELNY structured settlement shortfall victims cross examine Bing and begin their cross-examination of Gibson. Before the Superintendent's attorneys complete their case, Judge Galasso allows ELNY structured settlement shortfall victims attending the hearing to offer oral testimony as an accommodation to their travel schedules.

Day 3 - Attorneys for ELNY structured settlement shortfall victims continue their cross examination of Gibson. Judge Galasso denies their motion to compel immediate disclosure of source materials relied upon by Gibson as well as copies of all objections filed in connection with the Petition to liquidate and restructure ELNY.

Attorneys for the shortfall victims had argued that claims of confidentiality by the Superintendent intentionally deprived their clients of full and fair access to important and relevant information and, accordingly, a full and fair opportunity to challenge the Superintendent's proposed ELNY Restructuring Agreement. They also claimed it is "extremely prejudicial" to require them to cross-examine Gibson ("a highly skilled actuary") without access to the source data and assumptions he used to perform his calculations.

Day 4 - Attorneys representing ELNY structured settlement shortfall victims continue cross-examining Gibson. Judge Galasso agrees to two of their requests: a reservation of rights to call a witness representing NOLHGA to testify about participating Guaranty Association (PGA) coverage amounts and issues; and a Microsoft Excel version of Schedule 1.15 of the proposed ELNY Restructuring Agreement. In addition to Day 2 testimony from ELNY structured settlement shortfall victims, their attorneys have also entered documents into the Court record including:

• Written and oral statements by ELNY structured settlement shortfall victims;
• A Society of Actuaries Structured Settlement Mortality Study;
• An article titled "The Trouble with ELNY" written by Peter Bickford.

Day 5 - Attorneys from Hogan Lovells, representing Travelers Insurance Company as an "Objector", use their opportunity to cross-examine Gibson to show their support for the proposed Restructuring Agreement. Note: Hogan Lovells also serves as General Counsel for the National Structured Settlement Trade Association (NSSTA).

Cynthia Lindsey, an attorney representing a Michigan structured settlement shortfall victim, reaches the opposite conclusion during her cross examination of Gibson. After quoting dictionary definitions for "fair" and "just", Lindsey characterizes the proposed Restructuring Agreement as "a bunch of bull" telling Gibson: "You are asking this Honorable Court to approve this plan based upon your assumptions. You don't have facts." After repeated questioning by Lindsey, Gibson acknowledges NOLHGA has paid Gibson's employer, Towers Watson, "more than $3 million" since 2006 for their ELNY consulting work.

On re-direct examination, attorneys for the Superintendent (Sidley Austin) and NOLHGA (Faegre Baker Daniels) encourage Gibson to repeat claims from his earlier testimony that the proposed ELNY Restructuring Agreement represents the "best plan" and that none of the ELNY payees will be worse off compared with a straight liquidation.

Day 6 - Edward Stone, an attorney representing several structured settlement shortfall victims, continues questioning Gibson on re-cross examination. Stone questions whether all shortfall victims will be better off under the proposed Restructuring Agreement compared with a straight liquidation. In a straight liquidation, ELNY shortfall victims could receive full coverage payments from PGAs instead of net payments under the proposed Restructuring Agreement. Stone also introduces the idea of an alternative restructuring plan for ELNY and asks Gibson whether he considered various plan options.

Among Stone's suggested alternatives: 1) discounting ELNY's future deferred lump sum obligations to reduce ELNY's future liabilities and provide immediate cash for ELNY payees; and 2) selling ELNY to an existing life insurance company that could benefit from (and pay a premium for) ELNY's net operating loss carryforwards. Note: in an earlier interview with the Courthouse News Service, Stone stated he could develop a more "fair and equitable" alternative ELNY restructuring plan if he had access to the same information provided NOLHGA and Gibson since 2006.

When Gibson finally steps down (after six days of testimony and cross-examination), attorneys for the Superintendent and NOLHGA call NOLHGA's President, Peter Gallanis as a witness. On cross-examination, Carrie Tendler, an attorney representing multiple structured settlement shortfall victims, gets Gallanis to confirm that PGA contributions under the Superintendent's proposed Restructuring Agreement will be "net amounts" - i.e. their full coverage caps minus credits for current ELNY assets.

The ELNY Liquidation Hearing resumes Friday March 23, 2012 with Tendler continuing her cross-examination of Gallanis. For S2KM's complete reporting about ELNY, see the structured settlement wiki.

Day 7 ADDENDUM - Testimony by, and cross-examination of, NOLHGA's President Peter Gallanis continued on Friday March 23 eliciting the following information: Gallanis acknowleged GABC has not yet selected an investment manager or developed an investment strategy. Attorneys for structured settlement shortfall victims raised two issues related to the proposed ELNY Restructuring Agreement:

• Orphan contract enhancements create a potential public policy issue because they shift available funds that could be paid to other ELNY shortfall payees.
• If an ELNY structured settlement payee with life contingent payments dies, that payee could receive less than the present value posted on Schedule 1.15 creating a potential legal claim for his/her estate.

The ELNY Hearing continues on Monday March 26 with attorneys for the ELNY structured settlement shortfall victims expected to present witnesses.

Courthouse News ELNY Article

Courthouse News Service, a nationwide news service for lawyers and the news media, has published a report about the ELNY Liquidation Hearing titled: "Insurance Beneficiaries Say NY is Cheating". Written by Julia Filip, the article features the following quotes from attorney Edward Stone excerpted from written objections he filed on behalf of his ELNY structured settlement shortfall clients plus additional allegations Stone makes in his interview with the Courthouse News Service Article:

• "For more than twenty years the NYLB [New York Liquidation Bureau] mismanaged ELNY and created a deficit of epic proportions never before seen in the context of a life insurance company insolvency .... And now this court is being asked to sweep all of this waste, mismanagement and neglect under the rug by taking away benefits from those most in need: the shortfall payees."

• Stone's clients, and other ELNY structured settlement shortfall victims,"were excluded from the process of designing the liquidation plan and denied the opportunity to confront the New York Liquidation Bureau."

• "To suggest that my clients should have divined that their payments were being reduced prior to the receipt of the notice letter in mid-December, which is the only time any shortfall information was given to them, and somehow fashioned an alternative plan for consideration by the court with no access to any source data or reference materials they could have independently assessed is simply absurd."

•  "Nobody ever came to anyone whose benefits were being cut and said, 'Hey, do you want to come up with an alternative plan, with a better way to do this?'"

• "To make matters worse, the Superintendent continues to maintain supervision over the process at the expense of the shortfall payees. ..Isn't 21 years of supervised rehabilitation enough?"

• "The NYLB proposed plan favors [Guaranty Associations] over shortfall payees and the entire restructuring agreement is designed to favor NOLGHA members' interests at the expense of my clients."

• "They're doing it [ELNY proposed liquidation and Restructuring Agreement] in a way that is so unfair and insensitive and the only reason they do it is to cover up 21 years of mismanagement."

• "I wasn't able to get an audit; who knows if [the Receiver and MetLife as annuity administrator] were paying people who were already dead?"

• "NYLB admitted that their data is not accurate and is unreliable, and they based all the data on information from only one source, which, by [NYLB's witnesses] own admission, is not credible, and was never verified by any third party."

• "The data produced by the NYLB to date is inconsistent, inaccurate and completely and wholly lacking in transparency. To push through an inequitable plan of liquidation and approve the restructuring agreement before the court, without giving the shortfall payees a meaningful opportunity to be heard flies in the face of the most basic notions of fairness and due process."

• "Based on the way twenty years of 'rehabilitation' have unfolded, my clients have no way of knowing the true financial condition of ELNY and there has been no transparency, no credibility and no integrity in the financial reporting that took place in the past."

• Referring to an article about ELNY written by New York attorney Peter Bickford: "ELNY's cash flow went negative in 2002, ten years after the plan of rehabilitation and six years before the economic downturn of 2008."

•  "Without requiring any additional contributions from the [Guaranty Associations], we could structure an alternative plan that would have an independent entity take over, let them pursue legal action on behalf of everyone, let them supervise, and take all the contributions from the [Guaranty Associations] and pay off those benefits, and offer people alternatives. If they want to convert annuities into a different product, as a choice, they could do it now, as opposed to just leave them on a hook forever."

•  "But to really propose a new plan, I would have to understand what the liabilities are, to really figure out what we have to do, we need the same information the other side has had for 3 years. We never got it."

•  "A fair and equitable plan of liquidation would base future payments on the percentage of the original settlement that has been received by all payees and apply the percentage that remains outstanding to ELNY's assets, such that all 9,600 remaining ELNY payees receive as close to the same percentage of promised benefits as is possible."

• "A fair and equitable plan would also consider the impact of payment reductions and consider rescheduling future payments to allow for an upfront benefit to ease the transition for those payees whose payments are ultimately reduced. The proposed liquidation plan does not address this."

•  "The most vile part is asking the judge to grant them judicial immunity ... I suspect from the data we had that something is not right. They made a $1 billion dollar adjustment to their reserve in 2006, based on a change in assumptions that they could have made in 1992."

The ELNY Liquidation hearing continues for the sixth day today before Judge John M. Galasso in Room 35 of the Nassau County State Supreme Court Building in Mineola, New York. S2KM's complete ELNY reporting appears on the structured settlement wiki.

ELNY Liquidation Hearing - 3

The fourth day of the Executive Life of New York (ELNY) Liquidation Hearing ended just like the previous three days - with attorneys representing ELNY Objectors (shortfall payees and policyholders) cross-examining Jack Gibson, the expert actuary retained by ELNY's Receiver, the Superintendent of the New York State Department of Financial Services (Superintendent).

Although presiding Judge John M. Galasso had earlier denied a motion by the ELNY Objectors' attorneys to compel disclosure of Gibson's source materials (see ELNY Liquidation Hearing - 2), Judge Galasso did agree on Tuesday March 20, 2012 to meet two new requests made on behalf of the ELNY structured settlement shortfall victims:

• A reservation of rights to call a witness representing the National Organization of Life and Health Guaranty Associations (NOLHGA) to testify about participating Guaranty Association (PGA) coverage amounts and issues;
• A Microsoft Excel version (as opposed to hardcopy and pdf versions) of Schedule 1.15 of the proposed ELNY Restructuring Agreement.

What exactly are the attorneys for the ELNY Objectors trying to accomplish with their still unfinished cross-examination of Gibson whose testimony and report conclude that Guaranty Association Benefits Company (GABC), the proposed successor company to ELNY, will be "financially viable"?

Edward Stone, an attorney representing multiple ELNY structured settlement shortfall victims, has informed S2KM that part of his cross-examination strategy is to characterize Gibson's expert report as "Garbage In, Garbage Out" work product. Stone does not dispute Gibson's impressive professional credentials. However, if Gibson has relied on faulty data that has not been independently verified and/or vetted, then Stone maintains Gibson's conclusions become suspect.

In his direct testimony, Gibson testified that an ELNY annuity administrative database prepared by MetLife had formed the sole basis for his projections regarding ELNY's future liabilities which, under the proposed Restructuring Agreement, would become liabilities of GABC. He also testified that all of MetLife's administrative reports (covering the years 2002-2010) were compiled in 2011 and that he determined that MetLife data with respect to ELNY structured settlement mortality prior to 2002 was not credible.

"Gibson was hired by the Superintendent and NOLHGA to produce the results they wanted", Stone stated. "His assignment is to help get the proposed Restructuring Agreement approved not to determine whether it is fair or whether better alternative plans exist."

Although the ELNY Objectors have not yet presented their own case, their attorneys have already entered several documents into the Court record including:

• Written and oral statements by ELNY structured settlement shortfall victims;
• A Society of Actuaries Structured Settlement Mortality Study;
• An article titled "The Trouble with ELNY" written by Peter Bickford.

The ELNY Liquidation Hearing is scheduled for only one-half day on Wednesday March 21, 2012 and is expected to conclude later this week. For S2KM's complete ELNY reporting, see the structured settlement wiki.