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Vol. 20, #8

December 2008


What’s Wrong With The New York Insurance Liquidation Bureau?

By R. Mark Keenan1

[Editor s’ Note: R. Mark Keenan is a senior shareholder in the New ork office of Anderson Kill & Olick, P.C. and chair of the firms’ Financial Institutions Group. Mr. Keenans’ practice focuses on Insurance Recover , Securi- ties Law and Litigation and International Commercial Insurance matters for corporate policyholders. e views expressed in this commentary are exclusively those of the author. Replies to this commentary are welcome. Mr. Keenan may be reached at mkeenan@andersonkill. com or (212)-278-1888. Copyright 2008 by R. Mark Keenan.]

New York’s Liquidation Bureau is an arm of the Insur‑ ance Department and acts under the authority of the Superintendent of Insurance of the State of New York.

  • at is a mouthful — but of great importance to the

insurance‑buying public. e Liquidation Bureau manages all insolvent or impaired New York insur‑ ance companies in both Rehabilitation and Liquida‑ tion proceedings pursuant to Article 74 of New York’s Insurance Laws. (Another mouthful.)

In this day of financial distress to the entire financial sector, including insurance, how our government of‑ ficials handle distressed carriers becomes all the more important.

  • e pre‑eminent purpose of Article 74 is to “insure

equitable treatment for [all] creditors and to avoid preferences . . .” Knickerbocker Agency, Inc. v. Holz, 4 A.D.2d 71, 73 (1st Dep’t 1957). If the goal is fol‑ lowed, the insurance‑buying public can “trust” the management of insurance company rehabilitations and liquidations because they know they will be treat‑ ed equally with other similarly‑situated policyholders.

Equal treatment among creditors is the guiding prin‑ ciple of insurance insolvencies throughout the coun‑ try (see, e.g., Cal. Ins. Code § 1010 et seq.; Article XIII of the Illinois Insurance Code) and in Federal Bankruptcy Court. See 11 U.S.C. § 1121.

The New York Liquidation Bureau follows these principles and manages those estates with the primary motivation of protecting the interests of policyholders — right?


From direct experience with at least one insurance company in “rehabilitation” — Frontier Insurance Company — this author can openly state that the pre‑eminent purpose of Article 74 is being ignored by the “Rehabilitator.” (And, rest assured, — from what one hears on the street — such abuses are not limited to the Frontier estate.

From my experience of more than 20 years in this area, the rehabilitation/liquidation of an insurance company, throughout the country, has been a straight forward process — with the primary purpose to protect the interest of the insurance‑buying public. A company that is distressed (commonly discovered through an Insurance Department financial examina‑ tion) is placed into “rehabilitation” — which is akin to a Chapter 11 reorganization in Bankruptcy. e “rehabilitator” reviews the financial condition of the company, attempts to protect its solvency and quickly determines (within six months under the National Association of Insurance Commissioners’ Insurer Re‑ ceivership Model Act (the “Model Act”)2 whether the


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