Beyond Structured Settlements

Structured Settlements 2013 - ELNY and Reliance

Structured settlements are supposed to provide economic security for people with serious injuries and disabilities - to help them rebuild their lives and, in many cases, to achieve special lifetime accomplishments. Instead of an all-cash personal injury settlement, structured settlement recipients accept a promise of future periodic payments.

What happens, if and when, that promise is broken? What happens when a structured settlement funding company, and the regulators and guaranty system responsible for protecting the structured settlement recipients, fail to make and/or insure full payment?

ELNY Liquidation

These questions are highlighted by the Executive Life of New York (ELNY) liquidation - the dominant structured settlement story of 2012 and 2013 and one of the most important developments in the history of the United States structured settlement industry.

The story of ELNY, as well as its affiliate Executive Life of California (ELIC), and their parent company, First Capital Corporation (FEC), is long and complex. For background of events prior to ELNY's 1991 receivership, S2KM recommends Gary Schulte's 1992 book "The Fall of First Executive".  For an Executive Life timeline, see the structured settlement wiki.

Significantly, neither the 1991 ELNY Rehabilitation Order nor the 1992 Order approving the ELNY Rehabilitation Plan declared ELNY to be insolvent.

Following 22 years of "Rehabilitation" supervised by various New York State Superintendents of Insurance and Financial Services, as Receivers, ELNY was officially liquidated August 8, 2013 pursuant to an Order of Liquidation signed by Nassau County New York State Supreme Court Judge John M. Galasso on April 16, 2012.

As part of his Liquidation Order, Judge Galasso also approved a Restructuring Agreement, as proposed by ELNY's Receiver and NOLHGA, whereby ELNY's remaining assets and ongoing liabilities have now been transferred to a successor company, Guaranty Associations Benefit Company (GABC), a not-for-profit Washington D.C.-based captive insurance company.

ELNY Shortfall Payees

GABC published two versions of a final Schedule 1.15 on its website in November 2013. Among the significant details:

• Thirty-seven (37%) percent of all remaining ELNY (now GABC) structured settlement annuities (SSAs) will experience shortfalls.
• SSAs represent ninety-eight (98%) percent of total ELNY shortfall annuities.
• The total percentage of each ELNY SSA contract value "protected" by ELNY's remaining assets, state guaranty fund payments plus additional enhancements varies from 31% to 100% depending upon the individual contract.

In a 2013 blog post titled "An ELNY Nightmare", S2KM profiled Glenn Arensdorf, one of the ELNY structured settlement victims. For profiles of five additional ELNY structured settlement shortfall payees, see "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", the lead article in a comprehensive ELNY analysis published in 2012 by LifeHealthPro.

Faced with significant payment reductions resulting from ELNY's liquidation and restructuring agreement, ELNLY's structured settlement shortfall payees were left with three options:

1. Accept their payment reductions under the ELNY Restructuring Agreement and do nothing; or,
2. Appeal Judge Galasso's Order and ask the Appellate Court to send ELNY's Receiver back to drawing board; or,
3. Bring a separate legal action against the Receiver personally for bad faith conduct, breach of fiduciary duty and fraudulent concealment or waste.

Several ELNY structured settlement shortfall payees chose Options 2 and 3.

Option 2 failed. The Appellate Division of the Supreme Court of the State of New York, Second Department denied the ELNY shortfall payees' appeal of Judge Galasso's Order on February 6, 2013. New York State Court of Appeals denied a subsequent motion by ELNY shortfall payees for Leave to Appeal the Second Department decision on May 3, 2013.

Option 3 remains unresolved.

• Class Action Lawsuit - Several ELNY structured settlement shortfall payees pursued Option 3 by filing a federal class action lawsuit November 8, 2012 in the U.S. District Court for the Southern District of New York against the ELNY Receiver (New York Superintendent of Financial Services Benjamin Lawsky) in his personal capacity.
• Receiver's Response - In response, the Receiver filed a motion December 7, 2012 asking the Liquidation Court (Judge Galasso) to find the shortfall payees in contempt for violating the injunction provision of the ELNY Liquidation Order.
• Contempt Order - Judge Galasso issued a Contempt Order on January 25, 2013. He also imposed a $5000 fine and threatened additional fines plus imprisonment of legal counsel if the ELNY structured settlement shortfall payees did not dismiss their Federal action which they did (without prejudice) on February 7, 2013.
• Bottom Line - So long as Judge Galasso's Contempt Order and continuing threat of additional fines and imprisonment of legal counsel remain in effect, ELNY structured settlement shortfall payees are effectively barred from pursuing Federal legal action against ELNY's Receiver for alleged mismanagement of ELNY's assets during ELNY's 22 year Rehabilitation.
• Shortfall Payee's Appeal - ELNY's shortfall payees are currently pursuing an appeal challenging "each and every part" of Judge Galasso's January 25, 2013 Contempt Order as a necessary step before re-filing their Federal action against the Receiver and his agents.
• Appellate Issues - The appellate brief filed on behalf of the ELNY shortfall payees addresses three legal issues:
  • Did the ELNY Liquidation Court exceed it subject matter jurisdiction or otherwise err by interfering with shortfall payees' constitutional right to bring suit against the Receiver in Federal court?
  • Did the ELNY Liquidation Court err in holding the shortfall payees in contempt for violating its injunctive Order when the order does not clearly and unequivocally bar personal capacity suits against the Receiver?
  • Did the ELNY Liquidation Court err in holding that the shortfall payees conceded the Order barred personal capacity lawsuits by appealing the order and using this alleged concession as the basis to hold the shortfall payees in contempt?

Reliance Liquidation

Reliance Insurance Company was declared insolvent in 2001 and the Pennsylvania Insurance Commissioner was appointed as Liquidator. The Reliance Estate, however, remains open and its assets, until November 4, 2013, included approximately 3,400 structured settlements of which approximately 3093 involve annuities issued by United Pacific Life Insurance Company, a former Reliance subsidiary which Reliance sold in 1993 and which is now known as Genworth Life Insurance Company.

Pennsylvania Commonwealth Court Judge Bonnie Brigance Leadbetter signed an Order on November 4, 2013 approving a Transfer and Assumption Agreement whereby Reliance will transfer all Reliance-owned structured settlement annuity contracts and corresponding payment obligations issued by Genworth Life Insurance Company to a new corporation, the Genworth Annuity Service Corporation.

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

For additional S2KM 2013 annual reports, see:

• Part 1 - Primary market.
• Part 2 - Settlement planning.
• Part 3 - Secondary market.

GABC Publishes Final ELNY Schedule 1.15

The Guaranty Association Benefits Company (GABC), successor to liquidated Executive Life Insurance Company of New York (ELNY), has published two versions of a final liquidation date Schedule 1.15 on its website.

Among the significant details:

• Thirty-seven (37%) percent of all remaining ELNY (now GABC) structured settlement annuities (SSAs) will experience shortfalls; and
• SSAs represent ninety-eight (98%) percent of total ELNY shortfall annuities.

Prior to ELNY's liquidation, the New York Superintendent of Financial Services filed a preliminary Schedule 1.15 for the proposed ELNY Restructuring Agreement with the Supreme Court of Nassau County New York on November 7, 2011.

Judge John M. Galasso issued a Memorandum Decision April 16, 2012 declaring ELNY to be insolvent and signed a separate order: 1) approving the ELNY restructuring plan as proposed by the Superintendent and the National Organization of Life & Health Guaranty Associations (NOLHGA); 2) converting the ELNY proceeding from rehabilitation to liquidation; and 3) appointing the Superintendent as ELNY's liquidator.

Under the ELNY restructuring plan, participating state life and health guaranty associations (PGAs) and certain life insurance companies formed GABC, a new special purpose not-for-profit captive insurance company under the laws of the District of Columbia to replace ELNY once it was liquidated on August 8, 2013. The PGAs agreed to supplement the ELNY benefit payments for annuity contracts eligible for state guaranty association coverage up to the maximum allowable by their state guaranty association laws. The various participating life companies agreed to provide additional enhancements and have set up an ELNY Hardship Fund.

The final Schedule 1.15 lists all of ELNY's current annuities, with the names of the annuity owners and payees redacted. Schedule 1.15 includes additional information such as individual contract identification numbers, the proposed "uncovered amount" (shortfall) and "total percentage of contract protected" assuming contributions from state life and health insurance guaranty associations and certain supplemental enhancements.

All PGA coverage is applied on a present value basis, according to the Schedule 1.15 footnotes, which also indicate that present values were calculated as of August 8, 2013 by Towers Watson using a 4.25% discount rate. The final Schedule 1.15 provides separate annuitant IDs, beginning with an "F", when evidence exists that some or all of the payment rights under an annuity have been transferred to a factoring company.

Final Schedule 1.15 Highlights

• Schedule 1.15 lists extensive information for 9241 ELNY annuities of which:
  • 4057 (44%) are structured settlement annuities (SSAs).
  • 466 (5%) are single premium immediate annuities (SPIAs).
  • 4718 (51%) are pension annuities.
• Schedule1.15 indicates shortfalls ("uncovered amounts") will occur for 1541 current ELNY annuities - even assuming state guaranty association contributions and enhancements:
  • 1504 SSAs - Note: this number represents 98% of 1504 ELNY shortfall annuities and indicates 37% of all 4057 ELNY SSAs will experience shortfalls.
  • 29 SPIAs.
  • 8 pension annuities.
• For the 1504 Schedule 1.15 SSAs with shortfalls:
  • Factoring transactions - Part or all of 407 SSA payment rights (27% of 1504) are estimated to have been transferred in factoring transactions. Note: reliable industry sources have informed S2KM the actual number of current ELNY SSAs previously factored is considerably higher.
  • $100,000 + - 1090 SSAs (72% of 1504) have "uncovered amounts" in excess of $100,000 each on a present value (PV) basis including
  • $1,000,000 + - 249 SSAs (17% of 1504) which have "uncovered amounts" in excess of $1,000,000 PV each including
  • $5,000,000 + - 21 SSAs which have "uncovered amounts" in excess of $5,000,000 PV each.
  • The largest ELNY SSA has an "uncovered amount" of $27,463,417 PV.
• The total percentage of each ELNY SSA contract value "protected" by ELNY's remaining assets, state guaranty fund payments plus additional enhancements varies from 31% to 100% depending upon the individual contract.

These final Schedule 1.15 numbers differ from the previously published Schedule 1.15 as reported by S2KM. Possible explanations:

• More factoring transactions (407 vs.156) are included as separate line items in the final Schedule 1.15.
• Some ELNY annuity payees may have died since ELNY's August 8, 2013 liquidation date.

• Present value categories may have shifted from covered to uncovered and vice versa based on interim payouts.

• GABC's actual and/or projected investment returns and expenses (which have been reported) may be different than previously projected.

For S2KM's complete and continuing coverage of the ELNY liquidation, see the structured settlement wiki.

ELNY Liquidation Date Announced

New York Superintendent of Financial Services Benjamin Lawsky, as Receiver for Executive Life Insurance Company of New York (ELNY), has announced the proposed liquidation date and the proposed date of closing of the ELNY Restructuring Agreement will be August 8, 2013. ELNY's shortfall payees, including hundreds of structured settlement recipients, can expect their payment reductions to take effect shortly thereafter.

ELNY first entered rehabilitation in 1991 when then New York Insurance Commissioner Salvatore Curiale obtained a Court Order seizing control of the company. The Nassau New York State Supreme Court approved a Plan of Rehabilitation for ELNY in 1992. Neither the ELNY Order of Rehabilitation in 1991 nor the ELNY Plan of Rehabilitation in 1992 determined that ELNY was insolvent.

Under the Rehabilitation Plan, owners of ELNY single premium deferred annuities (SPDA), interest sensitive life policies, whole life policies and term policies were given the option to have Metropolitan Life Insurance Company (MetLife) assume their policies. However, all of ELNY's single premium immediate annuities (including all ELNY structured settlement annuities) remained with ELNY under the supervision of the Insurance Superintendent and his agent, the New York Liquidation Bureau (NYLB). The Rehabilitation Plan named MetLife as Administrator of the ELNY single premium immediate annuities (SPIAs) and payees continued to receive their scheduled annuity payments as part of the Rehabilitation Plan.

The first public announcement that ELNY was experiencing financial problems during its Rehabilitation occurred in December of 2007 when then New York Governor Eliot Spitzer reassuringly announced an “Agreement in Principle” designed to continue paying all ELNY annuitants 100 percent of their benefits. Unfortunately, the “Agreement in Principle” never materialized.

The first audited financial statements for ELNY during its Rehabilitation were released in 2009 for years 2006 and 2007. Those financial statements showed that, as of December 31, 2007, ELNY had assets of $1,344,729,904 and liabilities of $2,538,548,125 resulting in a negative surplus of $1,193,818,221. Subsequent financial statements for years 2008-2010 indicated a deteriorating financial condition. As of December 31, 2010, ELNY had assets of $905,945,201 and liabilities of $2,474,317 resulting in a negative surplus of $1,568,372,142. 

On December 17, 2010, Nassau County New York State Supreme Court Judge John M. Galasso issued an Order to Show Cause requiring New York's Insurance Superintendent to present the Court with a proposed Order and Plan of Liquidation for ELNY on or before July 1, 2011. As justification for ELNY's proposed liquidation, the Petition, which was ultimately filed September 1, 2011, stated: “ELNY's financial condition is progressively deteriorating” and “ELNY will be unable to pay its outstanding lawful obligations as they mature in the regular course of business and further efforts to rehabilitate ELNY are futile . . . . the unprecedented global economic crisis and resulting market collapse of 2008 had a significant negative impact on ELNY's retained assets and made continued implementation of the Rehabilitation Plan without a liquidation unfeasible."

The ELNY Restructuring Plan submitted to, and approved by, Judge Galasso was jointly prepared by the Superintendent and the National Organization of Life and Health Guaranty Associations (NOLHGA). Under the Restructuring Plan, participating state life and health guaranty associations (PGAs) and certain life insurance companies have formed a new special purpose not-for-profit captive insurance company under the laws of the district of Columbia to replace ELNY once it is liquidated. The PGAs have agreed to supplement the ELNY benefit payments for annuity contracts eligible for state guaranty association coverage up to the maximum allowable by their state guaranty association laws. The various participating life companies have agreed to provide additional enhancements and have set up an ELNY Hardship Fund.

The Restructuring Plan includes Schedule 1.15 listing all of ELNY's current annuities, with the names of the annuity owners and payees redacted. Schedule 1.15 includes additional information such as individual contract identification numbers, the proposed "uncovered amount" (shortfall) and "total percentage of contract protected" assuming contributions from state life and health insurance guaranty associations and certain supplemental enhancements. Following the Schedule 1.15 filing, the NYLB sent informational notices to each ELNY annuity payee and published weekly notices in the New York Times and the Wall Street Journal.

Judge Galasso signed the ELNY Order of Liquidation and Approval of the ELNY Restructuring Agreement on April 16, 2012 (as proposed by the Superintendent and despite objections by several structured settlement payees and their attorneys) following a two week hearing March 15-30, 2012.

The anticipated shortfalls resulting from the ELNY liquidation and restructuring were expected to total $920,641,977 on a present value basis as of April 16, 2012. This figure assumed promised state guarantee association payments and enhancements but did not include possible payments from the ELNY Hardship Fund and/or from structured settlement defendants who negotiated and promised to pay future periodic payments funded with ELNY annuities. As a result, approximately 15 percent of the ELNY annuitants are expected to experience an average present value loss of more than $600,000 per annuitant. The remaining ELNY annuitants are not expected to experience any reduction in their payments.

As part of his ELNY Liquidation Order, Judge Galasso granted judicial immunity "to the Receiver and his successors in office, the New York Liquidation Bureau, and their respective attorneys, agents and employees, ... for any cause of action of any nature against them, individually or jointly, for any action or omission by any one or more of them when acting in good faith, in accordance with this Order, or in the performance of their duties pursuant to Insurance Law Article 74 ..."

The Order also enjoined all persons "from commencing or further prosecuting any actions at law or other proceedings against ELNY or its assets, the Receiver or the New York Liquidation Bureau, or their present or former employees, attorneys, or agents, with respect to this proceeding or the discharge of their duties under Insurance Law Article 74."

Subsequent ELNY-related litigation and court filings followed:

• Appeal of Liquidation Order - On March 30, 2012, attorneys representing ELNY structured settlement shortfall payees filed a Notice of Appeal challenging the ELNY Liquidation Order and Restructuring Agreement. Both the Appellate Division of the Supreme Court of the State of New York, Second Department and the New York State Court of Appeals subequently denied this Appeal.
• Motion to Clarify and/or Correct - On June 14, 2012, attorneys representing several liability insurers who previously purchased ELNY structured settlement annuities filed a Motion asking Judge Galasso to "clarify and/or correct" his ELNY Memorandum Decision insofar as it "caused confusion or mistake" concerning responsibilities of those liability insurers to make up shortfalls on ELNY annuities. Judge Galasso denied the Motion.
• Class Action Lawsuit - On November 8, 2012, attorneys representing ELNY structured settlement shortfall payees filed a class action lawsuit in the United States District Court Southern District of New York against Superintendent of Financial Services of the State of New York, in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers, Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse) as defendants. The class action Complaint alleged  the defendants' mismanagement and misconduct had caused the plaintiffs' ELNY payment shortfalls.
• Contempt Order - On December 7, 2012, responding to the ELNY shortfall payees' class action lawsuit, Superintendent Lawsky filed a Notice of Motion seeking to enforce Judge Galasso's ELNY injunctions and to hold the ELNY shortfall payees' attorneys in contempt of Judge Galasso's ELNY Liquidation Order. On January 25, 2013, Judge Galasso issued an Order holding the ELNY shortfall payees' attorneys in contempt of court and imposing a fine for filing the class action lawsuit.
• Dismissal of Class Action - As a result Judge Galasso's Contempt Order, the ELNY shortfall payees voluntarily dismissed their class action lawsuit on February 7, 2013 without prejudice thereby preserving their right to re-file claims and tolling the statute of limitations.
• Appeal of Contempt Order - On February 14, 2013, three ELNY structured settlement shortfall payees and their attorneys filed a Notice of Appeal challenging Judge Galasso's Contempt Order. That Appeal currently remains unresolved.

For additional information about ELNY, see:

• Section 3.05[13] of "Structured Settlements and Periodic Payment Judgments" (S2P2J).
• The structured settlement wiki.

ELNY Losses by State

The anticipated shortfalls resulting from the liquidation of Executive Life of New York (ELNY) are expected to total $920,641,977 on a present value basis - assuming promised state guarantee association payments and enhancements but prior to any possible payments from the ELNY Hardship Fund and/or from structured settlement defendants who negotiated and promised to pay future periodic payments funded with ELNY annuities.

To make matters worse for anticipated ELNY shortfall payees, most of whom are personal injury victims, the entire anticipated $920,641,977 shortfall will be allocated among approximately 15 percent of the ELNY annuitants - an average present value loss of more than $600,000 per annuitant. The remaining ELNY annuitants are not expected to experience any reduction in their payments.

How are the anticipated ELNY shortfall distributed by state based upon the current residence of ELNY shortfall payees?

Daniel Hindert, co-author of "Structured Settlements and Periodic Payment Judgments" (S2P2J), provided a state-specific analysis of total anticipated ELNY shortfall losses as part of his presentation ("How the ELNY Liquidation Impacts Settlement Planners") at the Society of Settlement Planners (SSP) 2012 Annual Meeting. Hindert based his SSP comments on a spreadsheet analysis of Schedule 1.15, now posted on the structured settlement wiki, which was compiled by attorney Edward Stone and his audit team.

According to Stone's spreadsheet analysis, here are the 10 states whose residents will suffer the largest cumulative ELNY losses:

1. California

• $343,098,363 - Annuity present value
• $173,929,372 - Benefits cut
• 51% - Percentage cut

2. New York

• $217,671,882 - Annuity present value
• $94,996,566 - Benefits cut
• 44% - Percentage cut

3. Michigan

• $191,758,830 - Annuity present value
• $91,966,861 - Benefits cut
• 48% - Percentage cut

4. Florida

• $176,892,255 - Annuity present value
• $89,379,868 - Benefits cut
• 51% - Percentage cut

5. New Jersey

• $157,708,648 - Annuity present value
• $69,892,957 - Benefits cut
• 44% - Percentage cut

6. Texas

• $107,503,620 - Annuity present value
• $44,750,691 - Benefits cut
• 42% - Percentage cut

7. Pennsylvania

• $76,571,781 - Annuity present value
• $32,737,043 - Benefits cut
• 43% - Percentage cut

8. Ohio

• $74,494,174 - Annuity present value
• $34,796,854 - Benefits cut
• 47% - Percentage cut

9. Washington

• $53,108,488 - Annuity present value
• $26,861,644 - Benefits cut
• 51% - Percentage cut

10. Georgia

• $44,179,076 - Annuity present value
• $20,097,401 - Benefits cut
• 45% - Percentage cut

Mixed ELNY Reactions

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

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

Shortfall Payee

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

Shortfall Payee Attorney

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

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

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

Spokesman for Superintendent

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

Structured Settlement Industry Spokesman

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

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

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

ELNY Liquidation Order

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

Immunity Issue

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

"Judicial immunity is extended to the Receiver and his successors in office, the New York Liquidation Bureau, and their respective attorneys, agents and employees, and such immunity is extended to them for any cause of action of any nature against them, individually or jointly, for any action or omission by any one or more of them when acting in good faith, in accordance with this Order, or in the performance of their duties pursuant to Insurance Law Article 74 ..."

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

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

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

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

Factoring Companies

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

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

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

No Closing Date Set

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

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

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

Judge Approves ELNY Plan

In a Memorandum Decision issued April 16, 2012, Judge John M. Galasso of the Nassau County New York State Supreme Court has:

• Declared Executive Life of New York (ELNY) to be insolvent and by order converted the former ELNY rehabilitation proceeding into a liquidation proceeding.
• Appointed the Superintendent of the New York State Department of Financial Services (Superintendent), formerly ELNY's Rehabilitator, to be ELNY's Liquidator.
• Concluded that the Superintendent has complied with New York insurance law in satisfying the framework under which the Superintendent may seek liquidation and the Court may adjudicate the insolvency of an insurer.
• Signed a separate order approving the ELNY restructuring plan as proposed and amended by the Superintendent.
• Directed Counsel for the New York Liquidation Bureau (NYLB) to serve a copy of the decision with notice of entry upon all ELNY payees.

For a copy of Judge Galasso's decision, see the structured settlement wiki.

In his decision, Judge Galasso rejected any possible consideration of an amended or alternative ELNY restructuring plan stating:

"It is important to note that in a liquidation proceeding, the Court’s only authority by law is to approve or disapprove the plan. A court cannot amend or supplement a plan or allow objectors to submit a proposed plan. As noted above, the New York State Superintendent of Financial Services has the sole authority to formulate a plan under the laws of New York and the participating states within the statutory structure."

Judge Galasso's decision does not state state whether the Superintendent and his agents, including the NYLB, will be granted immunity from legal actions related to their acts and omissions in managing ELNY since 1991 during its Rehabilitation. The decision, however, does state:

"...[T]he scope of the hearing before the undersigned was limited by the Insurance Law and could not include inquiries into why the insurer failed in the first instance, its investment and operation prior to failure, how the Superintendent and his agents supervised the affairs of the insurer, or why a settlement was not reached or this order to show cause brought before the Court sooner."

In approving the Superintendent's Plan, Judge Galasso noted:

• The plan will include approximately $900 million of ELNY estate assets; $700 million from participating guarantee associations allocated according to statute; plus $71 million to benefit ELNY payees not covered by any guarantee association.
• In addition, $100 million will be voluntarily contributed by unnamed life insurance companies as a "hardship fund" for the benefit of ELNY shortfall payees, benefits that would not otherwise be available in a straight liquidation process.
• Certain insurance companies, including Travelers, Fireman’s Fund, and Hartford, have assured the Court they will honor their legal obligations under structured settlement funding agreements.
• J. G. Wentworth/Peachtree Funding (JGW), the largest structured settlement factoring company, has also assured the Court that to the extent a shortfall is due to ELNY as creditor under JGW's purchase contracts, JGW will not seek restitution from former ELNY payees that subsequently entered into transfer agreements with JGW. Note, however: Judge Galasso's decision does not state whether structured settlement factoring companies and their investors will receive any payments from state guarantee associations.
• If the Superintendent's restructuring plan is not approved, according to Judge Galasso, there might not be any voluntary enhancements.
• Without the coordination of state insurance guarantee fund coverages (part of NOLHGA's role and mission), individual ELNY shortfall payees would have to apply to their own states to determine the amount of guarantee association contribution they would receive. For some, according to Judge Galasso, the answer might be $0.

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.