October 23, 2007

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!

What do you think?

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