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The Receivership Process in New York – Part I: What exactly is the Liquidation Bureau anyway?

As promised in my last post, here is the first in a series of articles on the receivership process in New York: starting with a discussion of the liquidation bureau – what exactly is it?

It is easier to state what the liquidation bureau is not. According to the New York Court of Appeals, it is not a state agency (and therefore not subject to audit by the state comptroller). According to the records of the Secretary of State, it is not a corporation. And according to the Insurance Law . . . , well let’s just say its status is undefined.

As I stated in my last posting, before 1993 there were no statutory references to a liquidation bureau in the Insurance Law including the receivership article, Article 74. In 1993, subsection (g) was added to Section 7405 (Order of liquidation; rights and liabilities) requiring the superintendent as receiver to prepare an annual report on the status of each company in liquidation or rehabilitation. The last sentence of this new section states that “This report shall be separate and apart from other reports issued by the liquidation bureau of the department in the normal course of its business.” This is the only reference in the Insurance Law (actually the only reference in the entire New York Consolidated Laws) to a liquidation bureau.

The Bureau’s existence may be assumed, but its status and mandate are not defined anywhere in the law. The home page of the Liquidation Bureau’s web site states:

The New York Liquidation Bureau (NYLB) is a unique entity. [No debate there!] Receiving no funding from taxpayers, it carries out the responsibilities of the Superintendent of Insurance as Receiver, and acts on his behalf in the discharging of his statutorily defined duties to protect the interests of the policyholders and creditors of insurance companies that have been declared impaired or insolvent.

The bureau’s web site also states that it has “performed this function since 1909, when the New York State Legislature passed the law mandating that the Superintendent assume the separate responsibility of Receiver.” However, the law does not establish a bureau to carry out this function. The law requires that the superintendent be designated as rehabilitator or liquidator to take control of the assets of an insolvent company and liquidate or manage the estate. It also permits the appointment of deputies and assistants to support the superintendent in this role as receiver. It was clearly anticipated that these appointments would come from the key employees of the insolvent company itself — those with the greatest knowledge of the business and operations of the company being liquidated — and would be engaged only for the duration of the receivership process.

The hiring of employees of the insolvent company, and the temporary nature of these appointments, was succinctly summarized in a 1915 report to the New York State Constitutional Convention Commission on the Organization and Functions of the Government of the State of New York (at page 118) — just a few years after the statute referred to in the Bureau’s web site:

The practice is to retain such of the employees of each company which comes into liquidation as may be necessary to attend to the details of its affairs, and to dispense with them as rapidly as consistent with the proper conduct of its business.

The current statute is consistent with this historical record of the temporary nature of the receivership of insurance companies. Rather than authorizing the establishment of a permanent bureau, current Section 7422 authorizes the superintendent to appoint deputies and others to assist in the performance of the receivership function, “and all expenses of conducting any proceeding under this article shall be fixed by the superintendent, subject to the approval of the court, and shall be paid out of the funds or assets of such insurer.”

Article 74 clearly views each insolvency as a separate proceeding with the superintendent acting as receiver under the supervision and control of a Supreme Court judge for that estate. Nowhere in the law is there any provision for the establishment of a permanent agency or bureau to carry out this function, and there is no central judicial oversight designated to coordinate the handling of all pending receivership proceedings collectively.

The limited role and temporary nature of the agents assisting the receiver for a particular estate has evolved into a permanent liquidation bureau, particularly over the past thirty years. This evolution occurred without a statutory, judicial or regulatory mandate to do so. As the number and size of insolvencies increased dramatically in the late 1970s and into the 1980s, the liquidation bureau grew into its own self-operating permanent bureaucracy, flying under the radar and accountable to no one – not the legislature, not the courts, and not the regulators.

The Bureau today has half as many employees (over 450 employees) as the entire New York Insurance Department, and most of them are protected by union contracts. The Bureau also purports to have a budget of over $100 million, but this “budget” is not subject to any independent oversight. Although Section 7422 requires court approval of expenses for an estate, there is no requirement in the law – including the much touted new legislation that would require annual audits – that the supervising court be provided with any regular, interim financial or status report. More significantly, no one court would be looking at the bureau or its budget as a whole.

The current administration has made a lot of noise about reforming the bureau and making it more “transparent.” It is doing this, however, by making the bureau even more permanent contrary to the mandate of Article 74 and the statutory receivership scheme.

In my next posting in this series I will discuss a current example of how the system could and should work under the existing statutory authority. In subsequent postings I will also discuss the role and structure of the security funds and how they have helped perpetuate the liquidation bureau’s independence and freedom from oversight, and why the current administration’s reform efforts will not only fail to achieve the advertised accountability and transparency, but will in fact further fortify the bureau against substantive change while significantly increasing the cost to policyholders and creditors of insolvent companies.


Aside from the scientific definitions, there are two principal meanings of “transparent” –

  • Open as in frank or candid; or
  • Easily seen through.

Quite often in political double speak the term is intended to convey the first meaning, while in reality the only transparency is in the motive.

I offer as a case study the recent legislation passed by the New York Legislature shortly before the end of session that would require the audit of the Liquidation Bureau and of each of the estates in liquidation or rehabilitation (the Bill, S6535-A, was passed by both the Senate and Assembly, but as of this date had not yet been sent to the Governor for signature). The Sponsors Memo accompanying the legislation claiming that the legislation will “shed sunlight on the financial health” of the estates in receivership and on the Bureau itself. Although the Bureau and the estates under its control desperately need proper oversight and examination, this legislation provides neither.

There are three principal defects in the legislation. First, it does not provide for a consistent, industry recognized standard of review; rather it allows for the examinations to be “upon whichever standard each corporation conducts its respective financial affairs.” Those of us that have dealt over the years with insolvent estates know that this will simply mean the continuation of the use of separate, inconsistent, confusing and sometimes unrecognizable financial reporting standards that are of little or no value to significant financial analysis.

Second, the reports do not have to be filed until August of the year after the year being examined, which effectively renders the reports out of date by the time they are issued (licensed companies, as most know, have to file their statutory statements by March 1 each year, and their audited statements by June 1).

The third significant issue is the cost. The “Fiscal Implications” section of the Sponsors Memo states that “[i]t is estimated that [the cost of the financial statements and opinions] will be below $300,000 annually.” That is for the audit of roughly 25 separate companies plus the Bureau itself for an absurd average of less that $12,000 per audit. In fact, last fall the Bureau engaged audits of the estates under its control at an estimated cost, without any unforeseen complications, of between $1.0 and $1.1 million – almost four times the amount in the Sponsors Memo. Furthermore, given that these audits were to have been completed by year-end 2007, the fact that they still have not been completed seven months later would suggest that “unexpected circumstances” have been encountered, and the fees will be even greater than the estimates.

What is the significance of this gross understatement of the fiscal implications? Simply this: These fees are paid from the assets of the various estates, which already are financially insolvent with insufficient funds to meet their policy obligations. While appropriate audits of the Liquidation Bureau and the estates it manages are warranted, these audits should provide value to the oversight of the Bureau and the estates. By not requiring a consistent, recognized reporting standard on a timely basis, the legislation does not provide that value and is a waste of estate assets.

The Sponsors Memo states that the legislation was “developed by the Liquidation Bureau, in consultation with the Legislature.” If a licensed insurer came to the Legislature with a request to require it to prepare and file additional reports, I am sure that the request would be viewed with great skepticism. The Legislature should have viewed the transparent motive behind the Bureau’s request in the same light.

With the legislation as passed, the Bureau can now claim that it has met the call for greater transparency, while in fact that transparency — as in open, frank or candid — is illusory and obtained at the cost of the estates, their policyholders, creditors, reinsurers and investors.


In response to yesterday’s entry on the two statutorily required reports of the New York Superintendent of Insurance, I was asked how many of the 961 Insurance Department employees work for the Liquidation Bureau. The answer is none, nada, nil, zero. The Liquidation Bureau is not a state agency and its employees are not state employees (See Dinallo v. DiNapoli, NY Court of Appeals, No. 111, October 11, 2007, discussed in my October 12, 2007 web entry).

The Superintendent’s report as receiver does not include any information on the Liquidation Bureau’s staffing or budget. The “consolidated” statements contain some information on salaries and expenses relating to estates in liquidation, but this information does not include all estates, and there is no presentation on the Bureau itself. The Superintendent’s Annual Report to the Legislature, at page 237, states that the Liquidation Bureau has “a staff of 450 and a budget of $100 million.” There is no further information, however, on the details of this staffing or the expenses.


Two annual reports of the Superintendent of Insurance required by New York’s insurance law have been issued in the last few weeks: one of which is readily available and the other that is available only through a request under the Freedom of Information Law.

The readily available report is the 2007 Annual Report of the Superintendent of Insurance to the New York Legislature required by Section 206 of the Insurance Law. This 268 page report, which is available as a pdf document through the Department’s website (, is cram full of information about the insurance business in New York and the regulation of the business. For instance, the report contains consolidated summaries of the statements filed by insurers showing such things as the number and kinds of authorized insurers by class of business, total assets, liabilities, premiums written and insurance in force. On the regulatory side, the report includes summaries of new regulations and circular letters, lists of reports of examinations completed, and lists of insurers organized, admitted, merged withdrawn, or placed in liquidation, rehabilitation or conservation.

If you dig statistics, as I do, you may find some of the data on the Department itself to be most fascinating. For instance, did you know that for the calendar year 2007 the Insurance Department:

Employed 961 people of whom 647 were located in New York City, 289 in Albany and 25 elsewhere?

Employed more attorneys (69) than actuaries (61) or investigators (43)?

Issued 153,909 licenses during 2007 to adjusters, agents, brokers, consultants, reinsurance intermediaries and service contract registrants?

Collected receipts totaling $742,245,640.94 and incurred Department expenses of $188,250,888.74?

Much of this information is required by the laundry list set forth in Section 206, although the report has evolved over the years into a very comprehensive annual almanac. If you are interested in researching the business of insurance in New York or in the minutia of the activities of the New York Insurance Department, this report is a great place to start.

The second report of note is the 2007 Annual Report of the Superintendent of Insurance as Liquidator or Rehabilitator required by Section 7405(g). This report is required to include a financial review of the assets and liabilities, and the claims paid or approved for each domestic insurer in liquidation or rehabilitation, and a summary of all other corporate activity and a narrative of the actions of the liquidator or rehabilitator for each company. (This statutorily dictated report should not be confused with the “2007 Year-End Report” posted by the New York Liquidation Bureau on its web site back in January, which basically rehashes all of the Bureau’s 2007 press releases).

The report required by Section 7405(g) – while not nearly as comprehensive as reports required by solvent companies — is the only meaningful information required to be compiled by the Superintendent of Insurance about the companies for which he acts as receiver. Yet this report cannot be found on the web site of either the Insurance Department or the Liquidation Bureau, and can only be obtained by making a Freedom of Information Law (FOIL) request to the Insurance Department.

The justification for this restrictive availability, I have been told, is that the information contained in the report is unaudited. However, even though the Liquidation Bureau has announced that it is having audits of each estate performed (a process that has been ongoing almost as long as the period being audited), there is no requirement in the law for audited statements of companies in liquidation or rehabilitation. The Section 7405(g) report is the only statutorily required statement of the receiver, and limiting its accessibility does not appear to be within the intent and purpose of the statute.

Furthermore, despite the Bureau’s repeated published statements about being more transparent, the Report actually appears to be a step backwards from prior administrations. For some reason the current administration decided to present the data on the individual companies in liquidation (with one exception) on a consolidated basis rather than by separate statements. While this approach may show the totality of the Bureau’s realm, it is not consistent with the statutory requirements or the reality of the process where each estate is a separate and distinct entity.

The report can be obtained by making a FOIL request of the New York Insurance Department. You can get it without cost using the Department’s online FOIL request form indicating you want it sent via e-mail. Hard copy costs 25¢ per page. Do not direct a request to the Liquidation Bureau – it will deny the request on the basis that it is not a state agency subject to FOIL. Once again, so much for transparency!

What does it mean to Stand in the Shoes of an Insolvent Insurance Company?

The courts in most jurisdictions – including New York — have consistently held that a receiver “stands in the shoes” of the insolvent company and does not get to change the contractual or legal obligations of the insolvent company simply because an order of rehabilitation or liquidation has been issue. It is not clear, however, if the current management of the New York Liquidation Bureau accepts that they are private managers of insurance entities and are not imbued with the super powers of a governmental agency. The courts continue to do their part to remind the Bureau of its role, but judging from the number of times they need to do so, it does not seem that the message is getting through.

Last October the New York Court of Appeals confirmed that the Bureau was not a state agency (Dinallo v. DiNapoli, October 11, 2007, Decision 111). Although this was a position espoused by the Bureau itself, the Bureau’s motive was not to restrict its powers but to avoid scrutiny by the state comptroller (See my web entry for October 12, 2007). In finding that the Bureau was not a state agency, the Court also restated the broadly accepted principle that the receiver “for all practical purposes takes the place of the insolvent insurer.” (Decision at p.3). It is this limiting role that the Bureau seems to have a problem accepting.

Granted, the receiver has certain necessary powers to assist in the marshalling of estate assets and court protection from unwarranted assaults, but these powers are not intended to alter contractual relationships or create obligations that did not exist pre-receivership. For instance, in Matter of Midland Ins. Co., 79 NY2d 253, 265 (1992), the New York Court of Appeals stated that “liquidation cannot place the liquidator in a better position than the insolvent company he takes over, authorizing him to demand that which the company would not have been entitled to prior to liquidation. . . . Those rights were not altered merely because a liquidation order was entered.” Notwithstanding this clear pronouncement, the Bureau frequently attempts – even in the Midland Insurance Company estate — to alter contractual rights of others under the guise of acting as a “fiduciary” or under some implied or threatened super authority.

In January 2008 the Midland liquidation court (Justice Stallman) issued a lengthy decision that, while supporting the primary claim handling authority of the liquidator, also took the Bureau to task for not adequately protecting the interposition rights of reinsurers, and requiring the Bureau to revise the claims protocol in this regard (See my February 21, 2008 web entry on this decision). Now Justice Stallman has again reminded the Bureau of the limitations of its authority and power to define the rights of others – this time regarding the Bureau’s attempt to apply New York law across the board to all Midland creditors.

In a recent 24-page decision (In the Matter of the Liquidation of Midland Insurance Company, Motion Seq. No. 69, April 15, 2008), Justice Stallman has directed that the law applicable to each policy is not New York law in all cases; rather the applicable law is to be determined following the ‘grouping of contacts’ approach of the Restatement (Second) of Conflicts of Laws. The decision rejects the Bureau’s interpretation of the Appellate Division finding in the Lac d’Amiante du Quebec claim in Midland (269 AD2d 50 [1st Dept 2000]) that all creditors are to be treated equally requires that New York law must apply to all Midland contracts. Instead the Court turns to the Foster Wheeler Corp. holding (36AD3d 17 [1st Dept 2006]) that the “grouping of contacts” principle of the Restatement (Second) of Conflicts of Law applies in New York and is consistent with the principles of the Uniform Insurers Liquidation Act (Insurance law Section 7048 et seq.) for the equitable administration of estates. Furthermore, the court found that the establishment of nine statutory classes of claimants in the 1999 amendment to the priority of distribution scheme under Article 74 eliminates any basis for applying the equal treatment reading of the Lac d’Amiante decision.

The decision is an interesting read, but the bottom line is that the court rejected equating equal treatment with equitable treatment, and again confirmed that “standing in the shoes” does not mean trampling the contractual rights of others.


This is an update to last week’s posting (see December 5, 2007 posting below) about Executive Life Insurance Company of New York (ELNY). I expect to continue issuing postings on this topic to raise questions about the premises behind the New York Liquidation Bureau’s bail out plan for ELNY so long as the Bureau continues to publicly tout its plan using justifications that are contrary to the facts.

This week’s issue of Business Insurance ( published a follow-up article on the ELNY deal reporting on statements by the head of the Liquidation Bureau, Mark Peters. According to the article, “ELNY would receive roughly $650 million to $750 million in cash contributions” from both state life guarantee associations and from certain p/c companies “that bought ELNY annuities to fund structured settlements of liability claims.” The p/c companies include Allianz, Fireman’s Fund, Allstate, State Farm and Travelers.

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

Let’s see what’s wrong with the foregoing statements:

Inadequate interest rate assumptions cannot begin to account for the purported deficit. The assets simply have not decreased substantially in the past 16 years. In fact, prior to 2002, there was NO reduction in reported assets – all policy claims were being paid from current earnings.

The 1992 plan of rehabilitation does not include interest rate assumptions. It discussed an investment strategy summarized as follows: “. . . principal and interest realized upon maturity or recovery of ELNY’s bonds [none of which defaulted, by the way], as well as other cash flows derived from investments contained in ELNY’s portfolio, will be reinvested in long-term (thirty (30) year) investment grade corporate bonds and in Standard and Poor’s 500 common stocks. The reinvestment in common stocks will be limited.”

The 1992 plan of rehabilitation specifically stated that that the cash flows from investments “are projected to be sufficient to cover current [covered annuity] payouts for at least ten (10) years.” That is what happened. So how was the strategy wrong?

By the beginning of 2002 the number of outstanding contracts had already declined by over 40% (now over 50%), yet the asset base remained constant. Over-stated interest assumptions simply cannot explain the Bureau’s publicly announced conclusions.

So if it is not the interest rate assumptions causing the purported deficit, what is causing it? Potential investors have made proposals to the Liquidation Bureau over the past several years supported by pro forma statements using interest rate assumptions at or below the Bureau’s current assumption without showing any significant deterioration based on known liabilities. These investment proposals all failed to obtain the Bureau’s “approval” because of continual increases in liabilities – not because of a decline in the assets. This precipitous increase in liabilities – which is not mentioned at all in the Bureau’s statements about ELNY — is counter-intuitive to the conservative actuarial assumptions in place for the life of the estate, the nature of the business, and the decline by half in the number of active policies.

A couple of other points are also worthy of note. It is interesting that this publicly touted agreement with the industry is not publicly available, and all the participants are unable to discuss the agreement because they were each required to enter into a confidentiality agreement with the Bureau. If the bail out plan is so beneficial for everyone, why does the Bureau feel compelled to keep it hidden?

In the Business Insurance article, Mr. Peters also stated that the bail-out plan “would be cheaper for the insurers [how this is so is not explained] and avoids the ‘chaos’ that would come with a liquidation.” One thing that liquidation accomplishes is to remove the company from the hands of the people that caused it to become insolvent. Because ELNY was solvent when it was placed in rehabilitation, if it is now insolvent it became insolvent under the Liquidation Bureau’s watch. Can anyone imagine the industry voluntarily contributing $750 million to bail out a company’s management so that it could avoid liquidation and remain in charge?


New York’s Governor Spitzer issued a press release on Monday (December 3) followed by a widely reported press conference announcing an agreement in principle “that will protect nearly 11,000 accident victims and other individuals receiving annual payments from structured settlements and pensions.” The release goes on to praise the Superintendent of Insurance and the head of the Liquidation Bureau for aggressively pursuing an agreement with the life and property/casualty companies and the guarantee funds that “resolved a significant deficit from a defunct insurance company.” (The press release can be found on the Insurance Department’s web site at

Before jumping on the bandwagon of kudos to the Governor, the Superintendent of Insurance and the Liquidation Bureau, however, there are a number of factual issues that one might want to consider.

The “defunct” company in question is Executive Life Insurance Company of New York (“ELNY”), which was placed into rehabilitation in 1991. According to the 1992 court approved Plan of Rehabilitation, ELNY was placed in rehabilitation because of the New York Insurance Department’s concerns that the adverse publicity regarding the seizure of its parent company, Executive Life Insurance Company of California, could result in an excessive number of cash surrenders. It was NOT placed in rehabilitation because it was insolvent! In fact, ELNY has never been determined to be insolvent. Consider also the following:

  • At year-end 1994 (the first year the Liquidation Bureau was required to publish financials for the estates under its control), ELNY had almost 24,000 annuity contracts in force and reported assets of $1.65 billion.
  • At year-end 2006, there were only 11,300 policies in force and reported assets of $1.37 billion – a 53% decline in outstanding policies and only a 17% decline in assets.
  • In that 13 year period 1994 through 2006, ELNY continuously met all outstanding policy obligations to the tune of almost $2 billion.
  • Throughout that same period, ELNY had the same major life insurer as administrator, the same nationally known actuarial firm as its actuarial consultant, and the same prominent financial firm as investment advisor.
  • Over 90% of the outstanding obligations are fixed obligations under structured settlement agreements. There are no potential “long tail” obligations to cause a sudden and precipitous inflation of ultimate liabilities.

Notwithstanding these facts, the current administration has apparently “sold” the industry and the life guarantee funds on the premise that “ELNY would have a $2 billion deficit,” that continued payments to policyholders is at risk, and that an industry bail out is necessary and appropriate (Announcing a $2 billion deficit at this time is also curious in view of the fact that the Liquidation Bureau has engaged an audit of ELNY that is not expected to be completed until the middle or end of January 2008).

If there is in fact a $2 billion shortfall the big question is: How did it happen? It cannot be blamed on the former management of ELNY because the company was solvent when it was placed in rehabilitation. It has been under the Liquidation Bureau’s watch with the same prestigious advisors for over 16 years – through both Democratic and Republican administrations — paying all obligations on a timely basis, and has received a number of investment suitors that have all been rejected by the Bureau.

Now we are being told that there is a $2 billion shortfall that can only be resolved on the backs of the industry. If true, someone needs to explain how that happened and hold those responsible accountable. Given the prosecutorial background of the Governor, his Superintendent of Insurance and the head of the Liquidation Bureau, can we assume that as bright a light will be aimed at the causes of this development as is being shined on the bailout agreement?

(In the interest of full disclosure, I have represented various investor groups over the past ten years interested in restoring ELNY to the marketplace. I do not represent any such group at this time, however, although I am aware of continued investor interest based primarily on the belief that any significant deficit defies fact and logic.)

Mission (Mis)Statement

One of my pet peeves about the New York Liquidation Bureau over the years has been its inability (or refusal) to acknowledge in practice the difference between liquidation and rehabilitation under Article 74 of the Insurance Law. Unfortunately the Bureau’s Mission Statement as posted on its web site perpetuates the problem (

The Mission Statement avers that the Liquidation Bureau acts for the Superintendent of Insurance to “. . . return rehabilitated companies to the marketplace or distribute the proceeds of the company in a timely manner to creditors.” Under §7403 the rehabilitator’s statutory function is to “conduct the business” of the company in rehabilitation, and to take steps “toward the removal of the causes and conditions” that made the rehabilitation necessary. There is no statutory authority for the rehabilitator to “distribute the proceeds of the company in a timely manner to creditors.” That can only be done in liquidation, which is a separate proceeding with different statutory rules.

If the New York Liquidation Bureau wants the insurance community to believe it has a new attitude about its role in rehabilitations, it might want to consider revising its Mission Statement to reflect the law.

For a more extensive review of the receivership process, particularly in New York, see my article, “Who Protects us from the Reciever?” at


The lead article in today’s New York Law Journal reports that because of “newly discovered assets” of an insurance company that has been in liquidation since 1997, $18 million has been added to the strapped Public Motor Vehicle Security Fund (PMV Fund), which will allow the PMV Fund to pay approved claims that have been unpaid for many years because of a lack of funds, and to allow the Bureau to address the backlog of unprocessed claims.

The company is New York Merchant Bakers Insurance Company (“Merchant Bakers”). According to public records and other data obtained from the Insurance Department under the Freedom of Information Law, Merchant Bakers has not just been the largest drain on the PMV Fund; it has been the monster drain. For the five years from 2002 through 2006, the PMV Fund paid out over $131 million in claims, of which almost $95 million were paid to claimants of Merchant Bakers – more than 72% of the total. In fact, Merchant Bakers and one other company, Capital Mutual Insurance Company, which has been in liquidation since 2000, account for over 90% of the total payments from the PMV Fund.

I applaud the Liquidation Bureau for addressing long overdue claims against the PMV Fund. However, the impact of Merchant Bakers on the financially challenged PMV Fund over past decade underscores the need to separate the security fund function from the Liquidation Bureau. New York is the only state where the insurance security or guaranty funds are not separate entities from the receiver – usually with their own boards of directors or trustees including industry representation (after all, it is their money in these funds). In New York, however, the funds are basically bank accounts with the receiver as the authorized signatory (for a discussion of the liquidation process in the US, including the operation of guaranty funds see my article “Who Protects Us from the Receiver?” at

Perhaps if the PMV Fund had been a separate entity, it would have questioned the overly concentrated drain on the Fund by one or two companies, which could have led to solutions to the PMV Fund crisis. Perhaps, too, pressure from a separate entity could have helped the Liquidation Bureau “find” the $18 million in assets a lot sooner. The law Journal article does not explain where or how the $18 million was “newly discovered.” That could well be the real story here!

New York Liquidation Bureau Not a State Agency

The New York Court of Appeals unanimously decided yesterday that in his capacity as liquidator of insurance companies the superintendent of insurance is not a state officer, and that the New York Liquidation Bureau acting as the liquidator’s agent is not a state agency. Furthermore, the Court determined that the assets of the estates under the control of the liquidator are private not state funds, nor are these assets funds held by a state officer or agency. Therefore, the State Comptroller has no authority to audit the Bureau or subpoena its personnel. A copy of the decision can be obtained from the Liquidation Bureau’s website at or by sending a request to me at

Although the case seems to put to bed the Comptroller’s ability to force an audit of the Liquidation Bureau, there is an interesting footnote in the decision that reads as follows:

“This holding is not meant to imply that the Superintendent may not be subject to an independent audit. Although the Legislature does not have the authority under our holding in Blue Cross and Blue Shield to assign to the Comptroller the task of auditing the Bureau, it does have the authority to require the Bureau to retain independent auditors.”

This footnote seems to leave the door open for the Legislature to provide for forced, independent audits of the Liquidation Bureau, a move the Superintendent may have anticipated in the Liquidation Bureau’s press release on the decision where the Superintendent states:

“Although this case was about far more than transparency and outside oversight, transparency and accountability are nonetheless critical elements in successfully fulfilling the Bureau’s legal responsibilities.”

The Superintendent then goes on to talk about all the actions, including a “top to bottom” audit of the Bureau and each of the estates under its control. I will be commenting more fully on these “transparency” and “audit” issue in future postings. For my earlier comments on this case, made following the Appellate Division ruling, see my entry for March 22, 2007.