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.

Spring 2012 Conferences

During the next four weeks, S2KM will attend and review three professional educational conferences addressing structured settlement and settlement planning issues:

• Richard B. Risk Jr. Settlement Planning Practicum
• National Structured Settlement Trade Association (NSSTA) Annual Meeting
• Society of Settlement Planners (SSP) Annual Meeting

Risk Practicum

A national authority on structured settlement law, Richard Risk has endowed a series of annual settlement planning "practicums" at his law school alma mater, The University of Tulsa College of Law. Risk believes the 2012 practicum, scheduled for April 13-14, will represent the first time any law school in the country has formally recognized settlement planning as a topic of legal education. Speakers: Joseph Tombs; Patrick Hindert; Mark Popolizio; Jeremy Babener; Jack Meligan; Carl Pierce.

NSSTA Annual Meeting

NSSTA's Annual Meeting, scheduled for April 25-27 in Washington, D.C., will feature a mixed agenda of business and political meetings; NSSTA "Takes the Hill" meetings with Members of Congress and senior Congressional Staffers; plus an educational program headlined by Senator Max Baucus, Congressman Richard Neal, NOLHGA Chairman Thomas Ronce and President Peter Gallanis, Mike Montemurro of the IRS, a Congressional Chiefs of Staff panel, plus various NSSTA leaders and property & casualty insurance representatives.

SSP Annual Meeting

SSP will host its Annual Meeting April 29-May 1 in Las Vegas. The SSP educational program will feature 27 speakers discussing strategies to improve and grow the settlement planning market. Some of the SSP presentation categories:

• Revitalizing and reinventing structured settlements
• New NAIC annuity regulations
• Insurance, investment and administrative options
• Tax developments, strategies and legislative proposals
• Medicare (MSA) and Medicaid (SNT) updates
• What ELNY means for settlement planners

In addition to these three 2012 conferences, S2KM previously attended and reviewed the Academy of Special Needs Planners (ASNP) 2012 Annual Meeting. For S2KM's complete reporting about professional associations whose members participate in structured settlements and settlement planning, 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 - 6

During the second day of the Executive Life of New York (ELNY) Liquidation Hearing, presiding Judge John M. Galasso stated: "I have a gun to my head; if the annuitants don't get the Restructuring Agreement, they get a straight liquidation."

That gun discharged metaphorically yesterday in Room 35 of the Nassau County New York State Supreme Court Building. The target, however, was not Judge Galasso. Instead, Judge Galasso took full aim at attorney Edward Stone and the ELNY structured settlement shortfall payees. Some of the key developments:

• No Additional Witnesses - After allowing Stone's expert witness Douglas Hartz to testify and be cross-examined on March 26, Judge Galasso refused to allow Stone to introduce additional witnesses on behalf of the shortfall victims stating "they wouldn't help". Among the witnesses Stone had listed in addition to Hartz:
  
  • Ronald Kehrli - former Chief Executive Officer of ELNY prior to ELNY entering Rehabilitation.
  • Corwin K. Zass - an expert actuary.
  • Marshall Sterman - a forensic accountant.
  • Thomas Gober - a forensic accountant and insurance fraud investigator.
  • Laird Zacheis - a consulting actuary.
• Objections Under Seal - Denying previous requests by attorneys for ELNY shortfall victims to review the compendium of objections submitted by all Objectors to the proposed ELNY Restructuring Agreement, Judge Galasso decided "sua sponte" to place all objections "under seal" thereby preventing those objections from becoming a matter of public record and restricting access by attorneys for the structured settlement shortfall payees.
• Source Materials - Judge Galasso continued to deny attorneys for the shortfall payees access to critical source materials (including the MetLife ELNY database) relied upon by the agents and experts for the Superintendent of the New York State Department of Financial Services (Superintendent), as Receiver for ELNY, in formulating the Superintendent's proposed Restructuring Agreement for ELNY.
• Closing Arguments -  Judge Galasso scheduled closing arguments to begin today, March 28, 2012, with attorneys for the ELNY shortfall victims presenting first.

In their prior cross-examination of witnesses called on behalf of the Superintendent, attorneys representing ELNY structured settlement shortfall payees had attempted to convince Judge Galasso that the proposed ELNY Restructuring Agreement was neither "fair and equitable" nor the "best possible plan". In presenting their clients' case, those attorneys indicated they planned to suggest improvements and/or alternatives.

By denying attorneys for the ELNY structured settlement shortfall payees the right: 1) to present all of their expert witnesses and 2) to review all objections plus critical source documents previously shared by the Superintendent and NOLHGA with their agents and experts, Judge Galasso appears to have added insult to injury by prematurely putting to rest what was supposed to be a fair and open hearing.

S2KM's complete reporting about the ELNY Liquidation Hearing is accessible on 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.

ELNY Liquidation Hearing - 2

Presiding Judge John M. Galasso today denied a motion filed on behalf of Executive Life of New York (ELNY) structured settlement shortfall victims to compel immediate disclosure of source materials relied upon by testifying expert Jack Gibson as well as copies of all objections filed in connection with the Petition to liquidate and restructure ELNY.

Attorneys for the structured settlement shortfall victims had argued that claims of confidentiality by ELNY's Receiver, the Superintendent of the New York State Department of Financial Services, (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.

Gibson, the Superintendent's expert witness, had earlier 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 successor company Guaranty Association Benefits Company (GABC).

In addition to the MetLife database, attorneys for the ELNY structured settlement shortfall victims unsuccessfully sought disclosure of other documents relied upon by Gibson including an ELNY 2002-2010 Mortality Experience Study, a MetLife/ELNY Administrative Agreement, Investment Reports from ELNY's Investment Managers, plus information developed by NOLHGA showing Guaranty Association estimates and allocations for individual annuity contracts.

Neither the ELNY structured settlement shortfall victims nor their attorneys have had access to any of these materials which Gibson relied upon to conclude that GABC is financially viable. The ELNY structured settlement shortfall victims' attorneys 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.

In addition to Gibson's source materials, the ELNY structured settlement shortfall victims' motion also sought to compel the Superintendent to make accessible all publicly filed court documents including especially the Objections filed by all objectors.

Despite references to various objections in the Superintendent's Reply Memorandum and Jonathan Bing's Affidavit and testimony, the Superintendent has refused to share copies with the ELNY structured settlement shortfall victims or their attorneys. In contrast, the Superintendent has shared the full set of Objections with the National Organization of Life and Health Guaranty Associations (NOLHGA) and the Life Insurance Company Guaranty Corporation of New York (LICGCNY).

To address the Superintendent's claimed concerns of confidentiality, attorneys for the ELNY structured settlement shortfall victims offered to accept redacted versions of the documents or enter into a confidentiality agreement. Challenging the Superintendent's claimed concerns of confidentiality, attorneys for the ELNY structured settlement shortfall victims alleged the Superintendent's true motive is to deprive the ELNY structured settlement shortfall victims a full and fair opportunity to challenge the proposed ELNY Restructuring Agreement.

The ELNY Liquidation Hearing will reconvene Tuesday March 20, 2012 with attorneys for the ELNY structured settlement shortfall victims continuing their cross-examination of Gibson. For S2KM's complete reporting about the ELNY liquidation, see the structured settlement wiki.

ELNY Liquidation Hearing - 1

Following two days of testimony March 15 and 16, 2012 before Judge John M. Galasso, the hearing to consider the proposed liquidation and restructuring of Executive Life Insurance Company of New York (ELNY) will continue Monday March 19 in Room 35 of the Nassau County New York Supreme Court Building.

In addition to the direct testimony of Jonathan Bing, Special Deputy Superintendent of the New York Liquidation Bureau (NYLB), and expert witness Jack Gibson, a Managing Director of Towers Watson, the first two days featured cross examinations by attorneys representing ELNY structured settlement payees and testimony from ELNY annuitants who would suffer significant payment shortfalls under the ELNY Restructuring Agreement proposed by ELNY's Receiver, the Superintendent of the New York State Department of Financial Services (Superintendent).

According to Schedule 1.15 for the proposed ELNY Restructuring Agreement, 4168 of ELNY's remaining 9694 annuities are structured settlement annuities of which 1459 (approximately 15 percent) will experience shortfalls, some more than 50 percent, even assuming proposed state guaranty association contributions and life insurance company enhancements. The remaining ELNY annuities (approximately 85 percent) are expected to be paid in full by a new special purpose entity to be named Guaranty Association Benefits Company (GABC).

Attorneys representing the Superintendent (Sidley Austin) and NOLHGA (Faegre Baker Daniels) led Bing and Gibson through their direct testimony and introduced multiple Exhibits including Bing's Affidavit and Gibson's Expert Report both of which S2KM summarized in a prior blog post. The essence of the Superintendent's case:

• ELNY is insolvent with assets sufficient to pay for only 34 percent of its future obligations.
• ELNY's insolvency resulted from unfavorable investment results with sustained low interest rates and poor capital market performance.
• The proposed Restructuring Agreement is in best interest of policyholders, creditors and the public.
• Differences among individual annuitants result from variations in state guaranty association limits as applied to specific ELNY contracts.
• ELNY annuitants with anticipated shortfalls received adequate notice to raise objections and no one has proposed an alternative restructuring plan.
• No ELNY annuitant will be worse off under the Restructuring Agreement than with a straight liquidation.
• GABC is financially viable because of its initial funding, participating guaranty association (PGA) contributions plus voluntary life insurance company enhancements.
• GABC will be run by professional insurance managers and supervised by the New York Superintendent.
• Any surpluses earned by GABC will be paid to former ELNY annuitants on a pro rata basis.
• As ELNY's Receiver and Liquidator, the Superintendent is granted discretion under New York Law and should be granted legal immunity along with his agents including the NYLB.

On cross-examination of Bing and Gibson, attorneys for objecting ELNY annuitants highlighted the following issues:

• In fulfilling NYLB's responsibilities for ELNY, Bing has consulted with representatives of NOLHGA, the NOLHGA ELNY Task Force, ELNY PGAs, contributing ELNY life companies, ELNY policyholders, past and present Superintendents, plus the Superintendent's ELNY attorneys and experts. Bing has not, however, consulted with any ELNY annuitants or their representatives.
• Although representatives of NYLB and NOLHGA have access to all of the written objections filed with the Court by ELNY policyholders and payees, representatives of annuitants do not have access to all of the written objections and those objections have not been posted on the ELNY website.
• Although it is difficult, even for Bing, to specifically define the NYLB, it is not a taxpayer funded state agency.
• Except for individual notices mailed to ELNY annuitants on December 7, 2011, none of the other ELNY "notifications" (public notices, press releases, websites, or 800 numbers) informed individual ELNY annuitants whether they would experience shortfalls under the proposed Restructuring Agreement.
• January 16, 2012, the deadline for ELNY policyholders and payees to file objections with the Court was a legal holiday and the Court was closed.
• Until ELNY's 2006 audited financial statements were completed showing a surplus deficit of $1.266 billion, the NYLB was unaware that ELNY had insufficient assets to pays its future obligations.
• In formulating his expert opinions, Gibson relied upon source materials that annuitants and their attorneys have not been given an opportunity to review.
• Note: Judge Galasso set a Monday March 19, 2012 deadline for annuitants' attorneys to file separate motions requesting access to Gibson's source materials and to all written objections previously filed by ELNY policyholders and payees with the Court.

Before the Superintendent's attorneys completed presenting their case, Judge Galasso allowed ELNY annuitants attending the hearing to offer oral testimony as an accommodation to their travel schedules. Some of the highlights of their testimony:

• All of the testifying ELNY annuitants asserted the ELNY Restructuring Agreement and notification process were "unfair" because:
  • The Governor of New York and the Superintendent had assured the public as recently as 2007 that all ELNY benefits would be paid in full.
  • The Superintendent had years to prepare the Restructuring Agreement with assistance from NOLHGA, sophisticated attorneys, actuaries, accountants and financial advisers plus a staff of 250 NYLB employees.
  • When they received their notification letters just prior to the 2011 Christmas holidays in what some described as "junk mail envelopes", ELNY shortfall victims who wanted to challenge the Restructuring Agreement were required to:
    • Comprehend complex legal and financial materials without access to any independent professional evaluation;
    • Locate qualified attorneys willing to assist them on short notice during the holidays;
    • File written objections and propose an alternative restructuring proposal without access to critical source materials on or before a deadline that turned out to be a legal holiday.
• None of the testifying ELNY annuitants thought it was fair that 15 percent of the ELNY annuitants should bear 100 percent of the total ELNY shortfall while 85 percent of the ELNY annuitants continue to receive 100 percent of their payments.
• Some testifying ELNY annuitants stated:
  • Negotiation participants, structured settlement sales materials and/or language in their settlement documents assured them their annuity payments were "guaranteed" for life and/or a period certain.
  • It is unconscionable that: 1) the Superintendent, as ELNY's Receiver, and his agents, including the NYLB, should be granted immunity from lawsuits; and/or 2) the Superintendent should be given any supervisory role for GABC.
  • It is unfair to treat ELNY structured settlement annuitants differently depending upon whether or not original tort defendants funded their payment obligations with a Qualified Assignment.
• One ELNY annuitant (currently serving as a California State Appellate Judge) with an Article 75 (pre-1986) ELNY contract stated that three named representatives of the New York Insurance Department assured him in 1991 that he would receive all of his ELNY payments in full. Note: Judge Galasso requested briefing on the Article 75 New York Guaranty Association issues.

Based upon S2KM's written notes, here are some selected quotes from Judge Galasso during the first two days of the ELNY hearing taken out of context and sequence:

• "We are trying to be fair to everyone."
• "This company has been in trouble since 1991 and unlike banks, you cannot take your money out."
• "I have a gun to my head; if the annuitants don't get the Restructuring Agreement, they get a straight liquidation."
• "It seems unfair that 15 percent of the annuitants bear all of the loss."
• "When agents sold you your policy did they say you exceeded the guaranty association cap?"
• "My problem is that people buy their annuities and think they are 'guaranteed'"
• "Who determined the amount of voluntary life insurance contributions?"
• "Whatever I decide probably will be appealed."
• "How can insurance companies make contributions for orphan contracts but not for seriously injured payees?"
• "Results in many cases depend upon where you live. Why is that fair?"
• "Who is representing the annuitants interests? Does the Superintendent have a conflict of interest?"

The ELNY liquidation hearing continues on Monday March 19, 2012. For S2KM's complete ELNY reporting, see the structured settlement wiki.

ELNY Objections and Replies

On March 15, 2012, the Supreme Court of Nassau County New York (Court) is scheduled to consider a Petition by the Superintendent of the New York State Department of Financial Services (Superintendent) for an Order of Liquidation and Approval of a Restructuring Agreement for Executive Life Insurance Company of New York (ELNY).

In response to the proposed ELNY Liquidation Order and Restructuring Agreement, approximately 130 persons and/or companies have filed objections. 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).

The Reply Memorandum consists of 56 pages plus an Exhibit A titled "List of Objections". Exhibit A identifies individual objectors (presumably ELNY annuity payees) by contract number and liability insurers (presumably ELNY "buy and hold" annuity owners) by name. Exhibit A also identifies a couple of structured settlement factoring companies as objectors. Among the Reply Memorandum's conclusions:

• "No interested person has come forward with a viable alternative or proposed statutorily compliant changes to the Restructuring Agreement that would increase benefit payments to ELNY Contract policyholders and payees above those already provided for and guaranteed under the Restructuring Agreement."
• "The Court should overrule the objections submitted and issue an order declaring ELNY to be insolvent and directing the liquidation of ELNY on the terms set forth in the Restructuring Agreement."

S2KM summarized the Reply Memorandum as well as two other recent ELNY Court filings in a prior blog post. In this blog post, S2KM summarizes the ELNY objections and the Superintendent's replies as set forth in the Reply Memorandum. For S2KM's complete coverage of the ELNY liquidation, including an Executive Life timeline, see the structured settlement wiki.

Benefit Reductions

• Objection- ELNY annuity benefit payments should not be reduced because:
  • A reduction in benefits will cause extreme hardship.
  • The terms of the ELNY annuity contracts prohibit a reduction in payments.
  • Many of the ELNY annuity contract were issued pursuant to structured settlement agreements approved by court orders that cannot be abrogated.
  • Assurances were received that the ELNY structured settlement annuity payments would be guaranteed.
• Superintendent's Reply
  • These objections cannot outweigh the necessity for an order of liquidation because ELNY’s current assets are insufficient to cover the claims of all creditors.
  • Without liquidation, insolvency will continue to worsen and ELNY will exhaust its assets without the ability to meet its future annuity payment obligations.
  • Upon a finding of insolvency and the issuance of an order of liquidation, ELNY will cease to exist and the Superintendent, as liquidator, will be vested with discretionary authority to dispose of ELNY’s assets and to compromise its claims in accordance with New York Insurance Law Section 7435 in the manner directed by this Court.
  • As a result, prior orders and contractual obligations regarding payments do not form a valid basis for objecting to the approval of the Restructuring Agreement.
  • The Restructuring Agreement maximizes benefits and minimizes the risk of disruption and loss to ELNY policyholders and payees.

Additional Disclosure

• Objection - More information is needed to determine whether objections exist to the Restructuring Agreement.
• Superintendent's Reply
  • This objection is not 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 has been working to provide objectors with all of the information requested, most of which has already been disclosed including recently completed Exhibit 6.1.2, the Supplemental Benefits Reinsurance and Participation Agreement.
• Objection - The Restructuring Agreement and its exhibits and schedules have not been finalized and executed.
• Superintendent's Reply
  • The reason for seeking approval of the Restructuring Agreement as drafted is to allow flexibility for making non-material changes to successfully close the Restructuring Agreement without negatively impacting ELNY policyholders and payees.
  • The Superintendent does not object to the Court considering and resolving any objections filed after the January 16, 2012 deadline to the extent they concern disclosures or changes made after that date.
  • The Superintendent is negotiating a draft "facilitation plan" with NOLHGA, on behalf of GABC, and certain annuity owners, which is not a closing condition to the Restructuring Agreement.
  • Even without the facilitation plan, ELNY policyholders and annuitants will still receive the same benefit payments from GABC plus whatever supplemental payments they are entitled to from responsible annuity owners.
• Objection - The Superintendent did not provide sufficient information and/or assurances concerning the financial ability of GABC to meet its future obligations to ELNY policyholders and payees.
• Superintendent's Reply
  • The Superintendent did not present additional financial information concerning the assets and liabilities of GABC at the time of filing the Verified Petition.
  • Reason: except for GABC's New York Article 75 guaranty payments (less than 5 percent of total liabilities), GABC's liabilities will be guaranteed by state guaranty associations or life insurance companies.
  • Because of this objection, however, the Superintendent has filed an expert report of Jack Gibson and an affidavit of Jonathan Bing and intends to present their testimony as well as Ivy Chang's testimony on March 15, 2012. Note: Gibson's report plus the affidavits of Bing and Chang are posted on the ELNY website. S2KM summarized Gibson's report and Bing's affidavit in this prior blog post and Chang's affidavit in this prior blog post.
  • The Superintendent also promises to provide additional information concerning Schedule 1.15, including guaranty association coverage, enhancements, and the treatment of third parties with rights under assignments of annuity benefit payments in accordance with Article 74 of the Insurance Law.
• Objection - The Restructuring Agreement is subject to change after Court approval including Schedule 1.15, participating guaranty association (PGA) coverage, and/or the extent of third-party rights to payments from PGAs.
• Superintendent's Reply
  • Prior notices to ELNY policyholders and annuitants explained that information about possible benefit reductions was “estimated” and “subject to change”.
  • Note: the Superintendent has revised the proposed Restructuring Agreement as of March 6, 2012.
  • The Superintendent promises to file with the Court an updated Schedule 1.15 prior to the March 15, 2012 hearing on the Petition.
  • Under the applicable statutes, however, Schedule 1.15 cannot be finalized until after court approval of the Restructuring Agreement to allow sufficient time for resolution of any Section 1.15-related disputes.
  • After the Court approves the Restructuring Agreement, Schedule 1.15 will also change to the extent:
    • An ELNY policyholder moves, provides updated address information, or dies, which could alter PGA coverage and/or ELNY’s contractual obligations;
    • The total assets and liabilities of ELNY change to a sufficient degree to alter the projected pro rata percentage distribution of ELNY’s assets to all ELNY policyholders and payees;
    • A PGA determines that an ELNY policyholder or payee is or is not entitled to coverage previously noted in Schedule 1.15; and/or
    • Information is provided that shows an error in Schedule 1.15, requiring correction pursuant to the Restructuring Agreement.

Notice Issues

• Objection - The notice procedures and briefing schedule were inadequate to provide interested parties with an opportunity to review and to present objections to the proposed ELNY liquidation and Restructuring Agreement.
• Superintendent's Reply
  • 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.
  • By the March 15, 2012 hearing date, interested parties will have had:
    • 195 days since the Superintendent issued a press release about ELNY’s financial situation and the plans to liquidate and restructure;
    • 118 days since a form of Court-approved Notice began being published in the national editions of the New York Times and Wall Street Journal for four consecutive weeks, and
    • 99 days since personalized informational mailings were distributed to the last known address of each ELNY policyholder and payee.
  • The Superintendent, through the NYLB, created a new dedicated website specifically for ELNY policyholders and other interested parties on September 1, 2011 - the same day the Order to Show Cause was issued.
  • The Superintendent has received, considered and responded to several objections submitted past the January 16, 2012 deadline.

Not Fair and Equitable

• Objection- The Restructuring Agreement is not fair and equitable and does not comport with New York law because:
  • Some ELNY annuity payees will experience substantial shortfalls while the great majority of ELNY annuity payees will be paid in full; and
  • It improperly favors ELNY contracts that are either not covered by a PGA or covered by a PGA in an amount less than $250,000.
• Superintendent's Reply
  • The Restructuring Agreement complies with the statutory requirements of Article 74 of the New York Insurance Law. It treats all ELNY policyholders equally and creates no favored subclass with respect to ELNY's assets.
  • A straight liquidation of the ELNY estate without implementation of the Restructuring Agreement would provide far fewer benefits in a significantly less orderly manner.
  • Under New York law, the Superintendent has the power to enter into the Restructuring Agreement and the Court has the ability to direct the manner in which payments and dividends to creditors shall be made.
  • In his role managing the affairs of an insolvent insurer, the Superintendent, as Rehabilitator or Liquidator, is entitled to deference unless his decisions are arbitrary or unreasonable.

PGA Participation and Funding

• Objection - The Restructuring Agreement should not be approved because it limits or alters ELNY policyholders’ and payees’ rights against the PGAs.
• Superintendent's Reply - The Restructuring Agreement does not limit or alter ELNY Contract policyholders’ and payees’ rights against the PGAs, including the right to contest the amount or conditions of any applicable state guaranty association coverage.
• Objection - The Restructuring Agreement unfairly permits the PGAs to reduce the amount of their statutory coverage obligations.
• Superintendent's Reply
  • The net contribution, as opposed to a full contribution by the PGAs of the maximum amount of each PGA’s statutory coverage, arises under the express provisions of Section 7435 of the New York Insurance Law, not under applicable state guaranty association statutes.
  • This netting effect occurs because the contributing PGA is entitled to a pro rata distribution of ELNY’s assets with equal priority to the claims of ELNY policyholders and payees.
  • It is accounted for in the Restructuring Agreement by calculating the PGAs total required contributions on a net basis after reduction of the PGAs’ corresponding claim against the ELNY estate.

Proposed Immunity Provisions

• Objections
  • Provisions in the proposed Order of Liquidation extending judicial immunity to the Superintendent, his successors, agents and representatives, should be denied and/or eliminated.
  • The Court should use funds from the ELNY estate to appoint an investigator/expert to determine the cause of ELNY’s insolvency.
• Superintendent's Reply- The Court should reject these requests and grant immunity to the Superintendent and his agents because:
  • 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.
  • Historical returns on ELNY’s investments were not as high as anticipated under the Rehabilitation Plan (13% for the common stocks and 100-150 basis points above 30 year U.S. Treasury obligations for bonds).
  • The Superintendent adjusted and increased the reserves required to meet ELNY’s future annuity obligations in 2006 using the then-current statutory basis of 5.25 percent.
  • The net effect was to increase the projected funds needed by ELNY to meet its future obligations by nearly $1 billion dollars.
  • While ELNY’s actual payment obligations remained unchanged, the 2006 financial statements showed an increase in assets necessary to meet those obligations.
  • New York Insurance law does not provide for the appointment of an investigator/expert by the Court to be paid for by the ELNY estate.
  • 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 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.

Miscellaneous

• Objection - The Court should provide a lump sum payment option or the right to opt out of the proposed Restructuring Agreement.
• Superintendent's Reply - An opt out is not required under New York Insurance Law and would not provide any economic or administrative benefit to policyholders and payees.
• Objection - The Court should appoint counsel to represent ELNY policyholders and payees or hold an annual hearing to determine if the economy has sufficiently recovered to permit 100% back pay.
• Superintendent's Reply - Such measures are outside the scope of New York Insurance Laws. In addition, Section 6.2 of the Restructuring Agreement already provides, if economic conditions improve, any excess of assets necessary to meet GABC’s obligations will be returned to the ELNY estate for distribution to ELNY policyholders and payees.
• Objection - Any remaining valuable assets of First Executive Corporation (FEC) should be segregated and credited to structured settlement payees to whom FEC is obligated pursuant to a qualified assignment.
• Superintendent's Reply - Any segregation or crediting of annuity contracts owned by FEC would impermissibly create a subclass under New York insurance law.
• Objection - Certain property and casualty insurance companies that own ELNY Contracts object to specific provisions of the Restructuring Agreement.
• Superintendent's Reply - With a couple of exceptions, if the Court agrees with any of these provision specific objections to the Restructuring Agreement, the Superintendent will not object. The Superintendent does oppose one provision specific objection concerning third-party beneficiary rights (Section 16.15) and proposes an amendment to the provision (8) of the proposed liquidation order agreeing that the current version is unintentionally and overly broad.
• Objection - Contributions by life insurance companies should be enhanced significantly, with additional enhancements for ELNY structured settlement annuity payees.
• Superintendent's Reply - There is no mechanism for the Superintendent or the Court to compel contributions above what is already provided, and capped, by statute.