A New York captive insurer, formed to cover the liability of New York City contractors and subcontractors involved in the World Trade Center debris cleanup, said those officials faulting the way it conducts business do not understand its purpose.

The WTC Captive Insurance Company Inc., backed by $1 billion in federal money, was hit with a letter last week from New York Insurance Superintendent Howard Mills, demanding that the New York-domiciled operation send his department a “detailed analysis of claims paid and expenses incurred” since the captive’s inception, July 2004.

Mr. Mills wrote, “Few, if any, claims have been paid, but substantial sums have been expended by your organization since 2004 for professional services.”

His letter follows criticism by U.S. Sen. Chuck Schumer, D-NY, quoted in various news media as saying that WTC Captive is neglecting first responders rather than compensating them for their illnesses.

The superintendent’s letter, addressed to Ms. Christine LaSala, president and chief executive officer of the captive, said the department is “concerned that the approximately $1 billion payment to the WTC Captive Insurance Company from the federal government may not be used in accordance with its intended purpose…to insure New York City and the various contractors, subcontractors and others New York City engaged during that tumultuous time against claims arising out of the debris removal process that began immediately in the aftermath of Sept. 11, 2001.”

In a letter responding to Mr. Mills obtained by National Underwriter, dated Aug. 1, Ms. LaSala explained that Congress’ intent in forming WTC Captive “was to fill a gap in insurance coverage that would ordinarily have been purchased from commercial insurers.”

The letter continued that in the case of the rescue, recovery and debris removal after 9/11, “there was insignificant insurance coverage available in the commercial markets.”

The captive, it said, was “funded by FEMA and licensed by the New York Department of Insurance as a third-party liability insurer, providing liability insurance through a retroactive policy.” As is typical for third-party liability insurance, “the policy includes a ‘duty to defend’–to provide and pay for legal counsel for WTC Captive’s insureds in case of lawsuits.”

The letter also noted that the department’s letter “does not refer to any material available to your office and previously provided by the captive as a matter of course, such as our quarterly reports. These reports provide claim and other financial information.”

WTC Captive told NU that it is a “unique insurance company with a unique mission.” The mission is to “insure and thereby protect the city and the contractor and subcontractor policyholders as these claims are processed, adjudicated and resolved.” The fund, it said, is so that if the city, contractors or subcontractors are sued by people claiming to have injuries, funds would be available to cover any payments that the city or contractors might have to make, in the absence of any other commercial liability coverage. The captive would be the source of coverage to settle any claims.

The information states that the captive was “not formed to be a victims’ compensation fund or a social insurance fund.” Employees of the city, contractors and subcontractors who may have injuries resulting from 9/11, the information said, have access to workers’ compensation, and to individual companies’ health care and long-term disability benefits and other forms of compensation offered by their employers.

According to the captive, approximately 8,000 claims have been or are expected to be “tendered to the captive.”

But the operation has been tied up by a lawsuit seeking to create class action on behalf of all claimants.

U.S. District Court Judge Alvin K. Hellerstein, in Manhattan, who is handling most of the cases involving illnesses and injuries allegedly sustained during the WTC cleanup, has a decision pending on whether a class should be certified.

The captive has argued that the lawsuits should be dismissed because the law grants immunity against such actions. Judge Hellerstein is expected to render a decision on the dismissal motion within the next several weeks, according to the captive.

Information supplied by WTC Captive said the judge “has made it clear that due to the unique nature of each individual claim…he does not believe a class action or other attempt to aggregate claims is appropriate.”

Ms. LaSala is a former partner at insurance broker Johnson & Higgins. Her operation, the captive said, includes “a small in-house professional staff and a team of outside professional service firms.”

WTC Captive was funded with close to $1 billion in federal funds provided through a grant from the Federal Emergency Management Agency (FEMA). The funds are part of the $20 billion of such funds authorized by Congress to help New York City and its people recover and rebuild after 9/11, the information said.