Court Opinion

ID: 5349915
Source: CourtListenerOpinion
Date Created: 2022-01-08 06:35:05.828832+00
Date Added: 2024-06-11T08:29:42.968577
License: Public Domain

Cohn, J.
Appeal from an order made at Special Term denying the motion of the Superintendent of Insurance of the State of New York, as liquidator of the General Indemnity Corporation of America, for an order confirming the report of a referee.
The controversy presented is whether the State of New York, in the circumstances here, has a right of priority over other creditors to payment of its claim for the principal amount of a surety bond executed by the General Indemnity Corporation of America, a defunct company now in liquidation.
The facts are not in dispute. The International Reinsurance Corporation (hereinafter called International), a Delaware corporation, desiring to write workmen’s compensation insurance in this State, pursuant to statute (Workmen’s Comp. Law, § 54, subd. 7 [Laws of 1929, chap. 305]), filed with the Superintendent of Insurance a bond executed by the General Indemnity Corporation of America as surety and International as principal. The principal amount of the bond was $112,000. It was executed in favor of the People of the State of New York. The terms of the bond read as follows:
“ Now, Therefore, the condition of this bond is such that if the Principal shall pay in full any and all compensation and benefits accruing subsequent to January 5th, 1933, as provided in the Workmen’s Compensation Law to any and all persons entitled thereto under any policy or contract of insurance issued by the Principal, then this obligation shall be void; otherwise to remain in full force and virtue.
“ Provided Further, that upon the certificate of the Superintendent of Insurance that there has been default in the payment of compensation for thirty days or that the Principal has become insolvent, the Attorney General of the State of New York may enforce this bond in the name of The People of the State of New York for the benefit of any and all persons entitled to the compensation assured by any policy issued by the Principal or otherwise entitled to any benefits under such policy.”
International became insolvent on April 19,1933. On August 16, 1933, the General Indemnity Corporation of America, surety on the bond, was judicially declared insolvent in this State and the Superintendent of Insurance was directed to liquidate its assets. Because *238of the insolvency of International, the Attorney-General of the State of New York appearing for the Industrial Commissioner of the State of New York filed a claim with the Superintendent of Insurance, as Liquidator of the General Indemnity Corporation of America, under the aforesaid qualifying bond. He claimed a priority of payment for the principal sum of the bond, on the ground that it was a claim of the State of New York and that, as such, it should be preferred over the claims of general creditors. The Superintendent of Insurance, on the other hand, has insisted that the claim is not entitled to any preference.
It is undoubtedly the rule in this jurisdiction that the State as the sovereign power has a preference over other creditors in insolvency proceedings. (Marshall v. New York, 254 U. S. 380; Matter of Atlas Television Co., 273 N. Y. 51, 54; Matter of Carnegie Trust Co., 206 id. 390.) The prerogative, however, is the right of the State alone and it is not available to its political subdivisions, such as a city. (Matter of Northern Bank of New York, 85 Misc. 594; affd. on opinion of Mr. Justice Lehman, 163 App. Div. 974; affd., 212 N. Y. 608.)
The purpose of the sovereign prerogative is to protect the revenue of the State and to insure against loss of governmental moneys, to meet the expenses of government and to discharge public debts and obligations of the State. (Matter of Carnegie Trust Co., supra; Matter of Atlas Television Co., supra, at p. 55; Matter of Niederstein, 154 App. Div. 238; State ex rel. Rankin v. Madison State Bank, 68 Mont. 342; 218 P. 652; People ex rel. Nelson v. West Englewood Trust & Sav. Bank, 353 Ill. 451; 187 N. E. 525; Matter of Central Bank of Willcox, 23 Ariz. 574; 205 P. 915; Seay v. Bank of Rome, 66 Ga. 609.)
Subdivision 7 of section 54, of the Workmen’s Compensation Law does not relate to any indebtedness due to the State, but was enacted for the purpose of insuring “ the payment in full of any and all compensation and benefits * * * to any and all persons entitled thereto under any such policy or contract of insurance.”
Following the language of the statute, the bond of indemnity itself specifically provides that the Attorney-General may enforce it in the name of the People of the State of New York for the benefit of any and all persons entitled to compensation assured by any policy issued by the principal. Thus it will be observed that the State is merely acting as a trustee or as an agent for those persons who are entitled to the benefits. The bond does not assure to the State of New York the payment of any money for the State’s own use. While the bond in form is for the benefit *239of the People of the State of New York, the obligation thereunder actually runs to the compensation claimants, some or all of whom may not even be residents of this State.
It is clear that the claim under the bond could not result in bringing funds into the State for the support of its government and is, therefore, entitled to no right of priority of payment from the assets of the defunct company.
Moreover, subdivision 7 of section 54 of the Workmen’s Compensation Law permits the carrier desiring to write compensation insurance in the State of New York, “ in lieu of the bond required to be given ” thereunder, to “ deposit with the Superintendent of Insurance securities * * * equal to twenty-five per centum of the outstanding reserves for compensation losses on policies issued by such foreign stock corporation,” and provides that in the event of default in payment of claims and the insolvency of the depositing company, the Superintendent of Insurance may sell such securities for payment of such losses.
Under this statute International had the right to deposit certain specified securities in the sum of $112,000 instead of furnishing the qualifying bond of the General Indemnity Corporation of America for that amount. If International had chosen this alternative and the entity issuing the securities had become insolvent, the Superintendent of Insurance clearly would be unable to claim a preference over private holders of such securities because he was acting as a State officer. Since the statute gave the carrier the right to deposit with the Superintendent of Insurance such securities in lieu of furnishing the qualifying bond, the rights under such qualifying bond cannot be any greater than the State would have had under securities deposited with the Superintendent.
For the foregoing reasons, we hold that the claim of the People of the State of New York, represented by the Industrial Commissioner of the State of New York, is not, in the circumstances of this case, entitled to a preference to the assets of the defunct surety company, but as recommended by the referee, it should be allowed as a general claim in the liquidation proceedings.
The order of Special Term should be reversed, with twenty dollars costs and disbursements, and the report of the referee recommending allowance of the claim as a general claim not entitled to priority is confirmed.
Martin, P. J., O’Malley and Untermyer, JJ., concur; Dore, J., dissents and votes to affirm.