" title="Peter H. Bickford Legal & Dispute Resolution Services"> Peter H. Bickford Legal & Dispute Resolution Services

On August 8, 2013 the Restructuring Plan for Executive Life Insurance Company of New York (ELNY) closed.  Under the Plan all remaining assets of ELNY were transfered to a new District of Columbia captive, GABC, owned by participating state life insurance guaranty funds and run by the National Organization of Life and Health Guaranty Associations (NOLHGA).  GABC has now assumed responsibility for all the remaining ELNY annuity contracts, but on a restructured basis that reduces the value of the contracts by close to $1 billion.  Almost all of the reduced value falls on one category of contracts — structured settlement annuitants.  Now that ELNY is formally gone, it is time for regulators, legislators, guaranty associations, insurers and consumer groups to look back at what went wrong with ELNY and the lessons it can teach us about a flawed insurance insolvency process.  To do this, however, it is necessary to remove from the conversation certain postures taken in the court proceedings leading to the approval of ELNY’s liquidation and the Restructuring Plan.

My Insight column, “Gone But Not Forgotten,”  in the September 9, 2013 issue of Insurance Advocate magazine, discusses a number of myths about ELNY that need to be understood for there to be any meaningful discussion about changes to the insolvency process.  The myths discussed are:

• The Plan is not discriminatory.  It is discriminatory in two major ways.
• Guaranty Associations will pay out their full limits in many cases.  They will not pay out full limits on any contract.
• ELNY was in financial decline when placed in rehab. It wasn’t.

A copy of the column, which explains these myths in more detail, can be accessed here.

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In May the superintendent of financial services, Ben Lawsky, announced the issuance of the New York Liquidation Bureau’s 2012 annual report, which is posted on the Bureau’s website at www.nylb.org.  The report is a 146 page thing of beauty, describing all the progress and improvements made by the current administration in closing estates, resolving claims, paying dividends, improving efficiencies and reducing staff.  However, as discussed in my recent Insight Column, “Beauty is Skin Deep” in the June 17, 2013 issue of Insurance Advocate magazine, as laudable as they may be, these efforts to improve the performance and perception of the Bureau do not address the underlying flaws with the structure, accountability and oversight (or lack thereof) of New York’s insurance insolvency process.  For instance, the report does nothing to:

– Establish a properly constituted and accountable rehabilitation and liquidation office and/or a pool of authorized independent receivership professionals;
– Provide each receivership court with the tools necessary for effective oversight of insolvent estates, including regular, periodic, meaningful report, plans and conferences;
– Provide for effective and timely participation by all interested parties in the process;
– Address the financial condition of and inequities inherent in the life guaranty fund system;
– Address the issue of separating control of the property casualty security funds from direct control of the receiver as in all other states; or
– Provide for appropriate oversight and accountability – not blanket immunity — for the receiver’s agents in the performance of their services.

No matter how much effort is made by the current administration to improve the perception of the NYLB’s current performance, without addressing these core issues, the can is simply being polished and once again kicked down the road to future administrations.

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My February 18 Insight column for Insurance Advocate magazine called for the elimination of the New York Liquidation Bureau  — a seemingly drastic but, in my view, necessary remedy for the gross mismanagement and lack of accountability under the existing system.  In that column I stated that I would offer alternatives to the existing system.  Hence in my March 4 Insight column, I discuss a truer course for the effective and open management of insolvent insurers through the designation of special agents retained on an estate-by-estate basis rather than through a full-time staff over-invested in an archaic, unaccountable, covert system.

My March 4 column, accessible here, focuses on the appointment by Superintendent Muhl in 1995 of such an independent agent in the liquidation of United Community Insurance Company (UCIC), and compares the success and effectiveness of the independent agent versus the management of UCIC by the liquidation bureau after it took back control from the independent agent in 2009.  As explained in my column, the most interesting aspect of the use of an independent agent in the UCIC estate was that it fit clearly within the existing statue.  In fact, it is a better fit than the Liquidation bureau, which has no direct foundation in the statute!

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My Insight column for the February 18, 2013 issue of Insurance Advocate magazine, which I had titled “The Final Straw,” calls for the drastic remedy of dismantling of the NY Liquidation Bureau.  My column, which the editor of Insurance Advocate decided to turn into the cover story for the issue, describes how the Executive Life Insurance Company of New York (ELNY) fiasco has shown a bright light on the covert mismanagement of insolvent insurers by the Bureau, and discusses why the institution is beyond simple fixes and requires a full re-examination of the process.  A copy of my article can be accessed here.

In future columns, I will explore some dos and don’ts and some specific recommendations for a more efficient, effective and open process for handling insolvent insurers — not just for NY but for any US jurisdiction.  This is particularly important considering the concerns for Federal oversight of insurer solvency regulation, and the holes and inconsistencies that ELNY has exposed in the state guaranty fund structure.

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The failure of Executive Life Insurance Company of New York under the management of the New York Liquidation Bureau has raised a number of issues regarding the insolvency process in New York.  Not the least of these issues is the fact that the court approved restructuring agreement addressing the $1.6 billion deficit has quite literally exhausted the funding available to the New York life guaranty funds for any future insolvencies.  The Executive Life failure has also exposed the shortcomings of the life guaranty fund structure nationwide, particularly as applied to structured settlement annuities.  My Insight column in the November 26, 2012 issue of Insurance Advocate (www.insurance-advocate.com) discusses these issues and offers some suggested changes that should be considered by legislators, regulators and the life insurance industry.  A pdf copy of this column can also be downloaded from the publications page of my website at https://www.pbnylaw.com/publications/

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My Insight column for the September 24, 2012 issue of Insurance Advocate (www.insurance-advocate.com) explores the issue of whether a receiver should receive immunity for managing the estate of an insolvent insurer and if so, whether that immunity should be granted on a case by case basis by the supervising court or by statute for all receivers.  While the topic of immunity for receivers has been debated for many years, the issue is particularly relevant today in view of the court’s grant of judicial immunity to the receiver and his agents in the Executive Life Insurance Company of New York matter where the company was not insolvent when placed into rehabilitation in 1991, but is now insolvent by more than $1.6 billion.  Does this grant of judicial immunity effectively prevent exploring the causes of the insolvency and, if appropriate, holding those responsible accountable?  A copy of the column is available from my website at www.pbnylaw.com/publications/.

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In March of this year an eleven day hearing was conducted in New YorkSupreme Court for Nassau County to consider the rehabilitator’s petition to liquidate Executive Life Insurance Company of New York (ELNY) and approve his proposed restructuring plan.  The court issued a decision on April 17, 2012 approving the rehabilitator’s petition, determining that ELNY is insolvent, ordering it liquidated, and approving the proposed restructuring plan. 

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It is surprising enough that the $1.6 billion deficit in the Executive Life of NY rehabilitation receives so little media attention, but most people would also be surprised to know who will ultimately bear that loss. My current Insight column in the June 4 issue of Insurance Advocate magazine explores this issue as well as the consequences of ELNY on the NY State life guaranty funds. The column can be viewed on-line at:

http://www.insurance-advocate.com/A-Billion-Here-a-Billion-There-and-Pretty-Soon-Youre-Talking-Real-Money-c1349.html

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Under the proposed restructuring plan, the remaining ELNY assets are to be transferred to a new entity owned and controlled by the participating state life insurance guaranty funds, which will contribute funds to the new entity in amounts based on their individual state fund laws. The ELNY contracts will be restructured to a level that can be supported by these assets, and the obligations as restructured will be assumed by the new entity. Because most of the annuities are relatively small and fall within guaranty fund caps, the rehabilitator has estimated that roughly 84% of all annuitants will continue to receive their full periodic annuity payments. Many annuitants, however, will see their periodic structured settlement payments reduced by up to 50% or more.

At the hearing, the Court will consider whether or not the proposed restructuring plan is in the best interests of ELNY’s policyholders, annuitants and the general public based on its current condition and existing laws.  Another but equally important consideration, however, is how the receivership process failed ELNY, its policyholders and annuitants, and in 20+ years of rehabilitation managed to take it from a solvent company to more than $1.5 billion in the hole.

In the hope of keeping this historic perspective as part of the current dialogue, I have written an article examining the circumstances of ELNY being placed into rehabilitation, the flawed rehabilitation plan and the mismanagement of the estate leading to its inevitable failure. The article is not an assessment of the proposed restructuring plan to be considered by the court on March 15; rather it is a call for a review of the flawed receivership process that brought it to this point. Here is a link to the Publications page of my website to access this article, which is titled “The Trouble with ELNY: Or How The Receivership Process Has Failed Executive Life Insurance Company Of New York, Its Policyholders And Annuitants.”

[Note: This article, without endnotes, is also the cover article in the February 20, 2012 issue of Insurance Advocate magazine.]

Caesar:  [To the Soothsayer] The ides of March are come.

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Last month I posted the final installment in my series of articles on the insurance insolvency process in New York. Since completing the series I have received a number of requests for the entire series. To accommodate these requests I have combined the series into one document and have posted it in pdf format on my web site, which can be accessed here: www.pbnylaw.com.

As I state in the introduction to this article, since the Mid-1980s I have represented managements, shareholders, policyholders, claimants, reinsurers (both as creditors and as debtors) and purchasers of insurance operations in liquidation or rehabilitation in New York. During that time I have observed the handling (or mishandling) of the receivership process spanning the administrations of five Governors and eight superintendents. Each new administration has vowed to “do something” about the system, and in particular address the “mess” at the Liquidation Bureau. What has been clear from these efforts over the years is that the “mess” has been largely misunderstood and the entrenchment and resilience of the Bureau grossly underestimated.

It is hoped that this article will help those trying to wend their way through the maze of the insolvency process to pursue their interests in an insolvent estate; and in the process spotlight the myths and misunderstandings surrounding the roles — statutory or de facto — of the superintendent, the Insurance Department, the Liquidation Bureau and the security funds.

If you have a problem in accessing the article through the link above, please e-mail me at pbickford@pbnylaw.com, and I will send you the article by return e-mail.

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