Case Name: In the Matter of Richard E. Stewart, as Superintendent of Insurance of the State of New York, Respondent. Citizens Casualty Company of New York, Appellant; Coordinated Coverage Corp. et al., Intervenors-Appellants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1968-07-02
Citations: 30 A.D.2d 293
Docket Number: 
Parties: In the Matter of Richard E. Stewart, as Superintendent of Insurance of the State of New York, Respondent. Citizens Casualty Company of New York, Appellant; Coordinated Coverage Corp. et al., Intervenors-Appellants.
Judges: 
Reporter: Appellate Division Reports
Volume: 30
Pages: 293–299

Head Matter:
In the Matter of Richard E. Stewart, as Superintendent of Insurance of the State of New York, Respondent. Citizens Casualty Company of New York, Appellant; Coordinated Coverage Corp. et al., Intervenors-Appellants.
First Department,
July 2, 1968.
Orrin G. Judd of counsel (Goldstein, Judd & Gurfein and Biaggi, Ehrlich & Lang, attorneys), for appellant.
Mark T. Walsh of counsel (Samuel A. Hirshowitz and Philip Weinberg with him on the brief; Louis J. Lefkowitz, Attorney-General), for respondent.
Henry H. Abrams of counsel (Aaron Greengold, Ralph A. Cascella and Alan Jay Martin with him on the brief; Greengold & Eckman and Henry H. Abrams, attorneys), for intervenor-sappellants.

Opinion:
Per Curiam.
This appeal is from an order entered May 20, 1968 which directed petitioner to take possession of the property and business of respondent-appellant Citizens Casualty Company (Citizens) for the purpose of rehabilitation. The report of the examiners from the Department of Insurance indicated that Citizens was insolvent based on the inadequacy of its loss reserves. As a result of certain information which came to his attention petitioner had directed an intensive examination of the adequacy of the loss and loss expense reserves of Citizens.
Section 93 of the Insurance Law empowers the Superintendent of Insurance (Superintendent) to proceed against an insurer under the provisions of article 16 of such law when the insurer is deemed insolvent. That is, he may do so when the Superintendent finds either from a financial statement made by the insurer, or from a report or examination of such insurer, " that such insurer is unable to pay its outstanding lawful obligations as they mature in the regular course of business, as may be shown either by an excess of its required reserves and other liabilities over its admitted assets, or by its not having sufficient assets to reinsure all its outstanding risks with other solvent authorized assuming insurers after paying all accrued claims owed by it " (Insurance Law, § 93).
If the report of an examination of an insurer leads the Superintendent to find that ' ' its admitted assets are less than the aggregate amount of its liabilities and outstanding capital stock, he shall determine the amount of such impairment of capital " (Insurance Law, § 94) and direct the elimination of such impairment within a period not to exceed 90 days. If the amount of the impairment reduces the minimum statutory required capital the Superintendent is authorized to proceed against the insurer under article 16 "on the ground that its condition is such that its further transaction of business will be hazardous to its policyholders or its creditors or the public" (§ 94). Admitted assets to determine the financial condition of an insurer are enumerated in section 70 of the Insurance Law, and section 72 sets forth the reserves which every insurer is required to maintain and how such reserves are estimated. Section 326 deals particularly with loss and expense reserves of casualty insurance companies and how they are to be evaluated. In short, the entire procedure with respect to determining the solvency of an insurance company is laid out in the statute (see, also, Insurance Law, § 20, 28, 29, 30). Dependent upon certain preliminary findings the Superintendent may move to rehabilitate a particular company.
In the case before us, the Superintendent caused an examination to be made of Citizens, especially with respect to the adequacy of its loss and loss expense reserves. On the basis of the report and examination into Citizens' financial condition, the Superintendent applied for an order pursuant to article 16 of the Insurance Law directing him to rehabilitate Citizens, asserting that Citizens was then insolvent within the meaning of section 93; that further transaction of business by it would be hazardous to its policyholders, or its creditors or the public, and that it had failed to make good an impairment of its capital (Insurance Law, § 511 [a], [c], [e]). The report of the examination, designated Exhibit A, was attached to the moving papers. A temporary restraining order was issued and the matter set down for a hearing.
Section 526 of the Insurance Law, entitled " Commencement of a proceeding " provides: " The superintendent, the attorney-general representing him, shall commence any proceeding under this article by an application to the supreme court, or to any justice thereof, in the judicial district in which the principal office of the insurer involved is located, for an order directing such insurer to show cause why the superintendent should not have the relief prayed for. On the return of such order to show cause, and after a full hearing, which shall be held by the court or justice without delay, such court or justice shall either deny the application or grant the same together with such other relief as the nature of the case and the interests of policyholders, creditors, stockholders, members, or the public may require." (Emphasis supplied.)
The record indicates that the Superintendent acted within his powers in directing the examination into the financial condition of Citizens (Insurance Law, § 28, 29). Indeed, there seems to be no dispute on that point. Citizens' most basic contention is that it was deprived of the full hearing which the statute mandates. Thus Citizens contends it was denied the opportunity to controvert and negate the premises upon which the proceeding was sustained and the order issued which is now on appeal.
Certainly the burden was upon the Superintendent to sustain the grounds upon which he moved for an order of rehabilitation. If Citizens could show that the material upon which the Superintendent based its determination had no basis in fact it should have been permitted to do so. The issues before the court were whether Citizens was insolvent within the statutory meaning, whether there was an impairment of capital which it failed to make good, and whether its continued transaction of business would be hazardous to its policyholders, its creditors or the public.
The record before us reveals that Citizens was given a copy of the report of the examination and practically afforded discovery of the records of the Superintendent with reference to the financial condition of Citizens. At the hearing Citizens was permitted virtually unrestricted cross-examination of the witnesses offered by the petitioner, in some instances such examination exceeding the limit ordinarily imposed by direct examination. That alone might not meet the mandate of a full hearing. Citizens' offer of proof, which was rejected, contained some 18 or 19 items. Examination and analysis of such items is persuasive that neither singly nor considered in their totality would the offer of proof demonstrate solvency or prove that Citizens was not insolvent within the meaning of the statute. That Citizens might differ with the evaluation of certain assets, the method of evaluation of others, or the omission of a potential asset, i.e., a possible claim against Citizens' landlord, would not prove that the Superintendent's determination of insolvency warranting rehabilitation was unsupported, nor that the court's conclusion was error, even if the exact nature of the proceeding might not have been adequately understood by Special Term.
If it appeared from this record that Citizens was precluded or limited improperly in the presentation of proof which would disprove or tend to disprove in substantial measure the elements essential to the determination here made, we would necessarily conclude that it was denied a full hearing. The fact that the record does not contain the lines of demarcation customarily designated plaintiff's (or petitioner's) case and defendant's (or respondent's) case is not conclusive on the issue of a full hearing. Standards adopted for convenience are not alone necessarily determinative. It is concluded on the record and the facts of this case that Citizens was not denied a full hearing.
Rehabilitation is not confiscation and may be terminated at any time upon application by any person, on due notice to the Superintendent, when the facts so warrant (Insurance Law, § 512).
The argument advanced by the intervenors-appellants is without merit and the appeal with respect to the intervenors-appellants should also be affirmed.
The order appealed from should be affirmed, without costs.