Beyond Structured Settlements

ELNY Shortfall Payees Seek Review by NY's Highest Court

Attorneys representing Executive Life of New York (ELNY) structured settlement shortfall payees (Objectors) have filed a Motion for Leave to Appeal dated March 8, 2013 and a supporting Memorandum of Law with the New York State Court of Appeals (Court of Appeals).

This Motion, requesting review by New York's highest judicial authority, seeks to reverse a February 6, 2013 decision by the Appellate Division of the Supreme Court of the State of New York, Second Department (Second Department) which rejected an earlier legal challenge to the 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.

In addition to attorney Edward Stone and the Christensen & Jensen law firm, the ELNY shortfall payees' appellate legal team now includes Michael J. Hutter, Jr., a law professor at the Albany Law School of Union University. Professor Hutter's online biography states he "has argued over 275 appeals in all of New York's appellate courts and many of the cases in which he represented the prevailing party are considered to be landmark decisions."

The ELNY shortfall payees consist of approximately 1456 structured settlement payees whose benefits under the ELNY Restructuring Agreement will be reduced up to 66 percent with an average per payee present value reduction of approximately $632,310 and a total present value reduction of approximately $920,642,947.

The issues being presented to the Court of Appeals requesting their review are the same issues the Second Department rejected:

• Due Process - "Did inadequate notice and the denial of information to Objectors, along with the selective application of the Civil Practice Law and Rules, deny Objectors a fair hearing as required by principles of due process?"
• Immunity - "Did the Supreme Court exceed its subject matter jurisdiction or otherwise err in granting immunity to the Receiver and others in their personal capacities, where such immunity is not provided for by statute, is inconsistent with the common law, and is unsupported by evidence?"
• Injunction - "Did the Supreme Court exceed its jurisdiction or otherwise err in permanently enjoining claims against the Receiver and others in their personal capacities, where such injunction is not provided for by statute or the common law, and no evidence was adduced at the hearing?"

Why should the Court of Appeals grant the ELNY shortfall payees' Motion seeking leave to appeal? Their attorneys argue the distribution and protection of Article 74 assets is a matter of public importance and the Second Department decision warrants leave to appeal for the following reasons:

• The Second Department's decision to authorize immunity and enjoin suits against the Receiver in his personal capacity "undermines the public's interest in protecting policyholders and receivership assets."
• The Second Department's decision is inconsistent with the Court of Appeals' previous ruling in Dinallo v. DiNapoli, "which implicitly recognized that an Article 74 Receiver is no different than any other court appointed private Receiver."
• The immunity and injunction provisions included in the ELNY Liquidation Order "exceed the subject matter jurisdiction conferred upon the Supreme Court and is inconsistent with the provisions of Article 74."

In addition, the ELNY shortfall payees' attorneys argue the Court of Appeals should grant leave to appeal "to determine whether the limited notice and the denial of information to Objectors, along with the selective application of the Civil Practice Law and Rules, provided Objectors a fair hearing as required by the principles of due process" for two reasons:

• First, under New York law, "leave to appeal is not required to appeal constitutional issues."
• Second, even absent this express right, "the issue of whether an Article 74 proceeding, or any court proceeding, is conducted in accordance with principles of due process is a matter of public importance and concern."

For S2KM's complete reporting about the ELNY liquidation and an Executive Life timeline, see the structured settlement wiki. 

For S2KM's summary of arguments presented earlier to the Appellate Division of the Supreme Court of the State of New York, Second Department by attorneys representing Benjamin M. Lawsky,  Superintendent of the New York State Department of Financial Services, and the ELNY shortfall payees, see:

• Due process
• Immunity
• Injunction

"Shut It Down!"

"It is time to shut down the New York Liquidation Bureau", argues attorney and insurance expert Peter Bickford in his opinion article titled "ELNY Debacle Exposes Serious Problems" which is featured as the cover story in the February 18, 2013 issue of Insurance Advocate magazine.

Bickford's article is accompanied by a second Insurance Advocate opinion article written by Edward S. Stone, an attorney who represents 40 ELNY structured settlement shortfall payees.

In his article, titled "ELNY Opinion Unjust to Victims", Stone accuses Benjamin M. Lawsky, Superintendent of New York's Department of Financial Services and his predecessors (Superintendent), the New York Liquidation Bureau (NYLB) and their agents of "concealment, fraud, waste and mismanagement".

Bickford's article further asserts the ELNY liquidation impacts the entire insurance industry, "including the guaranty fund structure and the growing nationwide debate on State v. Federal regulation of insurance." Bickford states: "[t]he attacks against continued state regulation of the business of insurance is focused primarily on solvency and unless the states can show that they have appropriate standards and ability to enforce those standards the attacks could result in a sea change in regulation."

Bickford maintains the Superintendent should recognize the "hollowness" of his recent legal victories: Judge John Galasso's civil contempt order and the denial of an appeal challenging Judge Galasso's ELNY liquidation order approving the ELNY restructuring agreement. The ELNY liquidation "fully exposed the Bureau for its decades-long covert mismanagement of insolvent insurance companies" according to Bickford.

What Bickford finds most surprising about the ELNY liquidation is:

• "[T]he unwillingness of the administration, the courts, the legislature and the industry to admit the scope of the ELNY disaster and the failings of the insolvency process, and to take appropriate action to remedy these systemic problems"; and
• "[T]he lengths that the administration and the courts have gone to in order to preserve the myth of the Bureau’s fiduciary role without fiduciary accountability, or to protect it from any form of meaningful external investigation or scrutiny."

Bickford's bottom line: it is time to shut down the NYLB! 

Bickford's argument, which echoes and expands criticism of the NYLB published in LifeHealthPro's 2012 article titled "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", runs as follows:

• The NYLB is not defined under New York insurance law.
• The NYLB is not a state agency and not subject to either audit by the State Comptroller or the Freedom of Information Act according to a decision (Dinallo v. DiNapoli) by New York highest state court.
• The NYLB is not required to file any plan or reports with the courts supervising receivership estates or to provide any status reports to policyholders or creditors.
• Once under NYLB control, an insurer is no longer subject to regulatory oversight and no longer files any reports or financial statements.
• The NYLB's lack of accountability over decades has made it a breeding ground for corruption and abuse.

In future Insurance Advocate articles, Bickford promises to "explore how the process should and can work efficiently and truly for the benefit of the victims of an insolvency, and what course the legislature with the support of the regulators and the industry could take to successfully and meaningfully restructure the insolvency process."

Stone's article includes a comprehensive ELNY background summary. Stone's conclusions:

• "The blanket immunity and broad injunctive relief granted in the ELNY liquidation permits the Superintendent, the NYLB and their agents to hide the fraud, waste and mismanagement that doomed ELNY behind the pretext of court supervision.
• "The contempt sanctions issued against the victims and their attorneys for doing the Superintendent’s job are a blatant attempt to intimidate the plaintiffs into abandoning their claims.
• "Sadly, instead of helping the victims of this tragedy, the Superintendent is choosing to blame and punish them – and he’s using ELNY’s assets and the court system to do it."

For S2KM's comprehensive ELNY reporting and an Executive Life timeline, see the structured settlement wiki.

ELNY Allegation Timeline

The Executive Life of New York (ELNY)  class action lawsuit , filed November 8, 2012 by attorney Edward Stone and representatives of the Christensen & Jensen law firm, on behalf of ELNY shortfall victims, against Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, and his predecessor ELNY Rehabilitators (Superintendent and/or Rehabilitator), MetLife and Credit Suisse, substantially expands the historical allegations of post-1991 ELNY mismanagement and non-disclosure. 

What follows is S2KM's re-configuration of selected allegations from the class action complaint into an ELNY "allegation timeline".

For persons seeking more comprehensive understanding of alleged mismanagement of ELNY during its 21 year rehabilitation, S2KM recommends reading the ELNY class action complaint which is posted on the structured settlement wiki. The following S2KM blog posts provide additional critiques of the New York Liquidation Bureau's (NYLB) role in ELNY insolvency:

• Elephant in the ELNY Courtroom - S2KM's summary of Peter Bickford's article.
• NYLB Role in ELNY Disaster -  highlighting allegations in the National Underwriter article "The Complete ELNY Saga"

ELNY Class Action Allegation Timeline

April 16, 1991

• New York's Insurance Superintendent Salvatore Curiale states: "[ELNY] isn't insolvent and has ample cash on hand to pay life insurance death benefits and meet annuity payments."
• Curiale further states: "The company is currently neither in an insolvent or impaired condition. . . . I have not petitioned the Court to make a finding of insolvency. ELNY is a company well able to meet its current obligations."

April 23, 1991

• ELNY Rehabilitation Court enters an Order of Rehabilitation which prohibits "all" persons, including the Rehabilitator, from "doing or permitting to be done any act or thing which might waste the assets" of ELNY.
• Under ELNY's Order of Rehabilitation, no more than 30 percent of ELNY's assets can be invested in common stock at any given time. This 30 percent cap is 50 percent higher than the percentage allowed by active insurance companies.
• Consistent with normal practice, Superintendent Curiale, ELNY's Rehabilitator, delegates most of his ELNY rehabilitation duties to the New York Liquidation Bureau [NYLB], directed by a Special Deputy Superintendent who in 1991 is Kevin Foley.

May 17, 1991 - In a letter to ELNY policyholders, the Superintendent confirms the sole basis for ELNY's rehabilitation has been the risk of policy surrenders. The letter further states the Superintendent is "presently analyzing the assets and liabilities of ELNY[.]"

June 7, 1991 - NYLB files a petition, which the Rehabilitation Court approves to retain First Boston Corporation (First Boston) as ELNY's exclusive financial advisor.

• The court also approves an investment advisory and management agreement with a First Boston affiliate providing for the payment of multi-million dollar fees.
• First Boston (and its successor/purchaser Credit Suisse) subsequently invests ELNY's assets in violation of its contractual obligations, in violation of the court's order, in violation of its representations to the NYLB and the court, and in violation of its fiduciary duties to ELNY shortfall payees.
• Instead, First Boston and Credit Suisse engage in a pattern of risky investments that generate high management fees and place ELNY's assets at considerable risk.
• Note: Credit Suisse acquired First Boston Corporation in 1990 but did not phase out the First Boston name until 2006.

June 1991 - The Superintendent contacts the Life Insurance Guaranty Corporation of New York (LIGCNY) to discuss the disposition of ELNY. MetLife, the largest domiciled insurance company in New York, has a lead position in LIGCNY and receives information about ELNY that is not available to other insurers generally or to the public.

Between June and November 1991

• NYLB enters into discussions with MetLife. Deputy Superintendent Foley is the principal person representing NYLB in these discussions.
• Under an agreement ultimately approved by the Rehabilitation Court, MetLife receives more than $1.5 billion of ELNY's traditional whole life, term life and single premium deferred annuity books of business plus $1.5 billion of ELNY's highest-quality assets.
• NYLB takes several steps to prevent competitive bids from other insurers.
• The products transferred to MetLife include 52,748 single premium deferred annuities and 80,891 life insurance policies. This large book of business allows MetLife to increase its assets by more than $1 billion at essentially no risk.
• In addition to receiving cash, MetLife is allowed to pick and choose from among ELNY's bonds and to charge "substantially higher surrender charges" than allowed under the ELNY contracts.
• Part of the agreement with MetLife includes retention of MetLife to service ELNY's remaining SPIAs (including structured settlement annuities) with a monthly fee of $5.50 per payee if payments begin before the last day of any month and $2.50 per payee if payments have not begun.
• Under this arrangement, ELNY's true liabilities are ascertainable only by NYLB and MetLife, the only entities with access to the annuity contracts.

October 9, 1991 - In a letter to ELNY policyholders and annuitants, the Superintendent reiterates the original ELNY takeover was due to surrender requests and further states: "it remains our belief that ELNY policyholders, annuitants and contract holders will receive 100% of the amounts due them under any of the options chosen as part [of] the rehabilitation plan. ... Please be assured that your money is being well protected and conservatively invested by the Rehabilitator."

January 21, 1992 - In a letter to ELNY policyholders and annuitants, the Superintendent states he is proposing a transfer of assets to MetLife and that "[t]he contemplated exchange and reinsurance agreements [with MetLife] would place you in a substantially similar position as you were at the time of the entry of the Rehabilitation Order."

March 26, 1992 - To implement the agreements with First Boston and MetLife, NYLB submits a proposed ELNY Rehabilitation Plan which the court approves.

• First Boston represents to the court the only possible course of action is to transfer virtually all of ELNY's investment grade assets to MetLife in exchange for MetLife assuming ELNY's obligations to only part of its policyholders.
• First Boston and NYLB represent that with First Boston's management of ELNY's assets, it is more than 90% certain the remaining ELNY assets will be sufficient to meet 100% of ELNY's obligations.
• Superintendent Curiale represents that, following "an extensive and detailed analysis ... Petitioner, as Rehabilitator, determined that the transaction proposed in the Plan would not impose any unwarranted or unreasonable risks on ELNY's SPIA holders, creditors or shareholders."
• Deputy Superintendent Foley states that, after the transfer, "we will make continued full payment" to annuitants, that he is "fully confident that these payments can and will be made," and that it is a "100 percent guarantee."
• NYLB represents that ELNY's remaining assets and liabilities will be approximately equal after the transfer of assets to MetLife. In fact, after the highest-value assets are transferred to MetLife, ELNY's remaining assets are less that its fixed liabilities by at least $300 million.
• From 1992 until 2010, the NYLB never files any reports with or otherwise updates the ELNY Rehabilitation Court with respect to ELNY's annuities.

April 13, 1992 - In a letter to ELNY policyholders and annuitants, the Superintendent states the proposed transfer of assets to MetLife "best protects all classes of ELNY policyholders and provides security, value, fairness, timeliness and practicality."

During 1992 - The Superintendent conducts "an extensive and detailed," "careful and exhaustive," "comprehensive" "full study" of ELNY's assets and liabilities and afterward reaffirms that ELNY is solvent.

• Following the transfer to MetLife, ELNY retains 23,666 annuity contracts in force and approximately $3.3 billion of assets.
• Foley acknowledges, under the deal, MetLife received "extremely high quality assets" and ELNY was left with lower-quality assets.
• Foley predicts the ELNY rehabilitation process will take "four or five years" or possibly less.
• NYLB asks Milliman & Robertson [M&R] to render actuarial opinions regarding the sufficiency of ELNY's remaining assets based upon certain assumptions and investment strategies.
• M&R does not audit or independently verify any of the information or assumptions provided to it.
• Based upon the assumptions provided by NYLB and First Boston, NYLB represents:
  • "[T]he investment strategy adopted by [the Superintendent] does not impose any unreasonable risks on ELNY's SPIA holders, creditors or shareholders."
  • "[I]n more than 90 percent of 500 randomly generated interest rate scenarios under ... base case assumptions, ELNY's SPIA obligations are satisfied in full."
  • "Under the M&R study, the projected cash flows from the remaining assets [are] sufficient to meet 95% of the SPIA obligations under approximately 99% of the scenerios tested using ... base case default, recovery, yield and rate of return assumptions."

1996 - NYLB for the first time refuses unrestricted access by the New York State Comptroller's office (Comptroller) to its records and personnel.

• The Comptroller reports: "During our work, Department and Bureau officials prevented auditors from examining relevant records related to the liquidation of one estate and employee personnel-related records. Our audit was precluded from interviewing agency managers and operating personnel without senior management present, thereby creating an environment where those individuals could not speak freely."
• Prior to its takeover of ELNY, NYLB had generally cooperated with audits requested by the Comptroller's office.
• For example, no limitations were placed on the Comptroller in 1976, 1984, or 1990.
• In 1994, the Comptroller performed a follow up audit limited to items that had not been reviewed in 1990.

1998 - Common stock comprises 38 percent of ELNY's portfolio exceeding the 30 percent limit set by the 1991 Order of Rehabilitation. 

1999

• A NYLB representative states it could take up to 100 years before ELNY is finally liquidated.
• Former Deputy Superintendent Foley begins employment with MetLife as its Vice President of External and Internal Communications.

2000

• Common stock comprises as much as 44 percent of ELNY's investment portfolio.
• ELNY's common stock portfolio loses hundreds of millions of dollars, nearly one-third of its value.

2001

• In a meeting with a potential ELNY investor representative, the then Deputy Superintendent states: "Why would we want to sell [ELNY] when we can sit here and clip coupons all day."
• ELNY's common stock portfolio drops another 13 percent.

2002 - ELNY's common stock portfolio drops another 19 percent.

2004 - The NYLB refuses a Comptroller request to perform a comprehensive audit to include a review of ELNY's assets and liabilities.

July 23, 2004 - The Comptroller issues subpoenas related to the proposed NYLB audit.

November 17, 2004 - The Superintendent files suit to quash the subpoenas.

June 30, 2005 - A New York Supreme Court quashes the subpoenas, and the Comptroller appeals.

Late 2005 or early 2006

• Then-New York Attorney General Eliot Spitzer campaigns for Governor on an anti-corruption platform.
• NYLB officials approach NOLHGA and the two entities begin working on a plan to liquidate ELNY without informing the Rehabilitation Court or ELNY's policyholders and annuitants of ELNY's insolvency.
• Under this plan, more than 1400 ELNY annuitants would suffer reduced payments of up to 66 percent.

August 2006 - Then-Special Deputy Superintendent Jody Hall, who has responsibility for NYLB, is fired for suspected corruption. She later pleads guilty and is convicted.

November 2006 - Governor-elect Spitzer identifies an investigation of the NYLB as an important priority for his administration.

2007

• On at least three occasions prior to 2007, groups of potential investors advise the Superintendent of an interest in purchasing ELNY's assets and liabilities. On each occasion, the Superintendent directly interposes impediments to the performance of due diligence and other investment-related activities.
• NYLB personnel begin contacting insurance companies and others, such as purchasers of structured settlement payment rights, demanding they contribute money to shore up ELNY or face punitive actions by the New York Department of Insurance.

January 2007 - Governor Spitzer appoints Mark Peters as the new Superintendent.

March 6, 2007 - The New York Appellate Division rules the Comptroller can enforce its subpoenas against NYLB.

May 2007 - Superintendent Peters announces NYLB will be subjected to a "top to bottom" audit by an independent auditor for the first time in NYLB history. The auditors discover the NYLB's financial records are in complete disarray requiring the NYLB to "reconstruct" the financial records of all 60 estates under its supervision.

October 11, 2007 - In Dinallo v. DiNapoli , the New York Court of Appeals holds that, in his capacity as rehabilitator/liquidator of insurance companies, the Superintendent is not a state officer. Therefore, acting as the Superintendent's agent, the NYLB is not a state agency and is not subject to audit by the New York State Comptroller.

December 2007

• NYLB personnel inform Governor Spitzer that a deal has been reached with insurance companies and others assuring 100 percent payment to ELNY policyholders and/or annuitants.
• Unknown to Governor Spitzer, no deal has been reached. Instead, the NYLB is still working privately with NOLHGA on the plan to liquidate ELNY.
• Governor Spitzer announces an "agreement in principle" for ELNY, subject to approval by ELNY's Rehabilitation Court. The agreement is designed to:
  • Continue paying all ELNY annuitants 100% of their benefits;
  • Provide protection for approximately 11,000 ELNY annuity recipients including structured settlement recipients.
• The announced plan, whereby various insurers and guarantee associations apparently agree to pay $650 to $750 million to help fund $2 billion of future ELNY payments, never materializes.

October 2008 - Independent auditors discover NYLB has been understating ELNY's shortfall by more than $1 billion for years. Examining ELNY's estate as of December 31, 2006, the auditor concludes ELNY's liabilities exceed its assets by $1.26 billion.

March 18, 2009 - without notification to ELNY policyholders and annuitants, Judge Daniel Martin signs an Order allowing NYLB to:

• Replace Credit Suisse as ELNY's investment advisor with Wellington Management Company and Goldman Sachs Asset Management; and
• "[F]rom time to time amend the [Investment] Guidelines set by the Rehabilitator in consultation with his new financial advisors if the Rehabilitator deems it beneficial to ELNY."

December 17, 2010 - State Supreme Court Judge Galasso orders the Superintendent to present the Court with a proposed order and plan of liquidation for ELNY on or before July 1, 2011 after the Superintendent confers with the New York Life Insurance Company Guaranty Corporation and other interested parties.

June 23, 2011 - The Superintendent files a motion to postpone the deadline for filing a proposed order and plan of liquidation for ELNY from July 1, 2011 to August 10, 2011 "in order to present a comprehensive and consensual proposed Plan of Liquidation that maximizes the potential benefits for ELNY's structured settlement and other annuitants."

August 8, 2011 - Counsel for the Superintendent advises the court the Superintendent 'is not in a position to submit a consensual proposed order and plan of liquidation on or before August 10, 2011" as previously promised. Instead, he anticipates the Superintendent doing so on or about August 26, 2011.

October 3, 2011 - Governor Andrew Cuomo creates the New York Department of Financial Services by consolidating the New York Insurance and Banking Departments. The Superintendent of Financial Services becomes the court appointed fiduciary and Receiver/Rehabilitator of ELNY as well as other impaired and insolvent insurance companies in New York.

December 2011 - NYLB:

• Files an ex parte motion stating its intent to liquidate ELNY.
• Notifies ELNY shortfall payees for the first time that their benefits will be cut.

March 2012 - Following a hearing, Judge Galasso determines ELNY is insolvent and approves the liquidation plan and restructuring agreement upon which NYLB and NOLHGA have been collaborating since 2006.

• Under the plan, ELNY shortfall payees face a potential loss of benefits exceeding $920 million.
• During the hearing, NYLB successfully prevents shortfall payees from exploring the causes of ELNY's insolvency.
• The order approving the ELNY liquidation plan and restructuring agreement is currently being appealed.

 

ELNY Appeal - Immunity 2

Eighteen Executive Life of New York (ELNY) structured settlement shortfall payees (shortfall payees), as Objectors and Appellants, have challenged the Order of Liquidation and Approval of the ELNY Restructuring Agreement approved by Judge John M. Galasso on April 16, 2012 by filing an appeal with the Appellate Division of the Supreme Court of the State of New York, Second Department,

In prior blog posts, S2KM:

• Summarized the ELNY shortfall payees':
  • Due process allegations (ELNY Appeal - Due Process 1);
  • Arguments against granting judicial immunity to the Superintendent of the New York State Department of Financial Services, as ELNY Receiver and Respondent, (Superintendent) (ELNY Appeal - Immunity 1)
  • Arguments against granting judicial injunctive protection to the Superintendent (ELNY Appeal - Injunction 1)
• Provided additional due process analysis (ELNY Due Process Issue);
• Featured analysis about the ELNY Immunity Issue by New York attorney Peter Bickford.
• Summarized due process arguments in the appellate briefs filed by the Superintendent and NOLHGA, as a non-party respondent, as well as the due process responses in the reply brief filed by the ELNY shortfall payees. (ELNY Appeal - Due Process 2)

This S2KM blog post summarizes the immunity arguments in the Superintendent's brief and the ELNY shortfall payees' reply brief. NOLHGA's appellate brief was limited to due process issues.

Superintendent

• Judge Galasso's order properly recognized that receivers, like the Superintendent, have judicial immunity for actions undertaken pursuant to court orders and statutory duties.
• Doing so is consistent with the judicial immunity that attached in the 1992 ELNY Rehabilitation Plan Order and with various Court of Appeals’ decisions and common law holding that judicial immunity protects court-appointed receivers from personal liability when they act pursuant to the court’s charge.
• The Supreme Court has subject matter jurisdiction to determine whether actions by the Superintendent, as ELNY Receiver, fall within the scope of judicial immunity.
• The objecting ELNY shortfall payees do not cite a single case addressing subject matter jurisdiction in this context.
• An action against a former receiver may not be maintained unless the order of discharge is vacated and leave to prosecute an action is granted.
• Article 74 proceedings are exclusive in their operation and furnish a complete procedure for protecting the rights of all interested parties.
• The Supreme Court recognized in 1992 that the Superintendent, as ELNY's Receiver, and those working on his behalf were “discharged from any liability for their acts ... in the performance of their duties incident to the rehabilitation of ELNY”.
• Judge Galasso's recognition that the Superintendent has judicial immunity for actions he took as court-appointed ELNY Receiver is uncontroversial.
• Any attack by ELNY shortfall payees on the judicial immunity should be rejected as moot because their counsel conceded during the ELNY liquidation hearing that "any claims that my clients might have had against anyone have gone stale due to the passage of time.”
• Although the shortfall payees suggest the Superintendent should be personally liable for “overcompensating himself and his agents” or “investing ELNY assets in risky ventures” the Supreme Court earlier reviewed and approved the investment strategies contained in the ELNY Rehabilitation Plan Order.
• Efforts by the ELNY shortfall payees to insert a “care and prudence” requirement into the immunity recognized by the Supreme Court would be inconsistent with the recognition that receivers are immunized even for negligence.
• To fall outside judicial immunity, the Superintendent’s conduct would need to constitute ultra vires acts such as fraud or self-dealing actions.
• The notion that “waste” necessarily is ultra vires is unsupportable.
• The ELNY shortfall payees' argument that immunity is improper rests on false premises, namely that it somehow shields the Superintendent from personal liability for ultra vires actions that have nothing to do with ELNY’s rehabilitation, including whether he acted with bad faith for his own pecuniary interest.
• The ELNY shortfall payees' admission that the Superintendent is “entitled to assert immunity for conduct related to [his]receivership duties” demonstrates that their challenge to judicial immunity is not ripe because claims have not yet been filed against the Superintendent.
• Because any liability resulting from the Superintendent's official conduct is charged to the property of the ELNY estate, there is no property against which to seek relief once the property is transferred from the ELNY estate and the Superintendent could be inundated by lawsuits absent immunity.

ELNY Shortfall Payees

• The Supreme Court would possess subject matter jurisdiction to address claims against the Superintendent in his official capacity as ELNY Receiver.
• That is not true, however, of claims against the Superintendent "in his own shoes" and "against his own assets".
• By statute, the Superintendent's personal assets are not before the Supreme Court in rehabilitation and/or liquidation proceedings under New York Insurance Law Section 7404.
• This distinction is both critical and dispositive of the jurisdiction issue before the Court of Appeals.
• The Superintendent's appellate brief fails to acknowledge this basic distinction between official-capacity and personal-capacity claims.
• The Superintendent points out the ELNY shortfall payees do not cite a single case addressing subject matter jurisdiction in this context. That is correct. Neither does the Superintendent.
• The issue, therefore, appears to be one of first impression. In this case, however, determining whether a statute limits jurisdiction requires only a reading of the statute.
• One requirement for subject matter jurisdiction is the existence of a "justiciable" issue.
• The Superintendent argues the ELNY shortfall payees' challenge to judicial immunity is "not ripe" because claims have not yet been filed against the Superintendent.
• Assuming the Superintendent is correct that the shortfall payees' challenge is "not ripe", then there was no justiciable issue in the lower court either.
• As worded, the immunity provision in Judge Galasso's order exceeds the scope of immunity afforded to private court-appointed receivers.
• The Superintendent does not dispute that his status and role, as a receiver, are no different than any other court-appointed private receiver. (citing Matter of Dinallo v. DiNapoli)
• Having gone to considerable effort to secure that ruling in the Dinallo case for his benefit (avoiding audits by the State comptroller), the Superintendent must accept the consequences in the ELNY case.
• In other words, his status and role are no different than any other court-appointed private receiver.
• The only immunity issue for the Appellate Court to decide, therefore, is narrow: what is the immunity to which private receivers are entitled in New York?
• To the extent the wording of Judge Galasso's ELNY liquidation order exceeds that scope, it is erroneous.
• Where the objecting ELNY shortfall payees and the Superintendent disagree on the immunity issue is the "scope of that immunity"
• The correct standard is: "As a general rule, a receiver who acts in good faith and with appropriate care and prudence is immune from personal liability for losses."
• The Superintendent's brief ignores this settled rule and argues instead that he is automatically immune for all actions as ELNY Receiver unless the shortfall payees show his actions were "ultra vires" or in bad faith.
• Lacking authority for this proposition, the Superintendent suggests the ELNY shortfall payees "concede" it. They do not.
• Having unilaterally deemed himself immune from all but undefined "ultra vires" acts, the Superintendent then asks the Appellate Court to rule that any "waste" by the Superintendent of ELNY's assets would not be "ultra vires".
• The Superintendent, however, does not dispute that the ELNY 1992 Rehabilitation Order prohibited waste by anyone, including the Superintendent, as ELNY Receiver.
• The objecting ELNY payees recognize that acting pursuant to specific court authorization is a legitimate defense for the Superintendent.
• During the 20 plus year ELNY rehabilitation, however, the Superintendent chose not to seek court approval for most of his actions.
• Although the Superintendent argues that the 1992 ELNY Rehabilitation Order contained immunity language similar to what Judge Galasso approved, the presence of such language in an interim order does not make such language any more correct in a final order.
• The Superintendent also argues that judicial immunity should be available after the ELNY liquidation concludes and there is no property in the ELNY estate from which to seek relief.
• The ELNY shortfall payees agree. In personal capacity claims, however, no relief would be sought from the ELNY estate. Nor would such claims be chargeable against the ELNY estate.
• The Superintendent's arguments concerning the merits of potential claims against the Superintendent are baseless and not before the court.
• Whether such claims would ultimately prove baseless is for another day and another court.
• The Superintendent also argues that all unspecified future claims against the Superintendent are time-barred because counsel for some of the objecting ELNY shortfall payees stated during the ELNY liquidation hearing: "any claims my clients might have had against anyone have gone state due to the passage of time."
• That argument is incorrect. Counsel was referring to potential claims against third parties such as persons who recommended the purchase of an ELNY annuity.
• With respect to the Superintendent, the statute of limitations might not yet be running because no final order has been finalized triggering benefit cuts.

For S2KM's complete and continuing ELNY reporting, plus copies of the shortfall payees' appellate briefs and an Executive Life timeline, see the structured settlement wiki.

New York Liquidation Bureau

What is the New York Liquidation Bureau (NYLB) and what role will the NYLB play if and when Executive Life Insurance Company of New York (ELNY) is liquidated?

According to its Mission Statement: NYLB "acts for the Superintendent of Insurance as the court appointed fiduciary and Receiver of impaired and insolvent insurance companies, to maximize assets and resolve liabilities, return rehabilitated companies to the marketplace or distribute the proceeds of the company in a timely manner to creditors."

The NYLB website adds:

• NYLB is "a unique entity. Receiving no funding from taxpayers, it carries out the responsibilities of the Superintendent of Insurance as Receiver, and acts on his behalf in the discharging of his statutorily defined duties to protect the interests of the policyholders and creditors of insurance companies that have been declared impaired or insolvent.
  
• "The NYLB has performed this function since 1909, when the New York State Legislature passed the law mandating that the Superintendent assume the separate responsibility of Receiver. In the case of each insurance company in receivership, the Superintendent as Receiver is appointed by the New York State Supreme Court. The Court approves all of the actions of the Superintendent, and by extension those of the NYLB."

The New York Court of Appeals held in 2007 in the case Dinallo v. DiNapoli that, in his capacity as liquidator of insurance companies, the superintendent of insurance is not a state officer and that the NYLB, acting as the superintendent/liquidator's agent, is not a state agency and therefore is not subject to state audit.

The Court of Appeals reasoned: "[t]he Bureau does not perform a governmental or proprietary function 'for the state', but rather runs the day-to-day operations of private businesses in liquidation pursuant to Supreme Court order. The Bureau is not part of the Insurance Department's budget, operates without the benefit of state funds, maintains its own errors and omissions coverage, and is represented by its own private counsel, not the Attorney General, as is normally the case when a state agency is sued. Thus, the Bureau is not a 'state agency' within the ambit of State Finance Law § 8(2-b)(a)."

The Court of Appeals added: "When acting as liquidator of a distressed insurer, the Superintendent operates as a statutory receiver who stands in the shoes of a private entity and 'takes immediate possession and control of the assets and proceeds to a liquidation of its affairs' .... Indeed, the Superintendent as liquidator occupies a legal status that is 'separate and distinct from the superintendent of insurance as the public official charged with regulating the insurance industry generally' .... Thus, while the Superintendent's role as liquidator is judicial and private, his role as regulator and supervisor is administrative and public. Consequently, the Superintendent as liquidator is not a state officer but rather one who acts on behalf of a private entity."

New York attorney Peter Bickford has written a series of blog posts (titled "Insolvency Process in New York") which are highly critical of the NYLB. According to Bickford, the NYLB had (as of 2007) more than 450 employees ("most of whom are protected by union contracts") and an annual budget of more than $100 million.

Bickford's primary complaint about the NYLB is that the "receivership process in New York lacks meaningful transparency and accountability." Although the NYLB has promoted "a new era of openness and accountability" (including external audits beginning in 2006), Bickford maintains the opposite is true. As a primary example, Bickford highlights the NYLB's "recent unprecedented use of the courts to further insulate itself from outside scrutiny and accountability". As evidence, Bickford points to the following provision which he states now appears in liquidation and rehabilitation orders issued by New York courts:

“The Superintendent as [rehabilitator] [liquidator] of [the company], his successors in office and their agents and employees are relieved of any liability or cause of action of any nature against them for any action taken by any one or more of them when acting in accordance with this Order and/or in the performance of their powers and duties pursuant to Article 74 of the New York Insurance Law."

By adding this paragraph to court orders of liquidation or rehabilitation, Bickford claims "the [NYLB] seeks to obtain immunity without any basis in the law", and for which he maintains there is no precedent. This immunity, according to Bickford, "bestows absolute immunity – including for gross negligence or intentional acts committed while acting as liquidator or rehabilitator of an estate."

How do Bickford's criticisms of the NYLB square with the rehabilitation, and anticipated liquidation, of ELNY?

• As of today, 20 years following its 1991 Order of Rehabilitation, the ELNY profile that appears on the NYLB website is threadbare.
• Without any public explanation, the much ballyhooed 2007 announcement of "an agreement in principle", whereby various insurers and guarantee associations apparently had agreed to pay $650 to $750 million to fund future ELNY payments (which is not publicly available), has never materialized.
• The participants in the agreement, which apparently included Allianz, Fireman’s Fund, Allstate, State Farm and Travelers among other liability insurers who previously purchased ELNY annuities to fund structured settlements, have signed confidentiality agreements with the NYLB.

In a separate blog post, Bickford quotes from a Business Insurance article reporting statements by Mark Peters, who then served as the NYLB Superintendent, about the ELNY 2007 agreement in principle:

“The contributions will be enough to offset the $2 billion deficit that ELNY is predicted to face in 12 to 15 years, regulators say. The deficit results largely from an overly optimistic assumption in ELNY’s 1992 rehabilitation plan that the estate would earn 10% annually on its invested assets, Mr. Peters said. The actual return was between 7% and 8%. The Liquidation Bureau is now assuming a future annual return of just over 6%, he said. Most of ELNY’s contracts will run off within 35 years, with the last contract expiring in about 70 years, he said.”

In his blog post, Bickford takes issue with Peter's ELNY explanation, stating in part:

• "Inadequate interest rate assumptions cannot begin to account for the purported deficit."
• "The 1992 plan of rehabilitation does not include interest rate assumptions."
• "The 1992 plan of rehabilitation specifically stated that that the cash flows from investments 'are projected to be sufficient to cover current [covered annuity] payouts for at least ten (10) years.'”
• "So if it is not the interest rate assumptions causing the purported deficit, what is causing it?"

ELNY sold an estimated 8,000 structured settlement annuities prior to entering rehabilitation. To date, all related ELNY structured settlement payments have been paid in full. The most recent financial statements for ELNY (as of December 31. 2010) show assets of $905,945,200 compared with liabilities of $2,474,317,342 resulting in a negative surplus of $1,568,372,142. New York Governor Andrew Cuomo recently appointed Jonathan Bing to serve as Special Deputy Superintendent of the NYLB.

On June 23, 2011 the Superintendent of the New York Insurance Department filed a motion to postpone the previous deadline for filing a proposed order and plan of liquidation for ELNY with the New York State Supreme Court of Nassau County from July 1, 2011 to August 10, 2011 "in order to present a comprehensive and consensual proposed Plan of Liquidation that maximizes the potential benefits for ELNY's structured settlement and other annuitants."

Thanks to John Darer whose earlier ELNY blog posts introduced S2KM to Peter Bickford's writing.

S2KM's complete ELNY reporting and analysis appear on the structured settlement wiki.