MINEOLA, N.Y. (CN) - A Nassau County judge approved a plan to liquidate Executive Life Insurance Company of New York, slashing more than $920 million in payments for beneficiaries of decades-old wrongful death and personal injury settlements.
Beneficiaries of structured settlements which are being reduced challenged the plan in objections filed in Nassau County Supreme Court, claiming they were denied access to crucial data and excluded from the process of designing a fair liquidation plan. They claimed the state had mismanaged Executive Life (ELNY) for decades, contributing to its financial trouble.
ELNY was placed in rehabilitation in 1992, after the collapse of its parent company, Executive Life Insurance Company of California.
After an 11-day hearing, Judge John Galasso of the Nassau County Supreme Court declared ELNY insolvent and converted ELNY's rehabilitation into a liquidation proceeding.
In a separate order dated April 16, Galasso approved the state-proposed restructuring plan and appointed the Superintendent of the New York State Department of Financial Services, formerly ELNY's rehabilitator, as ELNY's liquidator.
The restructuring plan cuts more than $920 million in benefits for 15 percent of ELNY's policyholders. Some benefits will be reduced by as much as 59 percent.
According to Galasso, the proposed restructuring is the only chance for ELNY payees to receive the highest possible present value for their annuity benefits.
But annuitants who depend on ELNY payments for basic living expenses and medical care did not welcome the decision.
"To my clients, this decision means more uncertainty and a big change in their lifestyle," New York attorney Edward Stone told Courthouse News in an interview.
"Once this becomes effective, some of them will not be able to afford the medical care they need, and one of them is going to file for bankruptcy."
Stone represents 12 beneficiaries in different states, some of whom were severely injured or lost loved ones in car- and work-related accidents years ago.
He said Galasso's decision, which did not leave room for alternative plans, is highly unusual.
"It's basically allowing the Bureau to get away with mismanaging the company for 21 years," Stone said. "It's a real slap in the face for my clients."
Galasso refused to consider any amended or alternative restructuring plan.
"It is important to note that in a liquidation proceeding, the court's only authority by law is to approve or disapprove the plan," the judge wrote. "A court cannot amend or supplement a plan or allow objectors to submit a proposed plan. As noted above, the New York State Superintendent of Financial Services has the sole authority to formulate a plan under the laws of New York and the participating states within the statutory structure.
"This means, the scope of the hearing before the undersigned was limited by the insurance law and could not include inquiries into why the insurer failed in the first instance, its investment and operation prior to failure, how the Superintendent and his agents supervised the affairs of the insurer, or why a settlement was not reached or this order to show cause brought before the court sooner."
But the shortfall payees said the court should have considered other options.
"That's the most ridiculous thing I've ever heard in my life," Stone said. "To suggest that the judge has no other option is simply wrong. He could have considered alternative plans. He could have told the superintendent to do things differently. He could have given instructions. He could have ruled in any number of ways. There is precedent for competing plans. If I'd had the information, I could have submitted a proposed plan."
Stone said the judge denied his request to call witnesses, including ELNY's former CEO, an actuary and accounting and fraud experts, who could have testified to the state's mismanagement of the company.
"The part that really strikes me as extremely unusual is that the evidence that their actuary relied on is the only data that was submitted," Stone said. "They wouldn't let us call witnesses, and look at the source documents they used, even after establishing before the court that the data had some questions about it and needed to be looked at."
But in his 6-page memorandum decision, Galasso noted that the superintendent had clearly established ELNY's insolvency, and that examining ELNY's rehabilitation history would be irrelevant.
"In any event, permitting testimony regarding events taking place 5 years ago would result not only in speculation as to what but also would be irrelevant to the proceeding at hand: to either approve or disapprove the plan on the facts as they exist today," Galasso wrote.
Galasso said that policyholders would be "worse off" under any alternative proposal, which would not include contributions from state guaranty associations or voluntary contributions from life insurance companies.
"It bears mentioning again that if this plan is not approved there could be no prefunding or voluntary enhancements of any kind offered in the future," the ruling states. "In addition, without the coordination of coverages as to individual policies everyone would, upon receiving their pro rata share of the ELNY estate assets, have to apply to their own states to determine how much the guaranty association contribution will be. For some, the answer may be zero (0) dollars."
Under the proposed plan, 85 percent of roughly 10,000 payees would receive all benefits they are owed, while 15 percent would get varying amounts of less than full present value.
Life insurance guaranty associations in different states will contribute $700 million toward the shortfall.
Annuitants whose benefits are cut will have access to a hardship fund and an additional $100 million in voluntary contributions from life insurance companies.
Certain insurance companies, including Travelers, Fireman's Fund and Hartford, said they would honor their legal obligations under structured settlement funding agreements.
"To those individuals who suffer because of a reduction in current value of their benefits, while the undersigned sincerely regrets their diminished financial future through no fault of their own, the court cannot apologize for applying the law as it pertains to everyone involved," Galasso wrote. "Their individual, understandable frustrations cannot be resolved in this proceeding."
In a move that further angered shortfall payees, the court extended judicial immunity to the superintendent and the Liquidation Bureau, protecting them from legal actions related to their acts and omissions in managing ELNY during its rehabilitation.
"There's no statutory basis for immunity," Stone said, "and we are going to challenge it. We plan to appeal the decision."
But the shortfall payees say the appeal, which will focus on denial of due process, will come at a cost to them. "We have the burden to come up with all this information, without being able to get any of the data, to establish our claim," their attorney said.
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