SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ALBANY Index No. 264-10

NEW YORK INSURANCE ASSOCIATION, INC., AMERICAN TRANSIT INSURANCE COMPANY, EVEREADY INSURANCE COMPANY, GREATER NEW YORK MUTUAL INSURANCE COMPANY, KINGSTONE INSURANCE COMPANY, MERCHANTS INSURANCE GROUP and UTICA MUTUAL INSURANCE COMPANY,

Plaintiffs,

-against-

STATE OF NEW YORK, ANDREW M. CUOMO, Governor of the State of New York, BENJAMIN M. LAWSKY, Superintendent of the New York State Department of Financial Services, and ROBERT L. MEGNA, as Director of Budget,

Defendants.

THE NEW YORK HEALTH PLAN ASSOCIATION, INC.; AETNA HEALTH INC.; AETNA HEALTH INSURANCE COMPANY OF NEW YORK; CDPHP UNIVERSAL BENEFITS, INC.; CAPITAL DISTRICT PHYSICIANS' HEALTH PLAN, INC.; HEALTH NET OF NEW YORK, INC.; HEALTH NET INSURANCE OF NEW YORK, INC.; HEALTHNOW NEW YORK INC.; INDEPENDENT HEALTH ASSOCIATION, INC.; INDEPENDENT HEALTH BENEFITS CORPORATION; MVP HEALTH PLAN, INC.; MVP HEALTH INSURANCE COMPANY; MVP HEALTH SERVICES CORP.; PREFERRED ASSURANCE COMPANY; OXFORD HEALTH INSURANCE, INC.; OXFORD HEALTH PLANS (NY), INC.; UNITEDHEALTHCARE INSURANCE COMPANY OF NEW YORK; and UNITED HEALTH CARE OF NEW YORK, INC.

Intervenor-Plaintiffs,

-against-

STATE OF NEW YORK; ANDREW M. CUOMO, in his official capacity as Governor of the State of New York; BENJAMIN M. LA WSKY, in his official capacity as Superintendent of the New York State Department of Financial Services; and ROBERT L. MEGNA, in his official capacity as Budget Director of the State of New York,

Defendants.

MEMORANDUM OF LAW IN SUPPORT OF INTERVENOR­PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

TABLE OF CONTENTS

TABLE OF CONTENTS ................................................................................ .. ........ .. ....... iii

PRELIMINARY STATEMENT ........................................................................................ . 1

PROCEDURAL HISTORy ............. .. ...... ........... ... .............. ............ .............. .... ...... ..... .. ... .. 3

STATEMENT OF FACTS ... ..... .......................................................................... ....... ......... 4

The Parties ................................................ ........... .... ........... ........................ ................... ...... 4

History of Insurance Law Section 332 ................................................................................. 5

Recent Use of Section 332 Assessments in the State Budget Process ................................. 7

The Sub-Allocated Programs .................................................................. ........................ .. ... 8

Effect of the Improper Section 332 Assessments ............................ ........ ..................... ..... 12

Failed Amendment of Section 332 .................................................................................... 12

Recent Legislation Has Authorized the Transfer of Assessment Overpayments, Which Were Previously Returned to Intervenor-Plaintiffs, to the New York State General Fund ......................................... ........................ .. .................... 13

ARGUMENT .... ............................................................................. .................................... 15

I. STANDARD OF REVIEW ................................................................................... 15

II. DEFENDANTS EXCEEDED THE AUTHORITY GRANTED BY THE LEGISLATURE BY INCREASING SECTION 332 ASSESSMENTS TO INCLUDE FUNDING FOR PROGRAMS THAT DO NOT REPRESENT THE EXPENSES OF THE DEPARTMENT ........................................................ 16

A. Defendants Have Concocted a Definition of the "Expenses of the Department" that Conflicts with the Commonly Understood and Consistently Applied Definition Set forth in the Statute and that Violates Well-Established Rules of Statutory Construction ...................... 16

B. The Sub-allocations Do Not Represent the Indirect Costs of the Department, Despite Defendants' Assertions to the Contrary ................... 17

1. Defendants have Acknowledged that the Definition of "Indirect Cost" they have Relied Upon in this Case Differs from the Definition Accepted and Used in New York State Government. ................................................................................... l 7

1

2. "Indirect Cost" is an Accounting Term with a Specific, Accepted Meaning Different from that Relied Upon by Defendants in this Case ................ ... .. .. ....... ..... .... ..... ... .. ................. 19

C. The Department has Little Input or Control Over the Sub-Allocated Programs ............ ..................... ..... .. ........ .. .. .. ...... ..... ... ...... .... .. .... 22

III. THE INCREASED SECTION 332 ASSESSMENTS CONSTITUTE TAXES AND VIOLATE THE NEW YORK STATE CONSTITUTION ............ 23

A. The Assessments Now Pay for Programs Previously Funded by the General Fund or Other Broad-Based Funding Sources ...................... ... ... . 24

B. Since 2009, Portions of the Assessments Have Been "Swept" Into the General Fund ................. ................ .......... ........... ......... .... ........... .. .. ... .. . 25

C. The Portion of the Assessments Used to Fund Programs Other than the Operating Expenses of the Department Constitute Taxes .................. .26

D. The Increased Assessments Used to Fund Programs Other than the Operating Expenses of the Department Violate Article III, Section 22 of the New York State Constitution ......................................... ............. 29

IV. THE ASSESSMENTS ARE AN UNCONSTITUTIONAL DELEGA TION OF LEGISLATIVE POWER TO THE SUPERINTENDENT ....... .. .... ...... .... ..... ... ... ... ................... ... ..... ... ... ........ .. ...... ..... . 29

V. THE MISUSE OF THE 332 ASSESSMENTS VIOLATES THE EQUAL PROTECTION CLAUSE OF THE NEW YORK STATE AND UNITED STATES CONSTITUTIONS ................ ... ..... .. ........ .... ......... .. .... ........... .. ............. .30

VI. THE MISUSE OF THE 332 ASSESSMENTS VIOLATES INTERVENOR-PLAINTIFFS' RIGHTS TO SUBSTANTIVE DUE PROCESS .. .... .................. ... .............. ... .... ..................... ...... ......... ... ... .. ... ............ ... 32

VII. THE MISUSE OF THE ASSESSMENTS CONSTITUTES THE UNCONSTITUTIONAL TAKING OF PLAINTIFFS' PROPERTY WITHOUT DUE PROCESS OF LAW .... .. ....... ..... ... ..... ............. .. ....... ....... ... ..... .. 35

CONCLUSION .. ............ ....... .............. .. ..... ......... ... .... ...... .. ...................... ..... .............. .... ... 36

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TABLE OF AUTHORITIES

CASES

Page(s)

Alvarez v. Prospect Hospital, et al. , 68 N.Y.2d 320 (1986) ........................................................................................................ 15

American Association of Bioanalysts v. Axelrod, 106 A.D.2d 53 (3d Dep't 1985) ............................................... .......... ............... ... ....... ... .. ... 28

American Insurance Association v. Lewis, 50 N.Y.2d 617 (1980) ........................................................................................................ 23

Armstrong v. United States, 364 U.S. 40 (1960) ............................................................................................................. 35

Butler v. Maine Supreme Judicial Court, 767 F. Supp. 17 (D. Me. 1991) .......................................................................................... 27

City of Cleburne v. Cleburne Living Center, 473 U.S. 432 (1985) ........................................................................................................... 31

Entergy Nuclear Vermont Yankee, LLC v. Shumlin, 2012 WL 5285390 (D. Vt. Oct. 25, 2012) ............................................... .......................... 28

Foss v. City of Rochester, 65 N.Y.2d 247 (1985) ........................................................................................................ 31

Homestead Funding Corp. v. State Banking Dept., 95 A.D.3d 1410 (3d Dep't 2012) ................................................................................. 28-29

Igoe v. Pataki, 182 Misc. 2d 298 (1999) ................................................................... ........................... ...... 31

James Square Assocs. v. Mullen, 21 N.Y.3d 233 (2013) ................. .................... ..... ................ .. ... .... .......... ..................... 33, 34

Matter of Meegan v. Brown, 16 N.Y.2d 395 (2011) ............... ... .................. ...... ................................. .. ................ ..... 16-17

Matter a/Walton v. New York State Department a/Correctional Services, 13 N.Y.3d 475 (2009) ............... ...... .... .... .................................................................. .... ..... 31

New York State Conference 0/ Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514 U.S. 645 (1995) ....................................................... .................... .......................... 26-27

111

New York Telephone Co. v. City of Amsterdam, 200 A.D.2d 315 (3d Dep't 1994) .................................... .... .... .. .. .... ............ .... ........ ........... 28

Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978) ........ .. .. ..... ........... ..... ......... .... .. .............. ...... .. ... .... ..... .. .......... ... ... .. ..... 36

People v. Brooklyn Garden Apartments, 283 N.Y. 373 (1940) .................. ... ..... .. ..... ...... ..... ....... ...... .. .. .... .... ... ............... ... .... .... .. .... .. 28

Phillips v. Washington Legal Foundation, 524 U.S. 156 (1998) ...................... .. ................ .. .. .. ... .... .... .. ... ..... .... ... .. .. ........ .. ... .. ........ .. .... 35

Reddington v. Staten Island University Hospital, 11 N.Y.3d 80 (2008) ............................... .. ....... ... .... .. ..... .... ....... .... ......... ... ...... ............ .... ... 16

San Juan Cellular Tel. Co. v. Public Service Commission, 967 F.2d 683 (1 st Cir. 1992) ........................................... .. ..... ................... .. ................. 26-27

Travelers Insurance Co. v. Cuomo, 14 F.3d 708 (2d Cir. 1993) .. .... ..... .. .. ........... ..... ... ................... ... .. ........ .. .. .. .. .... .......... .. . 26-28

United Food & Commercial Workers Unions & Food Employees Benefit Fund v. DeBuono, 101 F. Supp. 2d 74 (N.D.N.Y. 2000) ................................. ....... ... ........ .. ................ ...... ..... . 27

Valero Terrestrial Corp. v. Caffrey, 205 F.3d 130 (4th Cir. 2000) ..... ... .... .. ..... ..... ... ...... ... ... .. ... ..... ... ..... .... .. ... .. .. .. ............... ... .... 27

Winegrad v. New York Univ. Medical Center, 64 N.Y.2d 851 (1985) ........................ .. ........ ...... .. .. .. .. ... ... .......... .......... ........... .. ....... ... ....... 15

Yonkers Racing Corp. v. State, 131 A.D.2d 565 (1987) ..................................... .... .... ........ ... .... ................... .. ........ ..... .... ... . 30

Zuckerman v. City of New York, 49 N.Y.2d 557 (1980) ......................................... ................. .. .. ................ .. .. .. ... ................. 15

U.S. CONSTITUTION

U.S. Const., atnend. V .............. .... ............... .. ................................. .... ....... .... ..... ... .... .... .. .. ... .......... 35

U.S. Const., amend XIV ..... ...... ..... ... ... ........ ... ... .... ... .... .... .... ... ... ..... .. ..... .. .......... .... ...... .... .... .. 31-32

N.Y. CONSTITUTION

N.y'. Const., article I, § 6 ........ ... ...... .............. ............ .......... ...... .. ........................ .... ........ .... .. .. .. ... 32

N.Y. Const., article I, § 7(a) ... ... .... .... ... ... .... ........ ...... ..... ...... ....... .... ... .... ........ .. .. .... ....... .. .. .. .... .... .. 35

IV

N.Y. Const., article I, § 11 .............................. ....................................................................... .. ..... 30

N.Y. Const., article III, § 1 ....... ............ ... ... .................................................... .. ............................. 30

N.Y. Const., article III, § 22 ........................ .. ... .... ........... .............. .. ..... .. .............. ........................ 29

NEW YORK STATE STATUTES

1940 N.Y., Ch. 824 ......................................... ...... ...... ........... ........... .. ............................... .. ............ 5

1941 N.Y., Ch. 641 ........... ....... ..... ........ .. ...... ... .... ....... .............. ........... ... ... ... ... ............................... 6

1972 N.Y., Ch. 944 .......... ........................................ .. .................................... ............ ............... .. ..... 6

1984 N.Y., Ch. 367 ....... .. .... ... ...... ....... .. .. ......... ..... .... .. .............. ............ .. ...... .......... .... .... .............. ... 6

1989 N.Y., Ch. 61 ........................................................................ ....... ...................................... .... ... 6

2009 N.Y., Ch. 2, Pt. H ............ ....... .... .............. .................. ... ........................................ ... .......... ... 14

2009 N.Y., Ch. 2, Pt. H, § 1 .......................... .. ...... ................ .............. ................. .. .... .. ................. . 14

2009 N.Y., Ch. 54 .. ........... ................. .. .. ..... .. .................... ... ........... ...... ........ ...... ... ..... .. ...... ...... ..... 25

2009 N.Y., Ch. 56, pt. PP, § 2 ..... ..... ............ .. ....... .. ............. ................................................... 14 n.6

2009 N.Y., Ch. 58 ................................................... .. ........... .......... .... ................. ... .... .................... 25

2009 N.Y., S.249/A.162 ............................................................................ ... .... .. .. .......... .......... 13, 24

N.Y. C.P.L.R. 3212 ........................................... .... .................. ...... ... ................... ... ............... ..... 4, 15

N.Y. Financial Services Law § 102 .......................................................................................... . 1 n.1

N.Y. Financial Services Law § 206 .......................... ........ .................... ..... ... ............................. 2 n.2

N.Y. Ins. Law § 32-a ......... ..... ............... .... .................................... ... .. .. .. ... ... ... .... ....... .................. 5, 6

N.Y. Ins. Law § 332 .................................................... ....... .......... ... ............... ....... .... .. ........... passim

N.Y. Public Health Law, Article 44 ..... ..... ....... ..... .................... .......... .......... .... ...... ...... ............. 2 n.3

FEDERAL REGULATIONS

2 C.F.R. § 225.5 ...... ...... .... .................... ........................ .. ......................... ......... .. .......... ................. . 19

OTHER AUTHORITIES

New York State Office of the State Comptroller, New York State Accounting System User Procedures Manual ................... .. ......... ...... 20-21

v

Intervenor-Plaintiffs, The New York Health Plan Association ("HPA"); Aetna Health

Inc.; Aetna Health Insurance Company of New York; CDPHP Universal Benefits, Inc.; Capital

District Physicians' Health Plan, Inc.; Health Net of New York, Inc.; Health Net Insurance of

New York, Inc.; Healthnow New York Inc.; Independent Health Association, Inc.; Independent

Health Benefits Corporation; MVP Health Plan, Inc.; MVP Health Insurance Company; MVP

Health Services Corp; Preferred Assurance Company; Oxford Health Insurance, Inc.; Oxford

Health Plans (NY), Inc.; UnitedHealthcare Insurance Company of New York and

UnitedHealthcare of New York, Inc.; (collectively, the "Intervenor-Plaintiffs"), submit this

memorandum of law in support of their motion for summary judgment.

PRELIMINARY STATEMENT

Since 1940, the New York State Insurance Department i has paid for its operating

expenses through assessments imposed on domestic insurance companies. For more than sixty

years, these assessments were used to pay for employee salaries, office supplies, travel expenses,

and other operating costs of the Department. Recently, however, the assessments have

increasingly been used to pay for expenses and programs that have little or nothing to do with the

operation of the Department. Not only have Defendants departed from well-accepted historical

practice, they have exceeded their statutory authority by creating and applying a malleable

definition of the "expenses of the Department" that has no meaningful limit and that has imposed

hundreds of millions of dollars in additional assessments on the New York-based insurance

industry.

i The New York State Insurance Department and the Insurance Division of the New York State Department of Financial Services are referred to as the "Insurance Department" or the "Department," and reference to one incorporates reference to the other. The Insurance Department and the Banking Department merged to form the Department of Financial Services, effective October 3, 2011. See N.Y. Fin. Servo Law § 102 (McKinney 2013).

1

In addition to paying for the privilege of being regulated by the Department, domestic

insurers - but not foreign insurers - are now required to fund a variety of programs that benefit

the general State population. The assessments have thus evolved from a mechanism to fund the

operation of the Insurance Department into a source of general fund revenue that has been used

to balance State budgets and pay for programs unrelated to the operation of the Department.

This case challenges this budgetary abuse and seeks to return the assessment process to what it

was originally intended to be - a means to fund the operation of the New York State Insurance

Department.

Section 332 of the New York State Insurance Law ("Section 332")2 authorizes

assessments upon New York-licensed insurers3 to defray the operating expenses of the

Department. The assessments imposed by Section 332 (the "Section 332 Assessments" or the

"Assessments") are, under the plain language of the statute, limited to funding "the expenses of

the [D]epartment." N.Y. Ins. Law § 332(a). Beginning in approximately 2003, however, the

Defendants exceeded their statutory authority by ignoring both the plain meaning of Section 332

and the well-accepted historical practice of funding the expenses of the Department. Rather than

use the Section 332 Assessments to fund the actual, day-to-day operating expenses of the

Department, as had been done since 1940, the Defendants have concocted a limitless definition

of the "expenses of the Department" that has extended the Section 332 Assessments far beyond

what the statute authorizes.

2 Section 332 was repealed, effective April 1, 2012, and replaced by Financial Services Law § 206, which was effective October 3,2011. References to Section 332 include Financial Services Law § 206. 3 For the purposes of this Memorandum, all references to the term "insurers" or "insurance companies," shall include health maintenance organizations ("HMO") established under Article 44 of the New York Public Health Law, because all such HMOs are subject to Section 332 Assessments.

2

For example, the 2010-11 Insurance Department budget included appropriations totaling

$305,000,000 for expenses unrelated to the operation of the Department. Of the Department's

$450,000,000 budget, only approximately $145,000,000 represented actual operating expenses.

Thus, approximately 70% of the Department's total budget in State Fiscal Year 2010-11

represented funding for programs unrelated to the operating expenses of the Insurance

Department. A similar percentage of the Department's total budget in State Fiscal Year 2011-12

represented such funding.

Intervenor-Plaintiffs do not question the legislative judgment underlying the programs

funded by the Assessments. Instead, Intervenor-Plaintiffs argue that the Defendants have far

exceeded their statutory authority by funding these programs from the Section 332 Assessments

- which were never intended to fund anything other than the operating expenses of the

Department - rather than from the General Fund, as an obligation of all taxpayers. In so doing,

Defendants have ignored the plain meaning of Section 332 and seek to have this Court adopt a

definition of the "expenses of the Department" that would violate well-settled principles of

statutory construction. This is especially so given that Section 332 is clear on its face and that a

widely accepted understanding of Section 332 has been in use for decades.

Finally, this back-door tax is particularly perverse as applied to health insurers and

HMOs, because it has the effect of increasing health insurance premiums at a time when the

nation and State are focused on making health insurance more affordable.

PROCEDURAL HISTORY

Plaintiffs filed their complaint on January 13,2010. (November 22,2013 Affirmation of

Stephen M. Buhr ("Buhr Aff."), Exs. A, B.) By Decision and Order dated March 10,2010, this

Court granted Intervenor-Plaintiffs leave to intervene and Intervenor-Plaintiffs filed their

3

complaint on January 21, 2010. (Id., Exs. B, C, D.) Defendants served their answer to both

complaints on or about May 4, 2010. (Id., Exs. E, F.) On or about June 9, 2010, Defendants

moved for summary judgment. (Id., Exs. G, H, 1.)

In response to Defendants' motion, Plaintiffs cross-moved for a continuance in order to

permit limited discovery. (Id., Ex. 1.) By letter dated September 22,2010, Intervenor-Plaintiffs

joined Plaintiffs' motion for continuance. (Id., Ex. K.) On or about December 3, 2010,

Defendants served their opposition to the motion for continuance. (Id., Ex. L.) By

Decision/Order dated March 10, 2011, this Court granted the motion for continuance. (Id., Ex.

M.)

The parties exchanged discovery and conducted depositions of representatives from the

Department oflnsurance, the Department of Health, and the Division of Budget. (Id., Exs. N, 0,

P, Q, R.) Plaintiffs filed and served a Note of Issue and Certificate of Readiness on or about

June 3, 2013. (Id.., Ex. S.) Finally, Plaintiffs and Intervenor-Plaintiffs have filed and served

amended complaints and second amended complaints. (Id., Exs. A and D.)

Intervenor-Plaintiffs now move for summary jUdgment pursuant to CPLR 3212.4

STATEMENT OF FACTS

The Parties

Intervenor-Plaintiff Health Plan Association of New York, Inc. ("HP A") is a not-for-

profit corporation that represents health insurers and managed care organizations across New

York State. HPA's member plans provide health care coverage for nearly seven million New

Yorkers, including employers and their employees, individuals, and Medicaid and Medicare

beneficiaries. HPA also serves as an advocate for affordable, quality health care for all New

4 Intervenor-Plaintiffs join in Plaintiffs' motion for summary judgment and the arguments contained therein and incorporate them here by reference.

4

Yorkers. (Affidavit of Paul Macielak, dated November 19,2013 ("Macielak Aff."), ~ 3.) Each

of the other Intervenor-Plaintiffs is, or has been, a member of HP A. (Id.) HP A brings this action

on behalf of its members that pay the Section 332 assessments at issue. (Buhr Aff., Ex. D, ~ 14.)

Seventeen members ofHPA are named Intervenor-Plaintiffs. (Id., ~~ 15-31.)

Plaintiff, New York Insurance Association, Inc. ("NYIA") is a non-profit trade

association of property and casualty insurance companies, both domestic and non-domestic, that

issue insurance policies throughout New York State. (Id., Ex. A, ~ 1.) The other Plaintiffs are

NYIA members that pay the Section 332 assessments. (Jd., at 1-7.)

The State of New York is named as a Defendant because this action challenges legislative

and administrative actions, and because it involves expenditures of appropriations to a number of

state agencies. (Id., Ex. D, at ~ 32.) The remaining Defendants are various New York State

officials, including Andrew M. Cuomo, Governor of the State of New York; Benjamin Lawsky,

the Superintendent of the New York State Department of Financial Services; and Robert L.

Megna, Director of Budget. (Id., ~~ 33-35.)

The individual Intervenor-Plaintiffs have standing to bring this action because they have

been injured and/or are threatened with injury by the enactment, implementation, application,

and enforcement of Section 332 and related assessments. HPA has standing to bring its claims

because its members would otherwise have standing to sue in their own right, the interests HP A

seeks to protect are germane to HP A's purpose, and neither the claims asserted nor the relief

requested requires the participation of individual HP A members.

History of Insurance Law Section 332

Chapter 824 of the Laws of 1940 enacted New York State Insurance Law Section 32-a,

which provided in relevant part:

Assessments to defray operating expenses of department.

5

If the expenses of the department ... shall exceed the amount of fees and refunds (excluding taxes) collected under this chapter and paid into the state treasury, the excess of such expenses shall be annually assessed by the superintendent pro rata upon all domestic insurers in proportion to the net premiums or other considerations for insurance collected by them in this state during the fiscal year for which the assessment is made; and the superintendent shall levy and collect such assessments and pay the same into the state treasury, subject to the provisions of section thirty-seven of the state finance law.

Chapter 641 of the Laws of 1941, inter alia, amended Insurance Law Section 32-a to add

"all licensed United States branches of alien insurers domiciled in this state" to those subject to

the assessment. Chapter 944 of the Laws of 1972, inter alia, amended Insurance Law Section

32-a to provide for the assessment of all direct and indirect costs of the Insurance Department, as

approved by the director of the budget and audited by the comptroller, and to add subdivision 2,

which provided for quarterly payments of the assessments. Chapter 367 of the Laws of 1984

implemented the recodification of the Insurance Law, including the enacted Insurance Law

Section 32-a (renumbered Section 332), still entitled "Assessments to defray operating expenses

of department."

The final amendment ofInsurance Law Section 332 was enacted as part of Chapter 61 of

the Laws of 1989, and deleted the language of subsection (a), which previously made the

assessment supplemental to fees and refunds collected under other provisions of the Insurance

Law. In explaining the 1989 amendment, the Governor's Bill Jacket stated:

The various revenues affected by this bill represent fees for the privilege of conducting certain types of business in New York State, fines or penalties against individuals or entities who have violated State laws or related regulations, or miscellaneous revenues unrelated to the primary purposes of the affected laws. As such, it is appropriate that these revenues inure to the benefit of the people of the State by being deposited in the State Treasury rather than to the benefit of the regulated entities evolved [sic] who are otherwise assessed for the costs of administering these laws.

6

This legislative language confirms that while other amounts paid by insurers were intended to

"inure to the benefit of the people of the State by being deposited in the State Treasury," the

Section 332 Assessments were intended to fund the operating expenses of the Insurance

Department.

At all times relevant to this action, Insurance Law Section 3325 provides:

Assessments to defray operating expenses of department

(a) The expenses of the department ... for any fiscal year, including all direct and indirect costs, as approved by the director of the budget and audited by the comptroller ... shall be assessed by the superintendent pro rata upon all domestic insurers and all licensed United States branches of alien insurers domiciled in this state within the meaning of paragraph four of subsection (b) of section seven thousand four hundred eight of this chapter, in proportion to the gross direct premiums and other considerations, written or received by them in this state during the calendar year ending December thirty-first immediately preceding the end of the fiscal year for which the assessment is made (less return premiums and considerations thereon) for policies or contracts of insurance covering property or risks resident or located in this state the issuance of which policies or contracts requires a license from the superintendent ....

Although the assessment has existed since the 1940s, until State Fiscal Year 2003-04, the

"expenses of the department" included only items such as employee salaries, office supplies,

travel, leases, and similar types of expenses. (Macielak Aff., ~ 9.) Section 332 Assessments thus

paid for only the actual operating expenses of the Department and annual expenditures were

relatively flat. (Jd, ~ 9; Buhr Aff., Ex. N, at 30093.) Beginning in 2004, however, the Governor

and the State Division of the Budget began expanding the meaning of the "expenses of the

Department," and the Assessments increased dramatically. (ld; Macielak Aff., ~ 10.)

Recent Use of Section 332 Assessments in the State Budget Process

As part of the State budgeting process, the Governor proposes and the Legislature enacts

certain appropriations to each State department, including the Insurance Department. Each such

5 See supra note 2.

7

appropriation represents the Department's spending authority for a given year. Each line item

set forth in the budget specifically limits the amount that may be spent on that item. At all times

relevant to this action, the Department's appropriations have included non-operating expenses of

the Department. These expenses have been charged back to New York insurance companies

through inclusion in Section 332 Assessments, despite the fact that such inclusion clearly

exceeds the statutory mandate that only the operating expenses of the Department may be passed

on to insurance companies.

As explained in an internal Department of Health email dated April 11, 2011 :

[The Department of Health] started receiving limited money from SID in the 2004-05 SFY. Those suballocations were substituted for the General Fund monies that had previously been used to fund programs in the Department that had been on the General Fund. These substitutions reduced the amount of General Fund monies that were needed and were a cost reduction measure. Over time these substitutions were expanded to other programs. The rationale employed was that the programs in DOH were prevention programs that would reduce the ultimate amount of money Insurance companies would have to spend if these programs did not exist.

(Buhr Aff., Ex. N, at 2828.)

The so-called "sub-allocations" from the Department's budget are used to fund programs

and services of other State agencies that have little or nothing to do with the operation of the

Department. These sub-allocated programs were previously funded by the New York State

General Fund or other broad-based revenue sources, but as the email quoted above explains, the

programs have recently, and increasingly, been funded by the Section 332 Assessments. Indeed,

by 2011, the Defendants acknowledged that the Assessments had become a source of General

Fund revenue and a "cost reduction measure." (Id.)

The Sub-Allocated Programs

Defendants have claimed that the sub-allocations challenged here "constitute the

Department's appropriate direct and indirect costs." (Id., Ex. H, ~ 18.) They have identified the

8

following sub-allocated programs as direct costs of the Department: the Office of the Inspector

General, the Healthy New York Program, the Health Maintenance Organization Direct Pay

Market Program, and the Pilot Program for Entertainment Industry Employees. (Id., ~ 19.)

Defendants claim that these programs represent direct costs because they are "programs

administered by the Department to provide New Yorkers with affordable insurance coverage,

which is one of the Department's most important functions." (Id.)

The Healthy New York Program subsidizes insurance companies' premium payments in

order to offer an "option to both New York's small business owners and low income New York

State residents to obtain health insurance at rates that are more affordable than other market

offerings." (Id., ~ 21.) The HMO Direct Pay Program subsidizes health maintenance

organizations "to offset claims made by qualified insureds for the costs of health services." (Id.,

~ 22.) The Pilot Program for Entertainment Industry Employees subsidizes "COBRA premiums

for members of the entertainment industry." (Id., ~ 26.)

The Defendants claim that the sub-allocations to the Banking Department, the

Department of State, the Department of Health, the Department of Law, and the Division of

Criminal Justice Services represent appropriate indirect costs of the Department. The sub-

allocation to the Banking Department funds the Holocaust Claims Processing Office ("HCPO")

and its missions: "1) to recover assets deposited in European banks; 2) to recover monies never

paid in connection with insurance policies issued by European insurers; and 3) to recover lost or

looted art." (Id.,31.)

Sub-allocations to the Department of State fund the following programs:

(1) the enforcement, development, and maintenance of the state building code; (2) the urban search and rescue program; (3) the fire prevention and control program-and the state fire reporting system; (4) developing and promulgating fire safety standards for

9

cigarettes; (5) repair and rehabilitation of the state fire training academy; (6) fire inspections and fire safety training programs at privately operated colleges and universities in New York State; and (7) payments related to municipalities fighting fires on state property, expenses incurred under the state's fire mobilization and mutual aid plan, and for payment of training costs incurred for training of certain first-line supervisors of paid fire departments.

Defendants assert that the sub-allocations to the Department of State "have a potentially

substantial impact on the overall costs and availability of insurance in New York State. . . .

[because these] programs diminish the occurrence and magnitude of claims filed against insurers

for both personal injury and property damage by preventing or mitigating losses of life, injuries,

and property damage." (Id., ~ 34.)

Additional sub-allocations to DOH fund the following programs:

(ld., ~ 42.)

(1) the development of inpatient hospital rates for insurance payments; (2) the certification of managed care programs; (3) the approval of managed care implementation plans; (4) the center for community health program; (5) the implementation of a forge­proof pharmaceutical prescription program; (6) the enhanced newborn screening program; (7) the cervical cancer vaccine program; (8) the lead poisoning prevention program; (9) the childhood lead poisoning primary prevention program; (10) the lead prevention program; (11) the childhood obesity program; and (12) the immunization program.

The development of inpatient hospital rates for insurance programs involves the setting of

hospital reimbursement rates for no-fault automobile insurance payments by DOH. DOH also

manages the certification of managed care programs and the approval and monitoring of

managed care implementation plans and ongoing operations. The Center for Community Health

assists local agencies with public health issues. DOH's cervical cancer vaccine program

promotes the availability of the vaccine and funds vaccination to help prevent the occurrence of

several types of cervical cancer. (Id., ~~ 44-46.)

10

The DOH immunization program provides vaccines to health care providers for

administration to eligible children. The sub-allocations for lead poisoning prevention fund

programs administered by local health departments to reduce or eliminate lead exposure. DOH's

childhood obesity program promotes healthy lifestyles, including improved nutrition and

increased physical activity. The enhanced newborn screening program tests, detects, and refers

infants with serious but treatable medical conditions. The forge-proof pharmaceutical

prescription program is directed at reducing fraudulent prescriptions through the use of official

prescription forms designed to prevent forgeries, copying, and alterations. (Id., ~~ 45-47.)

The sub-allocation to the Department of Law pays the Office of the Attorney General for

services and expenses associated with the no-fault automobile insurance fraud unit and the

investigation of broker/insurer practices in the insurance industry. (Jd., ~ 48.)

Finally, the Assessments also include a sub-allocation to the Division of Criminal Justice

Services for expenses associated with the Traffic and Criminal Software Project, which was

developed in conjunction with the New York City Police Department to allow its members to

electronically prepare accident reports and traffic tickets and electronically transmit the

completed forms to the Department of Motor Vehicles for inclusion in a statewide database. (Id.,

~ 49.)

These programs, which are all administered and/or managed by agencies other than the

Insurance Department, no doubt provide valuable services to the residents of New York. But

that is not the test for determining whether the costs associated with these programs constitute

the operating expenses of the Department and hence, whether such costs may be assessed against

the domestic insurance industry.

11

Effect of the Improper Section 332 Assessments

While the inclusion of items unrelated to the operating expenses of the Department as

part of the Section 332 Assessments has always been unlawful, the amount of such unrelated

expenses has substantially increased recently, both in absolute terms and as compared with the

portion of the Section 332 Assessments actually related to the operating expenses of the

Insurance Department. (Id., Ex. N, at 30100.) The funds appropriated for the actual operation of

the Insurance Department increased from approximately $98,000,000 in State Fiscal Year 2003-

2004 to approximately $145,000,000 for State Fiscal Year 2010-11. (Macielak Aff.,,-r 13.)

During the same time period, however, the non-operating expenses of the Insurance

Department increased from approximately $49,000,000 to approximately $305,000,000. For

Fiscal Year 2011-12, the non-operating expenses of the Department totaled approximately

$304,000,000. In Fiscal Year 2003-04, non-operating expense items constituted only 33% of the

total Insurance Department budget. By State Fiscal Year 2011-12, non-operating expense items

constituted approximately 70% of the total Department budget. The non-operating expenses of

the Department have thus increased by more than 600% during a period of six years, while the

actual operating expenses increased by only approximately 150%. The allocation of such

expenses to the Department budget increases the premiums paid by New York employers and

consumers for health insurance. (Id.,,-r 14.)

Failed Amendment of Section 332

Facing an approximate $1.6 billion shortfall for the 2008-2009 fiscal year, Governor

Paterson proposed a Deficit Reduction Plan ("DRP") in conjunction with his 2009-2010

Executive Budget Proposal. The final version of the DRP - which passed the Senate and the

Assembly on February 3, 2009 and was then signed by the Governor (Chapters 1 and 2 of 2009)

12

- included an increase in the Department's appropriation of $180 million, which was to be paid

for through an increase in the 332 Assessments. (Id., ~ 15.)

In addition, recognizing the limitations imposed by Section 332, Governor Paterson's

initial DRP proposal for State Fiscal Year 2008-2009 included an amendment to Section 332.

The Governor's proposal would have amended the Insurance Law in order to change the intent

of the Assessments and authority of the Superintendent. Specifically, the title's reference to the

word "operating" would have been deleted, and the text of the statute would have been amended

to state that the phrase "expenses of the department" includes "all appropriations whether

administered by the department or suballocated to another state department, board, or agency."

See S .249/ A.162, N. Y. 2009. The Governor thus recognized that under current law the

Superintendent lacked authority to assess insurance companies for programs that are sub-

allocated to other departments or that otherwise do not relate specifically to the Department's

operation. (Id., ~~ 16-17.)

After negotiations with the Legislature, however, these proposed amendments were

deleted from the DRP, and Section 332 continued to limit the use of Assessments to defray only

the actual operating expenses of the Department. The Governor's 2010-11 budget did not

include a proposal to amend the language of Section 332. (Id., ~18.)

Recent Legislation Has Authorized the Transfer of Assessment Overpayments, Which Were Previously Returned to Intervenor-Plaintiffs, to the New York State General Fund

Pursuant to Insurance Law Section 332(b), the Superintendent of Insurance estimates the

expenses for the next fiscal year and issues a demand for payment of 25% of the estimated

assessment by March 10th of the fiscal year in which the estimate is calculated. N.Y. Ins. Law §

332(b). The remaining three quarterly estimated payments are required to be remitted by June

13

10th, September 10th

, and December 10th of the next fiscal year. Id. Pursuant to Section 332(b),

after the final amount of the assessment is calculated, insurers are required to pay any balance

due, while "[a]ny overpayment of annual assessment resulting from complying with the

requirements of this subsection shall be refunded or at the option of the assessed applied as a

credit against the assessment for the succeeding fiscal year." Id.

In 2009, the Legislature authorized transfer of Assessment overpayments to the General

Fund, rather than returning them to the assessed insurance companies, as provided for in Section

332(b). Specifically, Part H of Chapter 2 of the Laws of 2009 authorized the Comptroller to

transfer up to $4.5 million from the Insurance Department assessment account to the General

Fund in state fiscal year 2008-09. L. 2009, Ch. 2, Pt. H, § 1. Subsequently, on February 17,

2009, $4,500,000 was transferred to the General Fund pursuant to this section. (Id.,,-r 21.)

Similar transfers or "sweeps" of unused Section 332 Assessments to the General Fund

were made in subsequent years. Such sweeps totaled nearly $90,000,000.6 (Buhr Aff., Ex. 0,

l(d).) This legislation and related transfers confirm that the State now views Section 332

Assessments as a source of general revenue, even though the Assessments are paid by a specific

6 For example, Chapter 56 of the Laws of2009, Part PP, §2 provided that:

§ 2. Notwithstanding any law to the contrary, and in accordance with section 4 of the state finance law, the comptroller is hereby authorized and directed to transfer, upon request of the director of the budget, on or before March 31, 2010, up to the unencumbered balance or the following amounts:

4. $15,000,000 from the miscellaneous special revenue fund (339), insurance department account (B6), to the general fund.

L. 2009, Ch. 56, Pt. PP, § 2.

Similar sweeps, totaling nearly $70,000,000, were authorized and completed in 2010 and 2011. (Macielak Aff., ,-r 22, nA.)

14

group of insurance companies for the ostensible purpose of funding the operating expenses of the

Department.

ARGUMENT

I. ' STANDARDOFREVIEW

Under CPLR 3212, a motion for summary judgment will be granted if the cause of action

or defense is adequately established so that a court may direct judgment as a matter oflaw. N.Y.

C.P.L.R. 1312 (McKinney 2013). The movant bears the burden of showing that there are no

material issues of fact for trial. Winegradv. NY. Univ. Med. Ctr., 64 N.Y.2d 851, 853 (1985).

A motion for summary judgment "shall be granted if, upon all the papers and proof

submitted, the cause of action or defense shall be established sufficiently to warrant the court as

a matter of law in directing judgment in favor of any party." N.Y. C.P.L.R. 32l2(b). The

moving party must make a prima facie showing of judgment as a matter of law, tendering

sufficient evidence to show the absence of material issues of fact. Alvarez v. Prospect Hasp., 68

N.Y.2d 320,324 (1986); Zuckerman v. City of NY., 49 N.Y.2d 557,562 (1980).

Once such a showing is made, the burden shifts to the party opposing the motion to

produce evidentiary proof in admissible form sufficient to establish the existence of material

issues of fact requiring a trial. N.Y. C.P.L.R. 3212(b); Alvarez, 68 N.Y.2d at 324; Zuckerman,

49 N.Y.2d at 562.

Here, there can be no dispute over the material facts at issue. Resolution of the case

requires this Court to pass on the purely legal question of whether Defendants' conduct exceeded

the authority granted by Section 332 and violated Intervenor-Plaintiffs' rights as alleged in the

Second Amended Complaint.

15

II. DEFENDANTS EXCEEDED THE AUTHORITY GRANTED BY THE LEGISLATURE BY INCREASING SECTION 332 ASSESSMENTS TO INCLUDE FUNDING FOR PROGRAMS THAT DO NOT REPRESENT THE EXPENSES OF THE DEPARTMENT

Section 332 is entitled "Assessments to defray operating expenses of department" and

states that

[t]he expenses of the department ... including all direct and indirect costs ... shall be assessed by the superintendent pro rata upon all domestic insurers and all licensed United States branches of alien insurers domiciled in this state ... and the superintendent shall levy and collect such assessments and pay the same into the state treasury.

N.Y. Ins. Law § 332(a).

Recent Assessments levied pursuant to the State Budget have not been used to defray the

costs of the general operating expenses of the Department, however. Rather, recent Assessments

have funded programs that were previously supported by the General Fund andlor other broad-

based revenue sources, and that do not relate to the operating expenses of the Department. In so

doing, Defendants have created and applied an elastic and unprincipled definition of the concepts

of "operating expenses" and "indirect costs."

A. Defendants Have Concocted a Definition of the "Expenses of the Department" that Conflicts with the Commonly Understood and Consistently Applied Definition Set forth in the Statute and that Violates Well-Established Rules of Statutory Construction

"[I]n construing statutes, it is a well-established rule that resort must be had to the natural

signification of the words employed, and if they have a definite meaning, which involves no

absurdity or contradiction, there is no room for construction and courts have no right to add to or

take away from that meaning." Reddington v. Staten Island Univ. Hosp., 11 N.Y.3d 80, 91

(2008) (internal quotation marks and citation omitted). In addition, "in the interpretation of

statutes, the spirit and purpose of the act and the objects to be accomplished must be considered.

16

The legislative intent is the great and controlling principle." Matter of Meegan v. Brown, 16

N.Y.3d 395, 403 (2011) (internal quotation marks and citation omitted).

Since its enactment in 1940, Section 332 has been titled "Assessments to defray operating

expenses of department." And while the title of a statute is not controlling with respect to

legislative intent, the title here - referring to "operating" expenses, as opposed to "substantive

program" expenses or "sub-allocated" expenses - strongly evidences the Legislature's original

and longstanding intent that the Section 332 Assessments be limited to the Department's

officially approved operating expenses, including direct and indirect costs, incurred in

supervising and regulating the insurance industry.

In addition, the text of the statute provides that the Assessments shall be used to fund

"[t]he expenses of the department ... including all direct and indirect costs." N.Y. Ins. Law §

332(a). The plain meaning of this definition (and the historical practice) clearly encompasses

employee salaries, leases, office expenses, and the like. It does not include expenses associated

with the Holocaust Claims Processing Office, the printing of forge-proof prescription pads, or

the other sub-allocated programs. Indeed, to accept Defendants' definition of "expenses of the

Department" would render the statute's reference to operating expenses meaningless and would

violate well-established rules of statutory construction.

B. The Sub-allocations Do Not Represent the Indirect Costs of the Department, Despite Defendants' Assertions to the Contrary

The sub-allocations represent neither the direct nor the indirect costs of the Department.

1. Defendants have Acknowledged that the Definition of "Indirect Cost" they have Relied Upon in this Case Differs from the Definition Accepted and Used in New York State Government

For purposes of this lawsuit, Defendants have asserted that many of the sub-allocations at

issue represent the indirect costs of the Department. In so doing, Defendants rely upon a

17

definition of "indirect costs" that conflicts with the longstanding definition used in New York

State budgeting and accounting, and that stretches the concept of indirect costs beyond any

meaningful limit. For example, in support of Defendants' initial Motion for Summary Judgment,

Mary Beth LaBate, the Deputy Director of the New York State Division of the Budget, asserts

that the sub-allocations from the Department to different agencies at issue in this case:

constitute appropriate indirect costs of the Department since these sub-allocations related to the conduct of insurance business and the regulatory concerns of the Department. Specifically, the sub-allocations fund programs which further the Department's functions of, inter alia, ensuring the fair treatment of insurance policyholders and claimants, regulating insurance companies and rates, keeping insurance available and affordable for all consumers in New York, keeping the costs of such insurance coverage down, diminishing the occurrence and magnitude of claims filed against insurers, and addressing costs resulting from the filing of false and fraudulent claims.

(Buhr Aff., Ex. H, ~ 27.)

This definition is so amorphous and limitless as to encompass virtually any expense

imaginable. Ms. LaBate herself acknowledged as much when she admitted that her definition of

indirect costs could be interpreted to justify sub-allocating the cost of regulating auto repair

shops and service stations to the Department, because of the potential effect such regulation

might have on the likelihood of personal injury or property damage claims resulting from auto

accidents. (Id., Ex. R, at 118-19.)

Ms. LaBate acknowledged the problematic nature of her admission by saying that there

has "never been an attempt to be all inclusive on any program or any facet of State operations

that could have an impact on the insurance industry." (Id., at 119.) But she did not rule out the

possibility that the Department could decide to fund the regulation of auto repair shops and

service stations from Section 332 Assessments. That she did not do so demonstrates why the

18

Defendants' definition of indirect costs suggests a rule that exceeds the legislative intent

underlying Section 332 and lacks any limiting principle.

2. "Indirect Cost" is an Accounting Term with a Specific, Accepted Meaning Different from that Relied Upon by Defendants in this Case

Representatives from the Department of Financial Services, the Department of Health,

and the Division of Budget testified regarding the definitions of "direct costs" and "indirect

costs" set forth in two government documents. The federal Office of Management and Budget

Circular A-87 prescribes "principles and standards for determining costs for Federal awards

carried out through grants, cost reimbursement contracts, and other agreements with State and

local governments and federally-recognized Indian tribal governments." 2 C.F.R. § 225.5

(2013). Circular A-87, which is also used in New York State budgeting (Buhr Aff., Ex. Q, at 18-

19), provides, among other things, that:

direct costs are those that can be identified specifically with a particular final cost objective [and that] [t]ypical direct costs chargeable to Federal awards are:

a. Compensation of employees .... b. Cost of materials acquired, consumed, or expended .... c. Equipment and other capital expenditures. d. Travel expenses ....

(Buhr Aff., Ex. N, at 3698.)

(/d)

Circular A-87 defines "indirect costs" as those costs:

[i]ncurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. The term "indirect costs," as used herein, applies to costs of this type originating in the grantee department, as well as those incurred by other departments in supplying, services, and facilities.

19

Similarly, the New York State Office of the State Comptroller's New York State

Accounting System User Procedures Manual (the "Comptroller's Procedures Manual") defines

"indirect costs" as:

Agency or central service agency costs that cannot be directly associated with the administration of a particular program and therefore cannot be charged as a direct program expense. Indirect costs include, but are not limited to, physical overhead, space occupancy, utilities, information technology and central service agency (e.g. OGS, Civil Service, Budget, General Services, etc.) costs.

(Id., at 1636.)

In New York State, central state service agencies ("CSSA") provide services to all New

York State agencies. 7 The costs incurred by the CSSAs in providing these services are treated as

the indirect costs of the line agencies. (Buhr Aff., Ex. R, at 34.) Lori Fraser, the Assistant

Director of Administration and Operations for the New York State Department of Financial

Services, confirmed this definition and explained that "indirect costs" are those costs that go to

support CSSAs such as the Office of General Services and the Attorney General's Office that

provide services to the Department. (Id., Ex. P, at 37.) These CSSA costs are assessed to the

Department and other line agencies through an "indirect cost rate" developed by the Division of

the Budget. (Id., Ex. R, at 34.) To calculate the indirect costs to be assessed against a line

agency, the indirect cost rate is multiplied by the personal service costs of the agency in question.

(Id. , Ex., P, at 71-72.)

In the context of New York State budgeting and accounting, the term "indirect costs" has

a very specific, accepted, and consistent meaning. Edward M. Cahill, the Director of the Bureau

7 For fiscal year 2009-2010, there were twelve CSSAs: the Office of General Services, the Office of the State Comptroller, the Division of the Budget, the Office of Employee Relations, the Department of Law, the Division of Minority and Women Owned Businesses, Department of State, the Office for Technology, the Governor's Office of Regulatory Reform, Treasury Management, the Public Employment Relations Board, and the Office of the Inspector General. (See Buhr Aff., Ex. N 17303.)

20

of Budget Management for the New York State Department of Health, testified that the

definitions of indirect costs set forth in Circular A-87 and the Comptroller's Procedures Manual

are "generally the same" and that he applies those definitions during the course of his work at the

Department of Health. (Jd., Ex. Q, at 5, 17-26.) In addition, Mr. Cahill testified that he was not

"aware of any written memoranda or other material or guidelines that define[] indirect costs

differently from what is substantively set forth in [Circular] A-87." (Jd.)

Similarly, Ms. Fraser testified that the definitions of indirect costs set forth in Circular A-

87 and the Comptroller's Procedures Manual are consistent with the definition of indirect costs

she employs in her job. (Id., Ex. P, at 4-5, 37-43.) Ms. Fraser also testified that the term

"indirect costs" does not "have any other meaning in State budgeting and State accounting other

than what is identified [in the Comptroller's Procedures Manual]." (Jd., at 40.)

Defendants have thus acknowledged the existence and consistent application of the long­

standing and well-accepted definition of indirect costs throughout New York State government,

which this Court should, in tum, apply to determine what constitutes the operating expenses of

the Department. By contrast, the definition of indirect costs created by Defendants for purposes

of this litigation offers no meaningful limitation or standard to assist the Court in determining the

operating costs of the Department. If this Court were to accept Defendants' newly created and

practically meaningless definition, it would give the Defendants carte blanche to use the

Assessments for any purpose they could imagine. The Court should adopt the specific and

widely accepted definition that already exists and is in use for virtually all other budget purposes

in the State.

21

C. The Department has Little Input or Control Over Programs Deemed to be Direct Costs of the Department

That the Department has no input, let alone control, over the sub-allocated programs only

underscores the conclusion that those programs represent neither the direct nor the indirect costs

of the Department. The Division of Budget unilaterally dictates what programs are funded by

the Section 332 Assessments, and the Department has no oversight of the funds or how they are

expended, if at all.

Lori Fraser, the Department's Assistant Director of Administration and Operations, who

worked on budgeting, explained the process by which the Department develops and submits its

annual budget. Specifically, Ms. Fraser testified that the Department does not make the budget

requests for the sub-allocated programs and is not involved in the process at all. (Buhr Aff., Ex.

P, at 50.) Rather, the agencies that receive the sub-allocations make the budget request to the

Division of Budget. (Jd.) Indeed, the Department would not know about a program's inclusion

in its own budget until it received word from the Division of Budget that the program is to be

included. (Jd., at 53-54.)

In addition, the Department has no control over how the costs and expenses of the sub-

allocated programs are calculated and has no authority to approve or deny expenses associated

with the sub-allocated programs. This contrasts starkly with the Department's role in

administering expenditures associated with its own internal operations. For example, Ms. Fraser

explained the Department's process for approving expenses associated with the Department's

own operations (i.e. programs that have not been sub-allocated to another agency). The

Department's Administrative Bureau and Executive Staff review expense requests submitted by

the Department bureau chiefs from the bureau where the request originated. (Jd., at 64-65.) If a

22

request is approved, a purchase order authorizing the expense is issued. (Id.) Once the money is

spent, the expenditure is recorded and booked against the relevant appropriation. (Id., at 66.)

By contrast, the Department has no role when there is a request for an expenditure within

a sub-allocated program. For example, Ms. Fraser could not explain how purchase requests were

administered for the Newborn Screening Program (a sub-allocated program), because the

Department was not involved in that process. (Id., at 66-67.) Rather, a purchase request under

the Newborn Screening Program would be generated and administered by the Department of

Health. (Id., at 67.) More broadly, Ms. Fraser confirmed that no one within the Insurance

Department reviews or approves spending requests from a sub-allocated program. (Id., at 67-

68.)

The Department's lack of involvement in or control over the sub-allocated programs

makes clear that the cost of those programs represents neither the direct nor the indirect costs of

the Department.

III. THE INCREASED SECTION 332 ASSESSMENTS CONSTITUTE TAXES AND VIOLATE THE NEW YORK STATE CONSTITUTION

The portion of the increased Assessments used to fund programs other than the operating

expenses of the Department constitute taxes, rather than regulatory fees, for "[ w ]hen all is said

and done, [the Assessments are] a compUlsory contribution for the purpose of defraying the cost

of government." Am. Ins. Assoc. v. Lewis, 50 N.Y.2d 617, 623 (1980) (citations omitted)

(holding that required contributions to insurance industry pool to subsidize certain insurance

coverage, and related caps on such contributions, were taxes, rather than "charges in the nature

of license fees"). And because no law has "distinctly stated" the Assessments as taxes, or the

object to which they are to be applied, the Assessments violate the New York State Constitution.

23

A. The Assessments Now Pay for Programs Previously Funded by the General Fund or Other Broad-Based Funding Sources

Defendants now routinely use the Assessments to pay for programs that were previously

funded through broad-based funding sources such as the General Fund or Health Care Reform

Act ("HCRA"). For example, Governor Paterson proposed, in his 2008-09 Deficit Reduction

Plan, shifting programs such as Timothy's Law, Early Intervention, and other public health care

programs, which had previously been funded from the General Fund and/or assessments imposed

by HCRA, to the Department's Special Revenue Regulation Account. See S.249/A.162, N.Y.

2009; Buhr Aff., Ex. N, at 3941-42,30101-30102; Macielak Aff., ~ 23.

Ultimately, the Deficit Reduction Plan enacted by the Legislature directed that the

increased assessments pay for the Healthy New York Program, the HMO Direct Pay Market

Program, and the Entertainment Employee Industry Pilot Program, and eliminated HCRA

funding for these programs. See Chs. 1 and 2 of 2009. Despite the fact that these programs had

been administered historically by the Department of Health, they were, nevertheless, moved to

the Insurance Department's budget. Chapter 1 of 2009 also adjusted the Department's budget to

create an appropriation for each of these programs. Id.; Macielak Aff., ~~ 24-25.

Before the Healthy New York and HMO Direct Pay programs were shifted to the

Department and funded by the Section 332 Assessments in fiscal year 2008-2009, these

programs were funded under HeRA, a broad-based funding source that included, among other

things, assessments on hospitals and cigarette taxes. The shift of these programs to the

Department and the Section 332 Assessments, which is a very narrow funding source consisting

solely of certain New York insurance companies, creates an absurd result. That is, the programs

were created to subsidize insurance premiums from broad-based funding sources, so that health

24

insurers could keep those premiums affordable for low-income individuals and small businesses.

(Macielak Aff., ~ 26.)

With the switch, however, the health insurers subject to the Section 332 Assessments are

now funding their own subsidies. As a result, premiums increase because the subsidies that were

once supported by broad-based funding are now paid for solely by those companies paying the

Section 332 Assessments. The subsidies are reduced and the whole point of the programs

defeated. (Macielak Aff., ~ 27.) Moreover, while the Department administers these programs,

the fact that they were previously funded by broad-based revenue sources, rather than the

Assessments, illustrates why these programs represent neither the operating expenses nor the

direct costs ofthe Department but, rather, a tax. See discussion supra Point III.B.

Similarly, as part of the 2009-10 budget, the Governor proposed shifting the costs of the

tobacco control program, various public health programs, the Early Intervention Program, and

certain other HCRA programs, in addition to Healthy New York Program, the HMO Direct Pay

Market Program, and the Entertainment Employee Industry Pilot Program, to the Department of

Insurance Operating Account. Ultimately, the enacted budget shifted only the Healthy New

York Program, the HMO Direct Pay Market Program, and the Entertainment Employee Industry

Pilot Program to the Department, with the expectation that these programs would be funded by

the 332 Assessment. See Chs. 54 and 58 of 2009. This resulted in a $200 million increase to the

332 Assessment for the 2009-10 fiscal year. Id.; Macielak Aff., ~ 28.

B. Since 2009, Portions of the Assessments Have Been "Swept" Into the General Fund

As described in detail above, between 2009 and 2011, nearly $90,000,000 has been

transferred from the sub-allocated accounts at issue to the New York State General Fund. See

supra note 6; Buhr Aff., Ex. 0, l(d); Macielak Aff., ~ 21, n.4. These so-called "sweeps" were

25

authorized by a series of budget laws, despite the fact that Section 332(b) provides that "[a]ny

overpayment of annual assessment resulting from complying with the requirements of this

subsection shall be refunded or at the option of the assessed applied as a credit against the

assessment for the succeeding year." N.Y. Ins. Law § 332(b).

Not only do these sweeps run counter to the historical practice of returning overpayments

to those paying the Assessments, they underscore the conclusion that the Assessments are now

viewed simply as a source of general revenue to fund programs that have little, if anything, to do

with the operations of the Department.

C. The Portion of the Assessments Used to Fund Programs Other than the Operating Expenses of the Department Constitute Taxes

San Juan Cellular Tel. Co. v. Pub. Servo Comm 'n of P.R. analyzed the difference between

a tax and a regulatory fee. 967 F.2d 683 (lst Cir. 1992). The court described a "tax" as being

"imposed by a legislature upon many, or all, citizens. It raises money, contributed to a general

fund, and spent for the benefit of the entire community." Id at 685 (citations omitted). In

contrast, the court explained that "regulatory fee[ s]" are "imposed by an agency upon those

subject to its regulation" for regulatory purposes. Id (citations omitted) These purposes could

be served "directly by, for example, deliberately discouraging particular conduct by making it

more expensive" or "indirectly by, for example, raising money placed in a special fund to help

defray the agency's regulation-related expenses." Id(citations omitted).

Similarly, the Second Circuit has noted that '''[a]ssessments which are imposed primarily

for revenue-raising purposes are 'taxes,' while levies assessed for regulatory or punitive

purposes, even though they may also raise revenues, are generally not 'taxes. "" Travelers Ins.

CO. V. Cuomo, 14 F.3d 708, 713 (2d Cir. 1993), rev'd on other grounds sub nom. N.Y. State

26

Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645 (1995)

(quoting Butler v. Me. Supreme Judicial Court, 767 F. Supp. 17, 19 (D. Me. 1991)).

The Second Circuit has also acknowledged that, in evaluating whether an assessment

should be deemed a tax, courts generally "emphasize the revenue's ultimate use, asking whether

it provides a general benefit to the public, of a sort often financed by a general tax, or whether it

provides more narrow benefits to regulated companies or defrays the agency's costs of

regulation." Id. (quoting San Juan Cellular, 967 F.2d at 685). This analysis is particularly

relevant when the payment at issue has elements of both a tax and a regulatory fee. See

generally, Valero Terrestrial Corp. v. Caffrey, 205 F.3d 130, 134 (4th Cir. 2000) (describing

similar factors to consider in determining if a charge is a fee or a tax: "(1) what entity imposes

the charge; (2) what population is subject to the charge; and (3) what purposes are served by the

use of the monies obtained by the charge.").

Intervenor-Plaintiffs do not dispute that the portion of the 332 Assessments that actually

funds the Department's operating expenses should be regarded as a regulatory fee. Applying the

analysis set forth in San Juan Cellular, however, the recent increases to the Assessments are not

used to defray the costs of the Department's operating expenses, but rather, to fund programs

that were previously supported by HCRA assessments and/or the General Fund, and that bear no

relation to the operating costs of the Department. Significantly, a New York federal court

concluded in 2000 that "HCRA surcharges serve general revenue raising purposes and therefore

constitute 'taxes' for the purposes of the [federal Tax Injunction Act]." United Food &

Commercial Workers Unions & Food Emps. Benefit Fund v. DeBuono, 101 F. Supp. 2d 74, 78

(N.D.N.Y. 2000).

27

In addition, Assessment overpayments are now routinely "swept" into the General Fund.

See supra note 6. See also Entergy Nuclear Vt. Yankee, LLC v. Shumlin, 2012 WL 5285390, at

*6 (D. Vt. Oct. 25,2012) (holding that Vermont's Electrical Energy Generating Tax is a tax for

purposes of federal Tax Injunction Act and noting "'[n]otwithstanding the primary purposes

ascribed to [assessments] by the State,' those that 'raise revenue which is ultimately paid into the

State's general fund . . . serve general revenue-raising purposes [and thereby] constitute

'taxes."") (quoting Travelers, 14 F.3d at 713); People v. Brooklyn Garden Apts., 283 N.Y. 373,

380-81 (1940) ("A tax in the strict sense is payable into the general fund of the government to

defray customary governmental expenditures.") (citation omitted)); New York Telephone Co. v.

City of Amsterdam, 200 A.D.2d 315, 318 (3d Dep't 1994) ("taxes are burdens of a pecuniary

nature imposed for the purpose of defraying the costs of government services generally ... ").

A recent Third Department case involved a claim that the annual assessment charged by

the Banking Department to mortgage banks to cover the cost of regulating such banks constituted

an unconstitutional tax. The court, in Homestead Funding Corp. v. State Banking Dept.,

concluded that the Banking Department assessment was a fee, rather than a tax, because "the

purpose of the assessments was to recover the Department's expenses related to regulating banks

from the banks that are regulated, 'not to raise revenue for the support of government

generally.'" 95 A.D.3d 1410, 1411 (3d Dep't 2012) (quoting Am. Ass'n of Bioanalysts v.

Axelrod, 106 A.D.2d 53,56 (3d Dep't 1985), appeal dismissed 65 N.Y.2d 847 (1985)).

But the operating expenses at issue in Homestead Funding were far more limited than

those at issue here. For example, the Homestead Funding court noted that "[c]ontrary to

petitioner's argument, expenses by ancillary divisions, such as legal services, consumer services

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and information technology, are incurred by the Department indirectly in connection with the

supervision of licensed entities ... " 95 A.D.3d at 1411.

Here, however, the Department has imposed upon Intervenor-Plaintiffs the cost of a

whole host of programs that had previously been administered by other agencies, as well as a

variety of other programs that cannot fairly be said to represent the "operating costs" of the

Department. This distinguishes the instant case from Homestead Funding, and underscores the

conClusion that the 332 Assessment has evolved from a regulatory fee into an unconstitutional

tax.

D. The Increased Assessments Used to Fund Programs Other than the Operating Expenses of the Department Violate Article III, Section 22 of the New York State Constitution

Article III, Section 22 of the New York State Constitution requires that "[e]very law

which imposes, continues or revives a tax shall distinctly state the tax and the object to which it

is to be applied, and it shall not be sufficient to refer to any other law to fix such tax or object."

N. Y. Const. art. III, § 22. But the statutes that authorized the increased Assessments have not

amended Section 332, nor have the relevant budget laws distinctly stated the tax to be imposed

or identified any object for an existing tax. Accordingly, to the extent Section 332 (or the related

legislation at issue here) is interpreted to authorize sub-allocations to pay for programs unrelated

to the operating expenses of the Department, such an authorization would constitute an

unconstitutional tax in derogation of the requirements of Article III, Section 22 of the New York

State Constitution.

IV. THE ASSESSMENTS ARE AN UNCONSTITUTIONAL DELEGATION OF LEGISLATIVE POWER TO THE SUPERINTENDENT

The Department has implemented Section 332 so as to include in the Assessments

expenses unrelated to the operation of the Department and that do not provide a benefit to the

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Intervenor-Plaintiffs. The portions of the increased Assessments that fund these unrelated

expenses constitute taxes. See Point III, supra. To the extent Defendants seek to justify these

taxes by arguing that Section 332, or some other legislation, delegates authority to the

Department to fix Assessments beyond what is necessary to pay for the operation of the

Department (i.e. to implement a tax), any such claimed authority would constitute an

unconstitutional delegation of legislative power.

"The power to tax is vested exclusively in the Legislature, which power may not be

delegated to an administrative agency. Only after the Legislature has, by clear statutory

mandate, levied a tax on a particular activity, and has set the rate of that tax, may it delegate the

power to assess and collect the tax to an agency. Further, this delegation must be accompanied

by proper guidelines set by the Legislature." Yonkers Racing Corp. v. State, 131 A.D.2d 565,

566 (1987) (citations omitted); see N.Y. Const., ali. III, § 1.

Here, there has been no "clear statutory mandate" to levy a tax on the insurance industry

to pay for the general expenses of the State Government. Nor has any such delegation been

"accompanied by proper guidelines set by the Legislature." Yonkers Racing, 131 A.D.2d at 566.

Any claim that the Legislature'S delegation of authority to the Depaliment justifies the increased

Assessments at issue should be rejected, as any such delegation would be unconstitutional.

V. THE MISUSE OF THE 332 ASSESSMENTS VIOLATES THE EQUAL PROTECTION CLAUSE OF THE NEW YORK STATE AND UNITED STATES CONSTITUTIONS

Article I, Section 11 of the New York State Constitution provides that "[n]o person shall

be denied the equal protection of the laws of this state or any subdivision thereof." N.Y. Const.

art. I, § 11. Similarly, the Fourteenth Amendment to the United States Constitution provides that

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no "State shall ... deny to any person within its jurisdiction the equal protection of the laws."

U.S. Const. amend. XIV, § 1.

Courts have interpreted these provisions to require that '''persons similarly situated ... be

treated alike.'" Matter of Walton v. NY State Dept. of Carr. Servs., 13 N.Y.3d 475,492 (2009)

(quoting City of Cleburne v. Cleburne Living Ctr., Inc., 473 U.S. 432, 439 (1985)).

Classifications that distinguish between similarly situated individuals must be struck down

unless they are rationally related to a legitimate government interest. Id. See also Igoe v. Pataki,

182 Misc. 2d 298, 310 (1999), aff'd, 265 A.D.2d 151 (1st Dep't 1999), aff'd as modified, 94

N.Y.2d 577 (2000) (holding that classifications based on factors other than race, national origin,

or gender must be rationally related to a legitimate government interest and are unconstitutional

if "the varying treatment of different groups or persons is so unrelated to the achievement of any

combination of legitimate purposes that [the only reasonable conclusion is] that the legislature's

actions were irrational.") (internal quotation marks and citation omitted)); Foss v. City of

Rochester, 65 N.Y.2d 247, 254, 257 (1985) (holding that "[t]he integrity of any system of

taxation[] rests upon the premise that similarly situated taxpayers pay the same share of the tax

burden" and that "[t]he classification violates constitutional equal protection guarantees ... if the

distinction between the classes is 'palpably arbitrary' or amounts to 'invidious discrimination. "')

(citations omitted)).

Here, the 332 Assessments are collected only from domestic insurance companies, while

insurers domiciled outside of New York State are not subject to this expense. In addition, as

demonstrated above, the recent increases to the Assessments constitute taxes, and there is no

rational basis to discriminate against New York insurance companies by taxing only domestic

insurers but not foreign insurers.

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Finally, the sub-allocations and programs unrelated to the direct and indirect operating

expenses of the Department benefit the general public and are not rationally related to a

legitimate governrnent interest in the regulation of insurance. There is no rational basis for

singling out the Intervenor-Plaintiffs, as opposed to the general public, or another industry or

industries, to fund hundreds of millions of dollars in sub-allocations and programs unrelated to

the regulation of insurers generally andlor health insurance specifically.

VI. THE MISUSE OF THE 332 ASSESSMENTS VIOLATES INTERVENOR­PLAINTIFFS' RIGHTS TO SUBSTANTIVE DUE PROCESS

Article I, Section 6 of the New York State Constitution provides that "[ n]o person shall

be deprived of life, liberty or property without due process of law." N.Y. Const. art. I, § 6. The

Fourteenth Amendment to the United States Constitution provides that:

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

U.S. Const. amend. XIV, § 1.

Both Constitutional provisions provide substantive and procedural due process

protections to persons, including the Intervenor-Plaintiffs. Here, the Section 332 Assessments

are being used to take the funds of one class, i.e. domestic insurance companies, for the private

benefit of other classes of persons, with no reasonable relationship between the intended

beneficiaries of the Assessments and the insurers on whom the Assessments are imposed. To the

extent the Section 332 Assessments exceed the direct and indirect operational expenses of the

Department and are used for programs that benefit other private individuals or entities, they are

unreasonable, arbitrary and capricious, and a violation of the substantive due process rights of

the Intervenor-Plaintiffs.

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In addition, the retroactive nature of the increased Section 332 Assessments imposed

beginning in 2004 violated Intervenor-Plaintiffs' right to substantive due process. When the

Intervenor-Plaintiffs were negotiating rates and contracts with their insureds, they relied on the

fact that the Assessments had been used primarily to fund the operating expenses of the

Department, and that such assessments would not suddenly increase in order to pay for non­

operational expenses of the Department. The Assessments increased beginning in 2004, and

dramatically so in 2009, to include expenses that had nothing to do with the operating expenses

of the Department, and thus amount to a retroactive tax increase that violated Intervenor­

Plaintiffs' substantive due process rights.

Governor Patterson's Deficit Reduction Plan, which was adopted in February 2009,

imposed on the Department the cost of programs that were initially budgeted as expenses of the

Department of Health for the 2008-09 State Fiscal Year. As a result, the Department issued

Section 332 Assessments in 2009 to collect funds to pay for 2008-09 appropriations. Such

assessments were thus imposed retroactively against Intervenor-Plaintiffs - well after they had

set their premiums for both 2008 and 2009.

The Court of Appeals recently reviewed the test for determining whether a retroactive tax

violates Due Process. In James Square Assocs. LP v. Mullen, 21 N.Y.3d 233 (2013), the Court

noted that the "focus of the three-pronged test is fairness," and evaluated the retroactive

application of amendments to the State Empire Zones Program, which resulted in the loss of

plaintiffs' tax benefits. 21 N.Y.3d at 248. First, the court considered plaintiffs' "forewarning of

a change in the legislation and the reasonableness of his reliance on the old law" and concluded

that "the plaintiffs had no warning and no opportunity at any time in 2008 to alter their behavior

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in anticipation of the 2009 Amendments [to the Empire Zones Program]." Id. (internal quotation

marks and citation omitted).

Here too, Intervenor-Plaintiffs had no opportunity to alter their behavior in response to

the dramatic increase in the 2008-09 Section 332 Assessments.

The second factor considered in James Square Associates is the length of the

retroactivity, and the Court of Appeals held that a period of retroactivity of"16 or 32 months ...

should be considered excessive and weighs against the State." Id. at 249.

Here, while the period of retroactivity associated with imposition of the 2008-09

Assessments is less than the 16 or 32 months at issue in James Square Associates, the retroactive

effect of the increased Assessments cannot be disputed.

Finally, the James Square Associates court found the third factor - whether there was a

"valid public purpose" for the retroactive application - to be dispositive. Id. The court held that

the "legislature did not have an important public purpose to make the law retroactive." Id.

Significantly, the court noted that one of the Legislature's main purposes was to "increase tax

receipts," but court concluded that "raising money for the state budget is not a particularly

compelling justification." Id. at 250.

Here too, there seems to have been little motivation for the dramatic increases in the

2008-09 Assessments other than raising money for the state budget. Indeed, the legislation at

issue in James Square Associates was passed in early 2009, during the midst of a State budget

crisis and at about the same time the Deficit Reduction Plan authorized dramatic increases in the

Section 332 Assessments. Id. at 241. The motivation for the dramatic increases in the

Assessments thus seems clearly to have been "raising money for the state budget," rather than

raising money to fund the operating expenses of the Department.

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VII. THE MISUSE OF THE ASSESSMENTS CONSTITUTES THE UNCONSTITUTIONAL TAKING OF PLAINTIFFS' PROPERTY WITHOUT DUE PROCESS OF LAW

Insurance Law Section 332(b) provides that "[a]ny overpayment of annual assessment

resulting from complying with the requirements of this subsection shall be refunded or at the

option of the assessed applied as a credit against the assessment for the succeeding fiscal year."

N.Y. Ins. Law § 332(b). Recently, however, such overpayments have been "swept" into the

General Fund to pay for programs unrelated to the operating expenses of the Department and for

the private benefit of other classes of persons. 8 These transfers constitute an unconstitutional

confiscation of the Intervenor-Plaintiffs' property without just compensation.

Article I, Section 7(a) of the New York State Constitution provides that "[p]rivate

property shall not be taken for public use without just compensation." N.Y. Const. art. I, § 7(a).

The Fifth Amendment to the United States Constitution, as applied to the State by the Fourteenth

Amendment, provides that ". . . private property [ shall not] be taken for public use, without just

compensation." U.S. Const. amend. V.

The just compensation clause was designed to prevent the government "from forcing

some people alone to bear public burdens which, in all fairness and justice, should be borne by

the public as a whole." Armstrong v. Us., 364 U.S. 40,49 (1960). This right applies to both

real and personal property. See Phillips v. Washington Legal Foundation, 524 U.S. 156, 172

(1998) (holding that interest earned on client funds held in lawyers' trust accounts was the

"private property" of either the client or the attorney for purposes of the takings clause of the 5th

Amendment).

8 See supra note 6; Macielak Aff., ~ 22, n.4.

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While there is no rigid test to determine when governmental action constitutes a taking,

the Supreme Court has developed certain factors to be considered in a case-by-case

determination of whether a taking under the just compensation clause has occurred: (1) the

character of the governmental action in question; (2) the severity of the economic impact of

government regulation on the party who claims a taking; and (3) the extent to which the

regulation has interfered with the property owner's reasonable investment-backed expectations.

Penn Cent. Transp. Co. v. N.YC, 438 U.S. 104,123 (1978).

Here, the governmental action at issue is the use of the Section 332 Assessments for

programs that have little or nothing to do with the operating expenses of the Department, or that

transfer Section 332 overpayments to pay for programs previously paid by the General Fund or

other broad-based funding source. That is, Defendants are forcing Intervenor-Plaintiffs to bear a

disproportionate share of public burdens that should be borne by the public as a whole. The

severity of the impact of the governmental action being challenged is significant, with payment

for programs unrelated to the operating expenses of the Department and sweeps of Section 332

overpayments into the General Fund totaling hundreds of millions of dollars. Finally, while

Intervenor-Plaintiffs have long understood and accepted their obligation to pay for the operating

expenses of the Department, the recent increases in the Section 332 Assessments far exceed

those expenses and thus have interfered with Intervenor-Plaintiffs' expectations regarding their

obligations under Section 332.

CONCLUSION

For the foregoing reasons, as well as those set forth in the papers submitted with this

Memorandum of Law and the documents contained therein, as well as the reasons set forth in the

Motion for Summary Judgment submitted by the Plaintiffs, the Intervenor-Plaintiffs respectfully

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request that their motion for summary judgment be granted and that this Court award judgment

to Intervenor-Plaintiffs:

1. Granting judgment in favor ofIntervenor-Plaintiffs on each of the causes of action

alleged in their Second Amended Complaint;

2. Permanently enjoining and restraining Defendants from continuing to include

costs unrelated to the direct and indirect operating expenses of the Department in

the Section 332 Assessments;

3. Ordering Defendants to refund to Plaintiffs and Intervenor-Plaintiffs, including all

insurance companies represented at any time since 2008 by HP A, all assessments

imposed upon them from 2008 to the present, and continuing through final

judgment, that exceed the direct and indirect operating expenses of the

Department;

4. Awarding interest on all such refunds from the date of payment; and

5. Granting costs, disbursements, and attorney's fees, along with such other and

further relief as to this Court may seem just and proper.

Dated: Albany, New York November 22,2013

ALB 1722559v5

By:

G~y~=_P __ _ Harold N. Iselin Stephen M. Buhr Attorneys for Intervenor-Plaintiffs 54 State Street, 6th Floor Albany, New York 12207 Tel: (518) 689-1400 Fax: (518) 689-1499

37