N.Y. Comptroller Rebuffed in Bid to Audit Insurance Liquidation Bureau

By | July 7, 2005

A Manhattan judge has quashed 10 subpoenas served by state Comptroller Alan Hevesi on the state Insurance Department and ruled that Hevesi has no authority to compel an audit of the department’s Liquidation Bureau.

Hevesi tried last year to do a routine public agency audit of the obscure division, which is charged with protecting policyholders and claimants when an insurance company goes bankrupt. The bureau refused to submit to the review, so Hevesi went to court.

Hevesi’s lawyers argued that because the insurance superintendent is a state officer, any monies in his custody and control are subject to audit by the comptroller. He said his position was supported by the state constitution and state law.

Auditors from the state comptroller’s office had examined the Liquidation Bureau’s books five times since the 1970s, until they were rebuffed in February 2004.

Then-State Insurance Superintendent Gregory Serio contended that the Liquidation Bureau controls private funds and is not subject to public agency audits. He sought to quash 10 subpoenas that sought documents and employee testimony from his agency.

State Supreme Court Justice Walter B. Tolub agreed with Serio. The judge said a liquidation order tells the superintendent to take possession of the bankrupt insurer’s property, dispose of it and distribute payments under oversight of the court.

“Nothing in the language of the statute implies that the legislature granted authority over the disposition of assets of an insolvent insurer to the comptroller,” Tolub wrote in a 16-page decision.

The judge wrote that money in the superintendent’s custody, in his role as liquidator, “is neither state money nor money under the superintendent’s control in a representative capacity as a state officer.”

“As liquidator, the superintendent does not act for the general public,” Tolub wrote. “The superintendent acts on behalf of a private corporation, not one utilized by the state to discharge governmental duties.”

The judge also quashed the 10 subpoenas, dated March 23, 2004, as “overly broad.”

David Neustadt, spokesman for Hevesi, said, “We disagree with the decision and we intend to appeal.”

Michael Barry, director of public affairs for the state Insurance Department, said his agency was “pleased with the court’s decision that the state comptroller does not have the authority to audit the Liquidation Bureau.”

A statement issued last year by the comptroller and the Insurance Department said the Liquidation Bureau employed 452 workers and handled the affairs of 64 companies with $3.4 billion in assets.

Former state Assemblyman Howard Mills from Orange County was confirmed by the Republican-led Senate as the new state insurance superintendent on May 18, 2005. He had been acting superintendent since January, when he replaced Serio.

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