- Superstorm Sandy: Further Implications for Related Party and Other Transactions Requiring Prior Approval and Scheduled to Close at Year-End
- November 28, 2012 | Authors: Frederick J. Pomerantz; Sandy M. Smith
- Law Firms: Wilson Elser Moskowitz Edelman & Dicker LLP - New York Office ; Wilson Elser Moskowitz Edelman & Dicker LLP - Albany Office
By Executive Order dated November 20, 2012, Governor Cuomo has announced the temporary suspension and/or modification, effective immediately, of a number of requirements applicable to insurers doing business under the New York Insurance Law until further notice, including:
- Thirty-day prior review requirement for transactions between controlled domestic insurers and their affiliates
- Prior approval requirement relative to a parent insurer’s application to acquire a majority of the outstanding shares of any corporation
- Prior approval of certain rate filings by insurers
- Prior approval of certain policy form filings by insurers
- Prior approval of the declaration and payment of a dividend by a domestic stock life insurer to its shareholders
- Prior approval of an amendment to a statement of a domestic life and annuity insurer’s methods of operating separate accounts that does not change the investment policy.
Not surprisingly, this unusual and possibly unprecedented action results from the serious disruption to the entire New York City Office of the Department of Financial Services (DFS) caused by the flooding in lower Manhattan during Superstorm Sandy. For nearly three weeks, staff of the Property Bureau, the Life Bureau, the Office of General Counsel and other NYC-based bureaus of the DFS were unable to access their offices - or remotely access their computerized systems - at a time of year when hundreds if not thousands of applications by insurers with year-end deadlines are outstanding. Many such applications require prior review or prior approval.
With staff of DFS dispersed to other locations around the city, communications with the public still impaired and paper records destroyed, completing the year-end rush of applications becomes impossible under the burden of the above-enumerated requirements.
Further, many DFS personnel are handling emergency calls for relief from businesses and homeowners adversely impacted by the storm surge that resulted from Superstorm Sandy. The Superintendent and many of his staff have been busy nearly full time visiting affected neighborhoods and assisting businesses and residents with their emergency needs, thereby reducing the staff available to review and approve such applications. Hiring or reassigning additional staff at this time to review the backlog of applications from insurers and others is impractical.
The governor’s order furthers the purposes of Executive Order No. 47 dated October 26, 2012, declaring a major disaster in the five counties of New York City as well as in Nassau and Suffolk counties and Rockland and Westchester counties resulting from the extreme storm damage and ongoing adverse conditions in major parts of those counties.
Based on our analysis, the requirements for insurers to file prior-approval requests as well as the 30-day review period for certain other affiliated-party transactions are not suspended. Only the requirement for DFS to act on them promptly is suspended.
While we can only speculate on the possible consequences for “year-end transactions” filed by “controlled insurers” that are members of “holding company groups” (e.g., that anything filed for review before Superstorm Sandy might be given priority between now and December 31, 2012), it is difficult for attorneys to provide definitive information to clients as to how to prepare for year-end. Certain transactions will inevitably be subject to a waiting game until such time as DFS approves them (perhaps and hopefully retroactively to January 1, 2013, although this remains unclear). A number of related-party transactions scheduled for completion by year-end or inception on January 1, 2013, may be in a holding pattern until DFS (or the Governor’s Office) issues a further communication providing additional clarity to one of the many consequences of this unprecedented disaster in the New York area.