Beyond Structured Settlements

Brief Filed in ELNY Contempt Order Appeal - 1

"People should know when they are conquered." - Quintus in "Gladiator"

"It ain't over till it's over." - Yogi Berra

Following 22 years of "Rehabilitation" supervised by various New York State Superintendents of Insurance and Financial Services, as Receivers, Executive Life Insurance Company of New York (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.

As a result of ELNY's liquidation and restructuring, approximately 1456 structured settlement payees will experience payment shortfalls totaling approximately $920 million (present value) following contributions from state life and health insurance guaranty associations and various life insurance companies.

ELNY Receivers' Responsibilities 

Significantly, ELNY's 1991 Rehabilitation Order did not result because of ELNY's insolvency. Instead, then New York Insurance Superintendent Salvatore Curiale's stated concern was a "run" on ELNY assets by policyholders.

Beginning with ELNY's 1991 Rehabilitation Order and continuing to ELNY's August 8, 2013 liquidation date, Superintendent Curiale and his successor New York Superintendents of Insurance and Financial Services managed ELNY's Rehabilitation (in their capacity as Receivers not regulators) with day-to-day management responsibilities assigned to their agent, the New York Liquidation Bureau (NYLB).

As ELNY's Receiver, these Superintendents undertook fiduciary responsibilities toward ELNY's policyholders and payees. Their duties, pursuant to Article 74 of New York's Insurance law, included: conducting ELNY's business, safeguarding ELNY's assets, and removing the causes and conditions that made ELNY's rehabilitation necessary.

Until December 17, 2010, however, when Judge Galasso issued an ex parte Order to Show Cause seeking an ELNY liquidation plan, ELNY's Receivers had not filed a single report with the court or made any efforts to inform policyholder or payees about ELNY's declining financial position. As of December 31, 2010, ELNY's audited financial statements show ELNY had assets of $905,945,200 compared with liabilities of $2,474,317,342, resulting in a negative surplus of $1,568,372,142.

During ELNY's March 2012 Liquidation Hearing, Judge Galasso ruled against ELNY shortfall payees' attempts to determine how and why ELNY had suffered such losses reasoning such issues were beyond the scope of the hearing. To further protect the Receiver, Judge Galasso's April 16, 2012 ELNY Liquidation Order contained immunity and injunction provisions proposed by ELNY's Receiver.

Although the Receiver represented these provisions did not immunize him from liability outside his Article 74 duties, structured settlement shortfall payees expressed concern the broad language of the immunity and injunction provisions could insulate the Receiver from liability beyond the scope of Article 74. They also believed, contrary to the Receiver's representations, that Article 74 prohibits not just bad faith conduct but also conduct without appropriate care and prudence.

ELNY Shortfall Payees' Options 

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.

The 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 faces a significant judicial roadblock - a Contempt Order with the threat of fines plus imprisonment of legal counsel.

Prior to this Contempt Order, 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. 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.

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. 

Appeal of Contempt Order

As a result, 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.

On August 9, 2013, Attorney Edward Stone filed a preliminary brief with the New York Supreme Court, Appellate Division, Second Department on behalf of ELNY structured settlement shortfall payees Jeanice Dolan, Keith Vincent, Daniel Malin and their attorneys.

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?

S2KM will summarize the ELNY shortfall payees' arguments for each of these issues in a subsequent blog post. For S2KM's complete ELNY reporting, 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.

"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 Payees' Attorneys Respond to Contempt Motion

Should Benjamin M. Lawsky, Superintendent of New York's Department of Financial Services, acting as Receiver for Executive Life of New York, (Superintendent) receive a "free pass" for all actions taken by Lawsky, his predecessor Superintendents and their agents during the past 21 years with respect to the Executive Life of New York (ELNY) rehabilitation and liquidation no matter how egregious and regardless of whether or not those actions were taken in good faith and/or constituted illegal conduct under Article 74 of New York's insurance law?

Motion for Contempt Order

That is the central strategic question posed by attorney Edward Stone and the Christensen & Jensen law firm (ELNY shortfall attorneys) in their Memorandum of Law responding to a Motion filed last month by attorneys representing the Superintendent with the Nassau County New York State Supreme Court to:

• Enjoin three ELNY structured settlement shortfall payees and their legal counsel from proceeding with a class action lawsuit filed November 8, 2012 in the United States District Court Southern District of New York;
• Hold in contempt of court the shortfall payees' legal counsel; and
• Require their payment of the related costs and attorney's fees incurred by the Superintendent.

Characterizing the Superintendent's Motion for a Contempt Order as a "SLAPP" ("strategic lawsuit against public participation"), the ELNY shortfall attorneys argue in their Memorandum of Law that the Superintendent's Motion should not be condoned and that the Superintendent "is presumably wasting estate assets to avoid a proper inquiry into malfeasance by his predecessors and agents,continuing a disturbing pattern."

ELNY Class Action

In their class action Complaint, the named ELNY shortfall payees and their attorneys assert causes of action against the Superintendent and his predecessors, in their personal capacity: 1) for breach of fiduciary duty and fraudulent concealment in not conducting the rehabilitation of ELNY in good faith; 2) for self-dealing; 3) for material misstatements; and 4) for fraudulently concealing and failing to disclose material information regarding ELNY’s financial status. See the ELNY Allegation Timeline for S2KM's re-configuration of selected allegations of malfeasance from the class action complaint.

Superintendent's Contempt Argument

In their Memoradum of Law supporting their Motion for Contempt, the Superintendent's attorneys argue:

• The ELNY class action lawsuit violates an injunction provision in the ELNY Liquidation Order signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012; and
• "It is literally hornbook law that [a] violation of an injunction constitutes a contempt.'”

The ELNY Liquidation Order injunction: “enjoins and restrains [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 [NYLB], 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.”

ELNY Shortfall Payees' Argument - In their Memorandum of Law Responding to the Motion for Contempt

The ELNY class action lawsuit does not violate the ELNY Liquidation Order injunction because:

• The ELNY payees' attorneys "tailored their Complaint specifically and conservatively to avoid any claim against ELNY or its assets and any claim properly precluded by the injunction or immunity provisions of the April 16th Order of this Court, acting within its subject matter jurisdiction."
• Their Federal class action lawsuit:
  • "[I]s not an in rem suit against the ELNY estate or its assets;
  • "[D]oes not concern how ELNY was run prior to being placed into rehabilitation or seek any damages payable from estate assets;
  • "[D]oes not affect or even seek to prevent the Court’s Order of Liquidation and Restructuring Agreement from proceeding;
  • "[D]oes not seek to hold the Receiver liable for any conduct of administering the business and assets of ELNY while acting in good faith with appropriate care in compliance with the Court’s prior Order of Rehabilitation."

The Superintendent's Motion for a Contempt Order should be denied because:

• The ELNY class action lawsuit is outside the scope of the ELNY liquidation.
• The ELNY liquidation court's subject matter jurisdiction is limited to administration of the ELNY estate.
• The ELNY Liquidation Order's injunction provision cannot be broader than the scope of judicial immunity.
• The injunction provision should be interpreted and enforced consistent with the purpose and provisions of New York insurance law Article 74.
• The claims made in the ELNY class action lawsuit seek to hold the Superintendent and his agents liable in their personal capacities for bad faith conduct.
• The ELNY liquidation court should not hold the plaintiffs in the class action lawsuit or their attorneys in civil contempt.
• The injunction does not clearly and unequivocally bar suits against the Superintendent in his personal capacity.
• Positions taken by the ELNY shortfall payees in the ELNY appeal are not admissions, but rather the proper way to protect their rights.

ELNY Appeal

The ELNY Order's injunction, and its related grant of immunity, are simultaneously being contested in an ELNY appeal filed May 30, 2012 with the Appellate Division of the Supreme Court of the State of New York, Second Department. Oral arguments for the ELNY appeal occurred November 15, 2012 but no decision has been announced. This S2KM blog post summarizes the injunction arguments in the Superintendent's appellate brief and the ELNY shortfall payees' appellate reply brief.

Continuing ELNY Coverage

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

 

Structured Settlements in 2012 - 4

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

Superintendent Seeks ELNY Contempt Order

Attorneys representing Benjamin M. Lawsky, Superintendent of Financial Services for the State of New York (Superintendent), in his capacity as Receiver of Executive Life Insurance Company of New York (ELNY), have filed 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.

The purpose of motion, according to the notice, "is to punish the accused for a contempt of court, and such punishment may consist of fine or imprisonment, or both, according to the law."

Class Action Lawsuit

The named ELNY shortfall payees, Jeanice Dolan, Daniel A. Malin, and Keith Vincent, (objector plaintiffs) through their legal counsel, Edward S. Stone, and Roger P. Christensen, Karra J. Porter, and Kristen C. Kiburtz of Christensen & Jensen, P.C. (objector legal counsel), filed the class action lawsuit November 8, 2012 naming as defendants the Superintendent in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers (Receiver), Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse).

This S2KM blog post re-configures selected allegations from the class action complaint into an ELNY "allegation timeline". A copy of the class action complaint is posted on the structured settlement wiki.

ELNY Appeal

Previously, on May 30, 2012, the objector legal counsel, on behalf of 18 ELNY shortfall payees, filed a Notice of Appeal (ELNY appeal) with the Appellate Division of the Supreme Court of the State of New York, Second Department, challenging the Executive Life of New York (ELNY) Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012.

The oral arguments in the ELNY appeal occurred November 15, 2012 and a decision is expected before 2012 calendar year end.

• This S2KM blog post summarizes the Appellant/Objectors' appellate allegations that no statutory or common law basis existed for Judge John Galasso's "extraordinarily broad grant of injunctive relief" to protect the Superintendent and his agents, including the New York Liquidation Bureau (NYLB).
• This S2KM blog post summarizes the injunction arguments in the Superintendent's appellate brief and the ELNY shortfall payees' reply brief.

Preemptive Correspondence

Prior to filing the December 8, 2012 Notice of Motion seeking to enforce injunctions and a contempt order, attorney Steven M. Bierman, representing the Superintendent, and objector legal counsel exchanged preemptive letters, copies of which S2KM has reviewed.

In response to attorney Bierman's threats to file a motion "to enforce the Receivership Orders and to obtain an order of contempt", the objector legal counsel replied in part:

• "[W]e view your recent letter on behalf of the Superintendent as an attempt at intimidation and as further evidence of complicity by the Superintendent in the long-standing cover-up regarding the aborted rehabilitation of ELNY and the illegal wasting of its assets. As you know such wasting was in direct violation of the Supreme Court's orders."
• "[I]f you do elect to initiate contempt proceedings, you can anticipate a cross motion raising, among other things, the Superintendent's violation of the Supreme Court's orders, which are serious and numerous."
• "[W]e are puzzled by the current position taken by Superintendent Lawsky. While it was proper to name him in the subject complaint, he is currently in a position to distance himself from the failings of his predecessors under whose watch the critical failings occurred."
• "[W]e are willing to explore with you the possibility of Superintendent Lawsky's joining with us in protecting and asserting the rights of the shortfall payees."

Legal Memorandum in Support of Motion

In support of their motion to enforce the court's injunctions and for a contempt order, attorneys for the Superintendent also filed a Memorandum of Law from which selected excerpts follow:

• "During the rehabilitation and liquidation proceedings of ELNY under Article 74 of the Insurance Law, and consistent with Insurance Law § 7419, this Court has entered various antisuit injunctions—in 1991, 1992 (which were continued by this Court’s order on December 17, 2010), and 2012—that 'enjoined and restrained [all persons] from bringing or further prosecuting any action at law, suit in equity, special or other proceeding against [ELNY] or its assets, or the Superintendent of Insurance of the State of New York and his successors in office as Rehabilitators thereof, or their agents'.”
• "In their pending appeal, those objectors and their counsel recognized the force of these injunctions, stating that this Court 'granted the Receiver’s request to permanently enjoin the bringing of any claims against the Receiver or others, including claims in their personal capacities.' They also conceded that '[l]eave of the court must be obtained to sue a receiver in his or her representative, as opposed to individual, capacity.'”
• "Notwithstanding their admissions that the Court enjoined 'the bringing of any claims against the Receiver,' three of the objector-appellants, Jeanice Dolan, Daniel A. Malin, and Keith Vincent ..., through their counsel Edward S. Stone and Roger P. Christensen, Karra J. Porter, and Kristen C. Kiburtz of Christensen & Jensen, P.C. ..., recently filed a putative class action in the United States District Courtfor the Southern District of New York that violates this Court’s anti-suit injunctions."
• "It is literally hornbook law that '[a] violation of an injunction constitutes a contempt.'”
• "Here: (1) this Court’s anti-suit injunctions expressly enjoined actions against the Superintendent as ELNY’s Receiver, (2) the Objector Plaintiffs and Counsel unquestionably violated these injunctions by filing suit in federal district court, (3) Counsel for the Objector-Plaintiffs admittedly had knowledge of the Court’s injunctions, and (4) the Superintendent has been prejudiced because, inter alia, he has had to retain counsel, to analyze the claims, and to begin preparing a responsive pleading to the federal court complaint against him, which has distracted from his work and that of his staff in orderly liquidating ELNY."
• "Disobedience of a court order is 'sufficient to sustain a finding of civil contempt, regardless of motive, where . . . it was calculated to or actually did defeat, impair, impede, or prejudice the [other party’s] rights.'”
• "Counsel for Objector-Plaintiffs’ refusal to comply with the anti-suit injunctions has caused the Receiver to incur costs and expenses, including attorney’s fees (both in analyzing and preparing a response to the Complaint and in bringing this contempt action)."
• "Accordingly, the Court should include such costs and fees as part of a contempt order and require Counsel for Objector-Plaintiffs to pay to the Superintendent the full amount of his costs and attorney’s fees that are incurred as a result of their contempt."

For S2KM's complete ELNY reporting and an Executive Life timeline, see the 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.

 

Calling Out Governor Cuomo

Doubling down on a recent investigative article he co-authored about Executive Life of New York (ELNY) ("The Complete ELNY Saga "), Bill Coffin, Group Editor in Chief for Summit Business Media’s LifeHealthPro.com, has published a follow-up op ed article ("Governor Cuomo, I'm Calling You Out") in which he urges New York Governor Andrew Cuomo to "make this right. Fix ELNY before its payees must endure their harsh payment cuts."

In his most recent article, Coffin repeats a charge he and his co-authors made earlier: "The New York Liquidation Bureau [NYLB] .... is the cause of all this mess." For S2KM's summary of Coffin's NYLB allegations, see "NYLB Role in ELNY Disaster".

According to its Mission Statement: NYLB "acts for the Superintendent of Financial Services 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."

Benjamin M. Lawsky is New York's Superintendent of Financial Services. Lawsky reports directly to Governor Cuomo and is currently a defendant in an ELNY class action lawsuit  filed November 8, 2012 by attorney Edward Stone and representatives of the Christensen & Jensen law firm.

Coffin's earlier co-authored ELNY article suggested the New York state government or the insurance industry could (and should) clean up the "ELNY debacle". In his most recent article, Coffin charges Governor Cuomo with personal responsibility.

"The simple truth", according to Coffin: "[Governor] Cuomo could fix ELNY if he wanted to. If he thought fixing ELNY would help his chances for a Presidential run in 2016, ELNY would already be fixed..... The insurance industry in the state could simply be ordered to pay that amount."

So why, Coffin asks, has Governor Cuomo not taken action? "Is it because [Governor] Cuomo cannot stomach the notion of making the rest of the industry in the state pay for the actions of an irresponsible few? ... [If] that is the case, then there is always the possibility of paying for ELNY with other general fund monies..... [A]t the very least, [Governor] Cuomo could ensure that any and all fines levied by the Department of Financial Services (Ben Lawsky) go first to ELNY before going anywhere else."

Coffin concludes his appeal to Governor Cuomo by observing: "There is a difference between doing the easy thing and doing the right thing. Show your constituents that you know the difference, or be called out as being just as much a part of this long-running failure as everybody else who has had a chance to fix ELNY and come up short."

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

ELNY Appeal - Oral Arguments

Two Executive Life of New York (ELNY) legal actions are currently in process:

• ELNY Appeal - 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 challenging the Executive Life of New York (ELNY) Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012.
• ELNY Class Action - Attorney Edward Stone and representatives of the Christensen & Jensen law firm filed a class action lawsuit November 8, 2012 on behalf of ELNY shortfall victims in the United States District Court Southern District of New York against defendants Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers (Superintendent/Rehabilitator), Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse).

ELNY Appeal

The appeal, filed May 30, 2012 on behalf of 18 ELNY structured settlement shortfall victims as objectors:

• Alleges Judge Galasso "erroneously denied objectors' request to reject the proposed agreement of restructuring in connection with the [ELNY] liquidation";
• Further alleges  Judge Galasso's order:
  • "[I]mproperly grants and/or continues certain injunctions and immunities and discriminates against the objectors";
  • "[C]reates impermissible sub-classes of claimants"; and
  • "[R]eflects the courts erroneous denial of objectors' requests to adjourn the hearing ... due to a lack of proper notice of such hearing."
• Seeks to compel:
  • The Superintendent, as ELNY's Rehabilitator, "to provide certain discovery necessary to, among other things, allow objectors to demonstrate why the plan should not be approved and submit a viable competing restructuring plan";
  • Judge Galasso "to unseal certain documents submitted to the court by the rehabilitator"; and
• Further seeks to allow the objectors "to present evidence (in the form of live testimony by certain witnesses) rebutting the receiver's experts and otherwise showing that the proposed-liquidation plan should not have been approved."

Appellate Briefs

S2KM previously summarized:

• Objectors' appellate brief
• Arguments in the objectors' preliminary brief:
  • Due process
  • Immunity
  • Injunction
• Arguments in the Superintendent's brief and the objectors' reply brief:
  • Due process
  • Immunity
  • Injunction

Oral Arguments

S2KM did not attend the ELNY oral arguments in Brooklyn, N.Y. The following reporting notes were provided to S2KM by structured settlement shortfall payees, and their attorney Edward Stone, who did attend the oral arguments and includes their opinions and observations.

The four appellate judges who heard the oral arguments appeared to understand the complexity of the issues on appeal:

• Associate Justice Mark C. Dillon
• Associate Justice Sandra L. Sgroi
• Associate Justice Cheryl E. Chambers
• Associate Justice Robert J. Miller

Each briefing attorney summarized his/her arguments then responded to questions from the judges:

• Karra J. Porter - for the ELNY shortfall payees.
• Steven M. Bierman - for the Superintendent.
• Kevin P. Griffith - for NOLHGA.

At least a dozen attorneys supporting the ELNY liquidation plan approved by Judge Galasso attended the oral arguments, many at the expense of the ELNY victims.These attorneys included several each representing the Superintendent and NOLHGA.

Appearing on behalf of the ELNY shortfall payees, attorney Porter focused her comments on lower court proceedings that denied ELNY shortfall payees their basic due process rights including the right to verify information the Superintendent and NOLHGA relied upon in formulating their restructuring plan.

Porter also addressed the scope of immunity, if any, to be accorded the Superintendent under New York law. She asked the panel to hold the Superintendent's ELNY conduct to the same standard applicable to all private receivers: good faith and appropriate care and prudence. She argued there is no basis in either New York or common law for the immunity and injunctive relief Judge Galasso granted to the Superintendent and his agents.

Appearing on behalf of the Superintendent, attorney Bierman claimed the ELNY shortfall payees had been afforded a fair hearing and noted Judge Galasso had determined the ELNY liquidation and restructuring plan were appropriate under the circumstances. Bierman insisted the Superintendent represented all of the ELNY shortfall victims and acted in their best interest.

Bierman never referenced or attempted to refute evidence that the Superintendent and his agents mismanaged the ELNY estate. Instead, he characterized as "galling" that ELNY shortfall payees would challenge the results of the ELNY liquidation hearing and added "no good deed goes unpunished".

Understandably, the ELNY shortfall victims who attended the oral arguments strongly disagree with attorney Bierman as to what is "galling" about the ELNY rehabilitation, liquidation hearing and restructuring plan. What is "galling" to ELNY shortfall victims:

• The Superintendent's claim that he acted in their best interests.
• The Superintendent's gross mismanagement of the ELNY estate.
• Judge Galasso's denial of their basic due process rights.
• Judge Galasso's grant of immunity and injunction to:
  • Protect the Superintendent and his agents from lawsuits; and
  • Prevent meaningful verification of the Superintendent's assertions.

The judges seemed disinterested in the due process arguments presented by attorney Griffith on behalf of NOLHGA, according to the ELNY shortfall payees who attended the oral arguments. The only question asked: "Wasn't it always the obligation of NOLHGA's state guarantee association members to pay their coverage amounts to the ELNY shortfall payees?"

A decision in the ELNY appeal is expected by year end 2012.

For additional notes about the ELNY oral arguments, see attorney Edward Stone's website.

ELNY Class Action Filed

Attorney Edward Stone and representatives of the Christensen & Jensen law firm have filed a class action lawsuit on behalf of Executive Life of New York (ELNY) shortfall victims in the United States District Court Southern District of New York.

The Complaint names Jeanice Dolan, Daniel A. Malin, Keith Vincent, and other similarly situated ELNY shortfall victims, as plaintiffs, and Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers (Rehabilitator), Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse) as defendants.

Causes of Action vs. Rehabilitator

• Breach of Fiduciary Duties - by:
  • "violating a court order with respect to asset allocation,
  • "employing a high risk tax inefficient investment strategy that created impermissible preferences,
  • "wasting precious assets by paying [New York Liquidation Bureau] expenses that were excessive and not related to the management of the ELNY estate - much of which was outsourced,
  • "failing to audit MetLife records and reconcile data with the social security death master file and
  • "not seeking a purchaser who could and would honor ELNY's policy obligations."
• Fraudulent Omission - by "fraudulently concealing and failing to disclose material information to plaintiffs."

Causes of Action vs. MetLife

• Aiding and Abetting Breach of Fiduciary Duties - by:
  • "engaging in 'bid rigging' with the Rehabilitator in order to strip ELNY's highest-quality assets and committing related misconduct,
  • "benefiting from the deal,
  • "apparently providing inducements for the deal (e.g. a lucrative future employment opportunity for the Rehabilitator's [r]epresentative),
  • "aiding in the concealment of the misrepresentations made to obtain approval of the deal,
  • "receiving "ill-gotten gains ... equaling hundreds of millions of dollars, including profits made from the receipt of ELNY's Single Premium Deferred Annuity and traditional life insurance books of business and renewals,"
  • receiving "profits made on surrender charges to former ELNY policyholders", and
  • receiving "profits made on the investment of high-quality assets received under the deal."
• Breach of Contract / Unjust Enrichment - by:
  • receiving "unearned compensation from ELNY, at the expense of ELNY’s annuitants" and
  • failing to fulfill contractual services resulting "in the inappropriate expenditure of funds, such as the payments made on behalf of deceased individuals whose benefits terminated at death."

Causes of Action vs. Credit Suisse

• Aiding and Abetting Breach of Fiduciary Duty - by:
  • "affirmatively implementing an imprudent and unsuitable investment strategy that was incompatible with the nature of the liabilities dependent upon ELNY's assets," and
  • "actively participating in the violation of court-ordered limitations on investment activities."
• Breach of Fiduciary Duty - by failing to:
  • "consider the long-term investment needs of ELNY and the Plaintiffs;
  • "select investments suitable with such needs and to maintain an asset allocation that was consistent with that strategy;
  • "comply with court-ordered limitations or parameters regarding the investment of ELNY's assets; and
  • "act with utmost loyalty to the Plaintiffs and ELNY, and not to act in their own self-interest adversely to the Plaintiffs and ELNY."

Requested Damages and Relief

• "Damages equaling the full present value of each Class Member's annuity issued by ELNY, less any amount determined to be owing to Plaintiff under the terms of ELNY's liquidation;
• "Damages equaling the amount of each defendant's unjust enrichment and ill-gotten gains;
• "Attorney fees and litigation expenses, to the extent permitted by contract or law;
• "Pre- and post-judgment interest, to the extent provided by contract or law; and
• "Such other equitable relief as the Court deems appropriate."

In addition, the Complaint demands a jury trial and seeks:

• The action to be certified as a class action;
• Plaintiffs to be appointed as representatives of the class;
• Counsel to be appointed counsel for the class; and
• An order to be issued providing for reasonable notice to be given members of the class.

Note: although filed by the same attorneys, this ELNY class action lawsuit is a separate cause of action from the ELNY appeal challenging the Executive Life of New York (ELNY) Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012. Oral arguments for the ELNY appeal were heard today by the Appellate Division of the Supreme Court of the State of New York, Second Department.

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