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.

Comments

[Structured Settlement]

Structured Settlement
Structured Settlement Annuities are payments made over a period of time that are provided to people as consideration for the settlement of a lawsuit.

[Medicare America]

Very informative post certainly.