N.Y. Insurance Department Prevails in Liquidation Bureau Audit

New York state’s highest court has ruled that the state auditor does not have the authority to audit an obscure division of a state agency managing $3.3 billion dollars.

The New York Court of Appeals ruled in favor of the state Insurance Department’s Liquidation Bureau, which protects policyholders and claimants when an insurance company goes bankrupt.

“If you get hit by a taxi in New York City and that taxi happens to be insured by (an insolvent company) … whether you get paid and how quickly you get paid for your injury will be determined by if we do our job right,” said Mark Peters, special deputy superintendent in charge of the bureau.

Former Comptroller Alan Hevesi tried to conduct an audit of the division in 2004 and sued when it refused to submit to the review. A trial level court ruled against Hevesi in 2005, but the midlevel Appellate Division reversed that judgment.

The latest ruling overturned that decision and determined the bureau is not a state agency and the superintendent of insurance has a secondary role on behalf of distressed insurers, which gives the position broad fiduciary powers.

If the court had decided that the bureau was a state agency, then all of the liabilities carried by insolvent insurance companies could be assumed by the state on the backs of taxpayers, Peters said.

“By winning this case we are keeping all of these liabilities in the private sphere,” he said.

Lawyers for the former comptroller had argued that the insurance superintendent is a state officer, so any funds in his custody and control are subject to audit by the comptroller.

But the bureau contended it controls private funds and is not subject to public agency audits.

“The comptroller is disappointed in the decision,” said Dennis Tompkins, a spokesman for Comptroller Thomas DiNapoli. “But he’s confident that the superintendent is taking the right steps to ensure transparency, openness and oversight in the Liquidation Bureau.”