Executive Life of New York
At one time or another, each of us may have become acquainted with individuals who have overcome personal injuries and successfully transformed their disabilities and special needs into special lifetime accomplishments. Kyle Walsh, profiled in a 2012 S2KM blog post, is one such individual. The late Randy Snow, featured in a 2008 S2KM blog series, was another.
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?
These questions are highlighted by the Executive Life of New York
(ELNY) liquidation - the dominant structured settlement story of 2012
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".
Significantly, neither
the 1991 ELNY Rehabilitation Order nor the 1992 Order approving the
ELNY Rehabilitation Plan declared ELNY to be insolvent. When then New
York's Insurance Commissioner Salvatore Curiale seized control of ELNY
on April 16, 1991 and placed it in receivership, he stated: "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."
Exactly
twenty-one years later, on April 16, 2012, following 11 days of
hearings at the Nassau County New York Supreme Court, presiding Judge John M. Galasso approved an Order of Liquidation and a Restructuring Agreement
for ELNY as proposed by the Superintendent of the New York State
Department of Financial Services (Superintendent), as ELNY's Receiver,
and the National Organization of Life and Health Guaranty Funds
(NOLHGA).
The result of the ELNY Liquidation Order and
Restructuring Plan, even following contributions from state guaranty
funds and voluntary life insurance company contributions, is a $900 million shortfall
allocated entirely (and arguably inequitably) to more than 1400 ELNY
payees out of a total of approximately 9700 current ELNY payees. The
remaining ELNY payees expect to receive 100 percent of their promised
future payments. The average individual shortfall is estimated to exceed
$600,000 present value. Although an ELNY Hardship Fund has been created, it has not yet been funded.
An appeal was filed
May 30, 2012, on behalf of 18 ELNY structured settlement shortfall
payees, challenging the ELNY liquidation order and restructuring
agreement on the basis of due process. The appeal also alleges that
immunities and injunctions granted under the liquidation order are
improper. Oral arguments
occurred on November 15, 2012 in Brooklyn before the Appellate Division
of the Supreme Court of the State of New York, Second Department. No
decision has been announced.
Another legal challenge to the ELNY liquidation order occurred June 14, 2012 when attorneys for several liability insurers filed a Motion asking Judge John Gallasso to "clarify and/or correct" his April 16, 2012 ELNY Memorandum Decision. The motion indirectly raises the issue
of whether qualified assignments extinguish the liability of defendants
and/or liability insurers for shortfall payments resulting from the
ELNY liquidation? Judge Galasso denied the Motion without further explanation.
In a subsequent development, somewhat related to the liability insurers' motion, the ELNY website announced an ELNY Facilitation Plan
to assist owners of ELNY structured settlement annuities (SSAs) make
supplemental payments to ELNY SSA payees and to coordinate those
payments with the ELNY benefit payments scheduled to be made by the
Guaranty Association Benefits Company (GABC) under the ELNY
Restructuring Plan approved by Judge Galasso on April 16, 2012 as part
of the ELNY liquidation order.
The same attorneys who filed the ELNY appeal, Edward Stone and representatives of the Christensen & Jensen law firm, filed a class action lawsuit November 8, 2012, 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, as well as MetLife and Credit Suisse.
The class action allegations
provide a critical litany of mismanagment and non-disclosure during
the 21 years ELNY's estate was being supervised by these defendants.
In response, attorneys representing Benjamin M. Lawsky, in his capacity as ELNY's Receiver, filed a Notice of a Motion
with the Nassau County New York State Supreme Court requesting oral
argument on January 4, 2013 at 9:30 a.m. or as soon thereafter as the
parties may be heard:
- to enjoin three ELNY structured settlement shortfall payees and their legal counsel from proceeding with a class action lawsuit in the United States District Court Southern District of New York;
- to hold in contempt of court the shortfall payees' legal counsel; and
- to require their payment of the related costs and attorney's fees incurred by the Superintendent.
Although the ELNY liquidation has so far received limited coverage in the mainstream media, specialty insurance experts and analysts have not been silent. Examples:
- Peter Bickford - In his article titled "The Elephant in the Court Room" (summarized here
by S2KM), Bickford argues New York’s receivership system has failed
ELNY, its policyholders and beneficiaries, as well as the insurance
industry and its customers due to a lack of basic accountability
standards. Although the ELNY restructuring plan may solve the immediate
ELNY problem (at the expense of the remaining ELNY shortfall victims),
Bickford maintains it does not address the broader, underlying systemic
defects inherent in the New York life insurance receivership system.
Without an act of the New York legislature, according to Bickford, "there will be no life insurance guaranty fund coverage in New York"
following ELNY. Bickford's article also provides succinct summaries of
objections raised by ELNY shortfall victims and ELNY legal issues which
he states "could linger in the courts for years"
- LifeHealthPro - In an article titled "The Complete ELNY Saga: 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", (summarized here by S2KM), the authors assign primary blame for ELNY insolvency to the NYLB which they describe as "a
rogue agency known for its codes of secrecy and characterized by many
who spoke for this story as ineffective and mismanaged at best, and a
snake pit of corruption at worst". In a companion article (reviewed here by S2KM), writer Warren Hersch asks: "is the structured settlement process in need of reform"? In a follow-up oped article titled "Governor Cuomo I'm Calling You Out", (summarized here
by S2KM), Bill Coffin, LifeHealthPro's Group Editor, charges New York
Governor Andrew Cuomo with personal responsibility to clean up the "ELNY debacle".
The
final results of the ELNY liquidation will depend upon the outcome of
the continuing litigation highlighted in this article. It also remains
to be seen what reforms, if any, will result from the failed ELNY
receivership process.
In conclusion, it should also be noted that ELIC-related litigation continued in 2012 (Garamendi v. Altus Finance S.A.) when a federal jury in Los Angeles rejected a claim by California's Insurance Commissioner that, but for a conspiracy by French investor group Artemis S.A.:
- ELIC's
original conservator (then California insurance commissioner John
Garamendi) would have accepted an alternative bid in 1991 by state
insurance guaranty associations; and
- The alternative bid would
have retained profits from ELIC's junk bond portfolio for the benefit of
policyholders including ELIC structured settlement recipients.
For S2KM's complete and continuing reporting about the ELNY liquidation, see the structured settlement wiki.
This blog post completes S2KM's series "Structured Settlements in 2012":
- Part 1 - Primary market
- Part 2 - Settlement planning
- Part 3 - Secondary market
- Part 4 - Executive Life of New York
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