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COURT OF APPEALS OF NEW YORK 1968.NY.43918 <>; 244 N.E.2d 690; 23 N.Y.2d 407 decided: December 12, 1968. 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 Matter of Stewart( Citizens Cas. Co. of N. Y.), 30 A.D.2d 293, reversed. Counsel John Van Voorhis, J. Daniel Mahoney, Mario Biaggi, Bernard A. Feuerstein and Irwin P. Underweiser for appellant. Ralph A. Cascella, Henry H. Abrams, Aaron Greengold and Alan Jay Martin for intervenors-appellants. Counsel Louis J. Lefkowitz, Attorney-General (Samuel A. Hirshowitz, Mark T. Walsh, Philip Weinberg and Karla Moskowitz of counsel), for respondent. Judges Burke, Scileppi and Breitel concur with Judge Keating; Chief Judge Fuld dissents and votes to affirm in a separate opinion in which Judges Bergan and Jasen concur. Author: Keating

Matter of Stewart( Citizens Cas. Co. of N. Y.), Judges Burke, Scileppi and Breitel concur with Judge Keating; Chief Judge Fuld dissents and votes to affirm in a separate opinion in which Judges Bergan and Jasen concur.

Author: Keating

 In early 1968, the Superintendent of Insurance undertook an examination of the loss reserve practices of Citizens Casualty Insurance Company (Insurance Law, § 28, subd. 1).*fn* The examination was conducted by 17 experienced examiners who reported to the Superintendent that the company's loss reserves were understated by over six million dollars and that, due to this error, the company was insolvent, as defined by section 93 of the Insurance Law, to the extent of four million dollars.

The Superintendent did not adopt the examiners' report, as provided in section 30, which would have permitted Citizens an opportunity to request an administrative hearing. Instead, he chose to institute suit in Supreme Court, under article XVI of the Insurance Law, to rehabilitate the company. Sections 93 and 511 authorize the Superintendent to seek such judicial action if an insurer is found to be insolvent. Section 526 provides that the court at such a hearing shall either deny or grant the application to rehabilitate the company after a "full hearing". At this hearing section 30 permits the Superintendent to introduce into evidence the report of examination as proof of the insurer's insolvency.

At Special Term, the Superintendent offered in evidence the report of insolvency. Citizens, however, was not permitted to introduce any evidence in support of its contention of solvency, although the court did permit the company to cross-examine the two witnesses called by the Superintendent who testified to the procedures followed in compiling the report.

The issue presented by this appeal is whether Citizens was denied the statutory "full hearing" mandated by section 526 when it was prevented from introducing any evidence on the issue of solvency in a rehabilitation proceeding instituted by the Superintendent pursuant to article XVI.

The field of insurance falls within that sector of the economy extensively regulated by the State because the business practices of insurance companies have an immediate and substantial effect on the public (Matter of General Reinsurance Corp. v. Pink, 269 N. Y. 347, 351; Matter of Bean v. Stoddard, 207 App. Div. 276, 279, affd. 238 N. Y. 618; California Auto. Assn. v. Maloney, 341 U.S. 105, 109-110). In this regulatory scheme there is an undeniable need for the Superintendent to have available fast and flexible procedures to be used in supervising the industry. The desire of the Superintendent to have a summary procedure to protect the public from undesirable practices on the part of insurers, however, must be balanced against the necessity of according the party affected an adequate opportunity to be heard in response to the Superintendent's charge (Rhode Is. Ins. Co. v. Downey, 95 Cal. App. 2d 220; cf. Title Guar. & Sur. Co. v. Idaho [ Allen ], 240 U.S. 136, 141-142). When faced with the interpretation of a regulatory scheme, the judiciary should attempt to afford the affected party the fullest opportunity for a hearing consistent with the protection of the public interest. This is what due process requires. (See Matter of Hecht v. Monaghan, 307 N. Y. 461; People ex rel. Copcutt v. Board of Health, 140 N. Y. 1, 6-7; Anti-Fascist Comm. v. McGrath, 341 U.S. 123, 161-165 [Frankfurter, J., concurring].)

The Superintendent asserts that section 526 of the Insurance Law authorizes a summary proceeding by which he can take over the property of an insurer and conduct its business by offering a report of insolvency and introducing evidence of the regularity of the procedures followed in compiling the report. He contends that the insurer can test the propriety of the intervention by instituting a subsequent proceeding under section 512 (subd. 3) to have the Superintendent removed as rehabilitator.

The Superintendent in support of this interpretation of the Insurance Law refers us to State banking statutes of New York and other States, which grant the Superintendent of Banks power to take possession of bank assets without first providing an opportunity for the bank to contest the action. This power he equates with his authority under section 526. (New York Banking Law, §§ 606, 607; see, e.g., New Jersey Stat. Ann., § 17:30-1; Wash. Rev. Code Ann., § 48.31.190; Smith-Hurd Ill. Ann. Stat., tit. 73, § 800.1; Purdon's Penna. Stat. Ann., tit. 40, § 202.) The analogy is further extended by citing section 512 (subd. 3) as the tandem provision of t he Insurance Law which saves the Superintendent's intervention from any due process implication because, like the banking legislation, it provides for a hearing after the intervention when the merits of the Superintendent's act can be adjudged. (State Sav. & Commercial Bank v. Anderson, 165 Cal. 437, affd. Per Curiam 238 U.S. 611. [The California banking legislation in issue in Anderson was modeled after the New York Banking Law].)

Though the suggested reading of the Insurance Law could certainly have been enacted by the Legislature, we conclude that the present provisions and the statutory framework do not support such an interpretation. If the Legislature had intended to give the Superintendent of Insurance the same powers as that of the Superintendent of Banks, the statutory provisions would have more closely paralleled one another.

Analysis of the provisions of the Insurance Law indicates that section 526 was not intended to be a summary proceeding as the Superintendent contends. None of the provisions contained in article XVI delineate the requirements of a full hearing. Nevertheless, use of the term "full hearing" itself engenders the notion of a hearing in which the parties will be permitted to introduce evidence at least in keeping with minimal due process requirements. (1 Cooper, State Administrative Law 367 [1965]; see De Bierre v. Darvas, 22 A.D.2d 550; Morgan v. United States, 304 U.S. 1, 18-19 [1938]; Morgan v. United States, 298 U.S. 468, 480-481.) The language certainly indicates an intention that fundamental requirements of fairness be accorded which are the essence of due process. The requirement of a "full hearing" has obvious reference to the tradition of judicial proceedings in which evidence is received and weighed by the trier of the facts.

Moreover, the Legislature's failure to define "full hearing" in an article XVI proceeding might have arisen because the proceeding was to be a judicial hearing, not an administrative one. By using "full hearing" the Legislature must be presumed to have intended that the procedures normally followed by judicial tribunals would be continued. This would appear reasonable in light of the fact that the Legislature, when dealing with administrative proceedings, specifically delineated the rights of a party in such a hearing. "Every person affected shall be allowed to be present during the giving of all testimony, and shall be allowed a reasonable opportunity to inspect all adverse documentary proof, to examine and cross-examine witnesses, and to present proof in support of his interest" (§ 23).

The procedures to be followed in any hearing, as mandated by due process, depend to a degree on the issues in dispute. (Matter of Heaney v. McGoldrick, 286 N. Y. 38, 45; Anti-Fascist Comm. v. McGrath, 341 U.S. 123, 162-163, supra [Frankfurter, J.]; United States v. Storer Broadcasting Co., 351 U.S. 192, 202-205.) In this case there is a dispute as to whether the insurer is insolvent within the meaning of the Insurance Law. The statute does not set forth in particular detail how solvency is to be determined. The statute merely defines insolvency as being that time when an "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 of its outstanding risks" (§ 93; emphasis added).

The statute does not specify in great particularity how reserves are to be determined. Sections 73 and 326 simply require that the insurer provide for reserves in amounts estimated to cover all losses insured. These estimates are to be arrived at by taking into account the prior experience of the company. In light of these provisions, it is clear that the question of sufficiency of reserves is not solely a question of statutory interpretation, but rather a factual determination to be arrived at by actuarial calculations. Accordingly, a hearing is necessitated at which the parties can introduce evidence in support of their respective contentions. (1 Davis, Administrative Law Treatise, § 7.02, p. 413; § 7.05; People v. Richetti, 302 N. Y. 290, 297; Matter of New York Water Serv. Corp. v. Water Power & Control Comm., 283 N. Y. 23, 31; Denver Stock Yard v. Livestock Assn., 356 U.S. 282, 287.)

The conclusion that an evidentiary hearing is required is amply supported by reference to the quasi-judicial type of hearing which the Superintendent himself must conduct if he desires to adopt a report of examination (§ 30). Robert Benjamin, a special commissioner appointed by Governor Lehman to investigate administrative adjudication in New York, in discussing an administrative hearing which exemplified the wide-ranging latitude accorded an insurer, chose as his prime example a hearing ...

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