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R. Mark Keenan is a shareholder in the New York office of Anderson Kill & Olick, P.C. and Co‑Chair of the Financial Services Insurance Coverage Group. Anderson Kill regularly represent policyholders in insurance coverage actions. For more information, please contact mkeenan@andersonkill.com. or (212) 278‑1888.


e Model Act provides that “the protection of the interests of insureds, claimants and the public requires the timely performance of all insurance policy obligations; therefore, if the payment of policy obligations is suspended in substantial part for a period of six (6) months at any time after the appointment of the rehabilitator and the rehabilita‑ tor has not filed an application for approval of a plan under Section 403, the rehabilitator shall petition the receivership court for an order of liquidation or seek an order, on good cause shown, for a longer suspension period.” Model Act § 404(b).


According to the Model Act, the Rehabilitator “shall prepare and file a plan to effect rehabilitation with the receivership court within one year after the entry of the rehabilitation order or such further time as the receivership court may allow.” Model Act § 403(a).


e Rehabilitator will state that he has internal “criteria” to resolve claims with policyholders — e.g. whether there is collateral or reinsurance. But those requirements are unilateral and illegal vis‑à‑vis a policyholder or creditor. A solvent insurance company couldn’t use it as a defense to a claim nor could Warren Buffet — nor should a rehabilitator. n


tion by many policyholders to knock some sense into our public officials. What the Liquidation Bureau is doing is running this rehabilitation off the backs of, and at the expense of, existing policyholders and creditors. It pays Frank 100%, Charlie, 80%, Joe 10%, Mary 1% (each of whom can only negotiate his or her percentage without knowledge as to what the others received) and then at the end of the day, the Rehabilitator “declares”:

  • 1.

    e company has been “successfully” rehabili‑ tated so it can continue to sell insurance and pay 100 cents on the dollar — too bad for all the Franks, Charlies, Joes and Marys (particularly the Marys); or

  • 2.

    e company is placed into liquidation — where the creditors are paid according to a statutory scheme depleted by almost seven years of Reha‑ bilitator “management.”

  • is is against the law. See, e.g., In re Van Schaick

(Nat’l Surety), 239 A.D. 490, 496 (1st Dep’t 1933).4

Some say he Rehabilitator is merely promoting his primary purpose which is to protect the disabled in‑ surance company at the expense of its policyholders.

  • is is misguided and wrong. is is the reverse of the

statutory goal of New York’s Insurance Laws, which is to ensure the primary and equitable treatment of all policyholders. See Knickerbocker, 4 A.D.2d at 73. is issue profoundly affects the public interest of those who buy insurance from New York insurance companies.

If a Rehabilitator has the power to pay Peter and not Paul or prefer Peter over Paul at his sole discretion — why would the public trust anything in the rehabilita‑ tion proceedings? Further, with such power (and all things being equal) why would a policyholder buy insurance with a New York company?

It is well established that New York brokers must expressly advise policyholders when a policy is issued by a non‑admitted carrier that the policy does not have the protection of New York’s guaranty funds. 11 NYCRR 27.17 (2006). Should the warning now be extended to state that under rehabilitation, the Liquidation Bureau can circumvent guaranty fund protection, fail to submit a plan, prefer one creditor

Vol. 20, #8

December 2008

over another, and in essence self‑liquidate the com‑ pany in his sole discretion — without any statutory protections?

  • e government agency that was created to protect

the interests of policyholders has clearly lost sight of its primary purpose. Policyholders shouldn’t put up with it.


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