NY Insurance Liquidator Ruled A Private Entity

New York State's highest court ruled unanimously yesterday that the entity which supervises New York insurance companies in liquidation is not a state agency subject to audit by the state comptroller.

The decision by the Court of Appeals settles a dispute between agencies over the status of the New York Liquidation Bureau that goes back to January 2004, when the comptroller sought to audit the financial management and operating practices of the Bureau and issued 10 subpoenas.

In seeking testimony and data, the comptroller listed the purposes of the audit as to determine whether Bureau was operating effectively and to “establish the accuracy and completeness of the abandoned property reports” the Bureau filed. Subpoenas asked for financial records of distressed insurers in liquidation and records from the Bureau's abandoned property account involving open and closed rehabilitated and liquidated estates.

Recently, in advance of the decision, New York Insurance Superintendent Eric Dinallo has put through a major revamping of the liquidation Bureau that has involved a management shakeup and a push to go after reinsurers that the Bureau said were delinquent in paying claims from the bankrupt insurers.

The decision that the Bureau and the superintendent act in a private, not governmental, capacity and do not administer state monies “benefits creditors of the insolvent insurance companies and protects New York State's government and taxpayers,” Mr. Dinallo said.

“We have great respect of the State Comptroller's Office and the essential role it plays in oversight of state agencies. But declaring the Liquidation Bureau a state agency would have been counter to the law and would have created enormous legal problems and potentially saddled state government with financial obligations of the failed insurance companies that the Liquidation Bureau operates.”

He added that it could also have interfered “with efforts to expeditiously privatize failed companies.”

Mr. Dinallo noted that Mark G. Peters, the special deputy superintendent in charge of the New York Liquidation Bureau, since his appointment in April, had made “substantial progress in reforming the Bureau,” including an extensive audit ensuring that hiring of outside attorneys is based solely on merit and moving forward on insolvencies.

One insolvency, he said, “has languished for more than 20 years.”

He said, “To institutionalize the reforms underway at the Bureau, we will propose legislative amendments to the insurance law which require annual audited financial statements for the insolvent insurance companies administered by the Bureau. We look forward to working with the Legislature to enact these legislative amendments.”