The office of General Counsel issued the following informal opinion on December 1, 2000, representing the position of the New York State Insurance Department.
RE: Property/Casualty Insurance Security Fund Insurance Law Article 76
1. Are "financial reports" concerning the operation of the Property/Casualty Insurance Security Fund ("PCISF") available to member insurers? Specifically, may one obtain printouts of payments made on behalf of particular companies in liquidation?
2. Was income earned on PCISF assets prior to July 31, 1979 paid to the General Fund of the State Treasury ("the General Fund")?
3. After July 31, 1979, would any deficit from the operations of the New York Property Insurance Underwriting Association (NYPIUA") have been "funded" by income earned from PCISF in an amount not to exceed $15 million dollars per year.
4. Presently, would any balance in the PCISF in excess of $240 million be transferred to the General Fund?
1. The Insurance Departments Bureau of Taxes and Accounts maintains certain financial records relating to the PCISF. These records are available pursuant to the Freedom of Information Law ("FOIL"). When a company is declared insolvent, all books and records relating to the company are transferred to the Liquidation Bureau, which is not subject to FOIL. One may inquire directly to the Liquidation Bureau to ascertain whether they maintain records relating to insolvent insurers that contain information not maintained by the Insurance Department.
2. Prior to 1979, the only income on fund assets that was paid to the General Fund was the income earned between 1973 and 1979 on PCISF assets contributed by motor vehicle insurers to the former Motor Vehicle Liability Insurance Fund between 1947 and 1969. Such income, after payment of claims and administrative expenses, was to be credited to the General Fund. Income on all other PCISF assets was returned to member insurers.
3. Yes. 1979 N.Y. Laws Ch. 503 provides that, after July 31, 1979, annual earned income of the PCISF of up to $15 million could be used to fund any operating deficit of NYPIUA.
4. The decision in Alliance of American Insurers, et al. V. Chu, et al., 569 N.Y.S.2d 364 (1991), ("the Alliance Case") invalidated the provision of 1979 N.Y. Laws Ch. 503 that called for transfer of any balance in the PCISF above $240 million to the General Fund. The Court of Appeals decision restored the law in effect prior to Ch. 503 including the requirement for the transfer of assets of the old Motor Vehicle Liability Security Fund described in conclusion #2 above.
This was an inquiry not related to any specific fact situation. Therefore particular circumstances could alter the responses set out above. Accordingly, one may wish to contact this Department in the future to further elucidate the details of any specific matter that may arise.
1947 N.Y. Laws Ch. 801 created the Motor Vehicle Liability Security Fund (L.1947, ch. 801). That fund, which was governed by section 333 of the Insurance Law, provided for the payment of claims on motor vehicle liability policies in the event of the insurer's insolvency. Every insurer authorized to write motor vehicle liability policies in this State was required to file quarterly returns stating the amount of net direct written premiums charged on such policies and to make contributions to the fund based on a percentage of such premiums.
1969 N.Y. Laws Ch. 189 created the Property and Liability Insurance Security Fund, governed by a new section 334 of the Insurance Law. The new fund took over the assets of the section 333 fund and extended its coverage to virtually all kinds of property and liability insurance. The fund was renamed the Property/Casualty Insurance Security Fund (PCISF).
The PCISF is now governed by Article 76 of the Insurance Law. Contributions are determined on the basis of net direct written premiums on policies insuring property or risks located or resident in this state. When the PCISF is contributory [when the net value of the fund has been determined by the superintendent to be less than one hundred fifty million dollars and members are required to contribute, N.Y. Ins. Law §7603(c) (McKinney 2000)] each insurer files a quarterly return with the Insurance Department and makes payment in an amount equal to one-half of one percent of its net direct written premiums as shown for the period covered by such return. N.Y. Ins. Law §7603(b) (McKinney 2000). The Commissioner of Taxation & Finance acts as custodian of the funds. N.Y. Ins. Law §7607(a) (McKinney 2000).
When a court order is issued directing that an insurer be liquidated, the superintendent, as liquidator, is appointed by the court to take possession of the insurers assets and to administer those assets under order of the court. N.Y. Ins. Law §7409 (McKinney 2000). As a practical matter, all books and records of the insurer are transferred to the Liquidation Bureau. It is the Liquidation Bureau that is charged with conducting the day to day business of the liquidated insurer, on behalf of the superintendent as liquidator.
When claims and other expenses are allowed by the court, they are filed with the Insurance Departments Bureau of Taxes and Accounts. Taxes and Accounts forwards a request to the Commissioner of Tax and Finance to disburse funds from the PCISF for transmittal to the Liquidation Bureau, which pays out the individual claims against the liquidated company.
The Taxes and Accounts Bureau maintains a record of all amounts for which it has requested payment from the Commissioner of Tax and Finance. This record would be available pursuant to a FOIL request. One may submit such a request to Mr. Frank M. DAmico, Director of Taxes and Accounts, New York State Insurance Department, Governor Nelson A. Rockefeller Plaza, Agency Building One, Albany, NY 12257. The telephone number is (518) 474-8567.
As stated above, it is the Liquidation Bureau that processes the individual claims against each company in liquidation. That Bureau may possess records that are more specific in nature than those maintained by the Insurance Department. Such records would not be subject to disclosure pursuant to FOIL. One may inquire from the Liquidation Bureau to ascertain its policy concerning disclosure. Their central telephone number is (212) 341-6400.
1947 N.Y. Laws Ch. 801, which created the Motor Vehicle Liability Security Fund, specified that assets of the fund " shall be separate and apart from any other fund and from all other state money, and the faith and credit of the state of New York is pledged for their safekeeping". N.Y. Ins. Law §333(6)(1947)[current version at N.Y. Ins. Law §7607 (McKinney 2000)].
As previously stated, 1969 N.Y. Laws Ch. 189 created the Property and Liability Insurance Security Fund, governed by a new section 334 of the Insurance Law. The new fund took over the assets of the section 333 fund and extended its coverage to virtually all kinds of property and liability insurance. The 1969 law provided that income earned on new contributions to the fund would be either returned to the contributors or credited toward future contributions. N.Y. Ins. Law §334(5) (1969)(omitted from current law). The "new" fund was otherwise governed by the provisions that had governed the section 333 motor vehicle fund, including the requirement that the fund be kept separate and apart from other funds and other State moneys. N.Y. Ins. Law §334(1) (1969) [current version at N.Y. Ins. Law §7601(a)(McKinney 2000)].
In the Alliance Case, the Court of Appeals discussed the post 1969 amendments to the laws governing the PCISF as follows:
For the purposes of assessing the effects of subsequent legislation, including the two acts challenged here, it is important to note that the 1969 legislation created two categories of fund moneys, distinguished by their source and by the treatment given to the income each generated.
First was that portion of the fund attributable to contributions made by motor vehicle insurers between 1947 and 1969 pursuant to section 333 of the Insurance Law--the former Motor Vehicle Liability Insurance Security Fund. As noted above, after 1969 the income generated by these "section 333" moneys continued to accrue to the fund, but no new contributions by motor vehicle insurers were required.
The second category was that portion of the fund attributable to contributions made by nonmotor vehicle insurers between 1970 and 1973 pursuant to section 334 of the Insurance Law, newly enacted in 1969. Income on these "section 334" moneys was returned to the contributors or credited against future contributions.
Prior to the legislation challenged here, one other major change in the fund's operation occurred. In 1973, after the fund reached its $200 million target, the Legislature amended sections 333 and 334 to provide that the income earned on section 333 moneys (i.e., moneys attributable to contributions by motor vehicle insurers) would no longer accrue to the fund. Instead, after the payment of claims and administrative expenses, such income was to be credited to the State's general fund (L.1973, ch. 861, §§10, 11). Income on section 334 moneys continued to be returned or credited to the contributors.
The 1973 amendments are not at issue in this case and to our knowledge have never been challenged. We emphasize this, because it requires us to assume the validity of those amendments and, therefore, the State's entitlement to the earnings attributable to section 333 moneys (after the payment of claims and expenses) as we move to our examination of the 1979 and 1982 legislation that is challenged and as we consider the extent to which the challenged acts may deprive plaintiffs of rights in the fund's income.
569 N.Y.S.2d 364 at 367, 368.
In response to the second question, prior to July 31, 1979 the only income of the PCISF (or the predecessor Motor Vehicle Liability Security Fund) that was transferred to the General Fund was the income earned on section 333 moneys (contributions by motor vehicle insurers) for the period from January 1,1974 (the effective date of the 1973 legislation) to July 31, 1979.
In addition 1979 N.Y. Laws Ch. 503 directed that, pursuant to regulations to be promulgated by the superintendent, any deficit resulting from the operation of NYPUIA should be funded by income from the PCISF, up to $15 million per year.
The present provision, found in N.Y. Ins. Law §7603(d)(1)(A)(McKinney 2000), see also N.Y. Ins. Law §5405(d)(McKinney 2000)(NYPIUA statute), reads as follows:
Pursuant to regulations of the superintendent, the deficit from
the operations of the New York property insurance underwriting
association shall be credited with such income earned, upon certification by the superintendent to the commissioner, in a sum not exceeding such total income earned or the sum of fifteen million dollars whichever is the lesser in any one year. Such credit shall be in lieu of a transfer of such funds to the general fund of the state treasury.
The specific procedures governing such "transfer" from the PCISF to NYPUIA are found in N.Y. Comp. Codes R & Regs. tit. 11 Section 130.4 (1983) (Regulation 55). In response to the question, after July 31, 1979 any deficit from the operations of NYPUIA would be "funded" by income earned by the PCISF in an amount not to exceed $15 million per year.
The final question concerns whether any balance in the PCISF in excess of $240 million would be transferred to the General Fund. In fact, such a provision was part of 1979 N.Y. Laws Ch. 503 and is presently found in N.Y. Ins. Law §7603 (d)(1)(B)(McKinney 2000). The legislation intended to make such provision applicable to the income earned on assets held in the PCISF at the time of passage. On that basis the Court of Appeals in the Alliance Case ruled the legislation unconstitutional. The Court of Appeals, in making its ruling, stated, in relevant part, as follows:
As noted, when the insurance company plaintiffs and other carriers made contributions to the fund pursuant to section 334, the law then in effect explicitly granted them the right to the income earned on those contributions. In addition, the law provided a number of assurances that their contributions would be used only for the benefit of the fund and not as the State might otherwise provide in the future. For example, the State pledged its faith and credit for the fund's safekeeping and promised to keep the fund separate and apart from other State moneys (Insurance Law §333 ). At a minimum, these provisions obligated the State to act in good faith with respect to the fund and its contributors and to ensure that the fund's assets and earnings would be available for their intended purposes (cf., Flushing Natl. Bank v. Municipal Assistance Corp., 40 N.Y.2d 731, 735-736, 390 N.Y.S.2d 22, 358 N.E.2d 848).
Chapters 503 and 55 have retroactive effects to the extent that they purport to relieve the State of those obligations. The State changed the conditions affecting contributions already made, eliminating the contributors" right to the income on their contributions and "investing" a sizable portion of the fund's assets, not in the income-producing options authorized at the time the contributions were made, but in an interest-free loan to itself. In addition, the State's actions depleted the fund by depriving it of income that otherwise would have been available to pay claims and, ultimately, required the contributors to replenish the fund. In effect, therefore, the State has simply used the contributor's obligation to replenish the fund as a means of raising revenues for the State's general purposes.
The only justification the State can offer for the breach of its commitment is the enhancement of the State's general revenues. It is self-evident that this cannot justify the State's actions; the State's commitment to preserve the fund would be meaningless if it could be overcome by its desire to use the funds for other purposes.
We conclude, therefore, that chapters 503 and 55 are invalid to the extent that they deprive the Property and Liability Insurance Security Fund of income on contributions made by insurers pursuant to the 1969 legislation, i.e., the section 334 contributions. We emphasize that our conclusion is based on the fact that the challenged legislation purports to eliminate the plaintiffs" rights with respect to contributions already made. Nothing in our decision prevents the State from changing the law as it affects future contributions. Nor does our decision preclude the State from making adjustments in the administration of the fund, as it has done in the past by adding categories of permissible fund investments, as long as such changes are consistent with the State's obligations to preserve the fund and do not unreasonably impair the contributors" rights in the income allocable to section 334 contributions.
569 N.Y.S.2d 364 at 371, 372.
The Court of Appeals found the states attempt to retroactively divert income from PCISF assets to the General Fund to be unconstitutional, while leaving the door open for the legislature to take such action on a prospective basis. No legislation has been enacted subsequent to the Alliance Case changing the state of the law as set out by the Court. Accordingly, there is presently no authority for the transfer of income on PCISF assets to the General Fund.
For further information you may contact Associate Attorney Sam Wachtel at the New York City Office.