The New York State Liquidation Bureau (NYLB) must open its books to auditors, according to a recent Appellate decision stating that the bureau is a state agency that can be audited. The Appellate decision overturned a 2005 lower court ruling which favored then-Insurance Department Superintendent Greg Serio, claiming that the bureau did not have to open its books for an audit because it is a private entity.

Theres going to be a full audit, said David Neustadt, Insurance Department spokesperson, and former spokesperson for former state Comptroller Alan Hevesi. As comptroller, Hevesi tried to audit the NYLBs books, but was stopped by the 2005 court ruling.

Current Comptroller Thomas P. DiNapoli, refused to comment.

Eric Dinallo, Governor Eliot Spitzers superintendent of insurance, stated that the case will be brought to the Court of Appeals, according to Andy Mais, spokesperson for the Insurance Department.

Im not going to comment on whether it will go to the Court of Appeals right now, said Neustadt. Were saying that the books will be audited. The results of that audit will be made public. The only issue at the moment is: is the Liquidation Bureau a state agency or not.

Neustadt continued, Its not a transparency question, thats a technical legal question, and it has important ramifications. If it is a state agency, just to give one example, that means if somebody sues one of the insurance companies that weve taken over, they can go after the states funds. Right now they cant do that, because the Liquidation Bureau is a separate entity. So theres a number of fairly technical legal reasons why it would be a problem to consider the Liquidation Bureau a state agency.

However, the Liquidation Bureau is listed in the New York Red Book under the Insurance Department, along with its telephone, address, and special deputy superintendent, seeming to claim status as a state agency.

It makes sense that state operations should be audited, said Michael Barrett, Legislative Representative for the Independent Insurance Agents & Brokers of New York. The Appellate court decision is in line with that kind of thinking. You do have a system where the Comptrollers office can audit all state agencies, and therefore, we are supportive in this case.

Were bringing in an outside firm to audit the books thoroughly, said Neustadt. Its got to be done properly, which means an RFP, an outside firm properly selected and then given full authority to do a complete and thorough audit. And the results will be made public.

Shakeup at the Liquidation Bureau

According to Dinallo, Johanna Hall, the former head of the bureau, was indicted by the Manhattan District Attorneys Office in December 2006 and charged with grand larceny, defrauding the government, official misconduct, and other charges.

Meanwhile, Dinallo has appointed Mark Peters, the former chief of the Public Integrity Unit for then-Attorney General Spitzer. Peters received his JD from the University of Michigan Law School in 1990 and his BA from Brown University in 1987. He makes $154,533 annually on the state payroll.

Efforts to reach Peters lead to the Insurance Department which, when asked what his involvement in the case is, refused to comment.

The Liquidation Bureau, with 314 employees and a budget of $51.8 million for 2007, acts for the superintendent of insurance as the court-appointed fiduciary and receiver of impaired or insolvent insurance companies. Its mission is to maximize assets and resolve liabilities, return rehabilitated companies to the marketplace or distribute the proceeds of the company in a timely manner to creditors. It receives no taxpayer funding.

The NYLB acts, by law, on the Superintendent of Insurances behalf in the discharging of his statutorily defined duties to protect the interests of the policyholders and creditors of insurance companies that have been declared impaired or insolvent.

Rehabilitation involves the superintendent taking possession of the property of an insurer, conducting its business, and taking steps toward the removal of the causes and conditions that have made the rehabilitation proceeding necessary. This usually occurs after a company is declared insolvent.

Dinallo recently announced that the Liquidation Bureau successfully rehabilitated a Long Island insurance company, Interboro Mutual Indemnity Insurance Company, the oldest insurance company on and serving Long Island. This was the first successful insurance company rehabilitation in six years and the first time the Bureau was able to successfully demutualize an insurance company in rehabilitation.