The opinion
This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 98
Excess Line Association of New
York (ELANY),
Appellant,
v.
Waldorf & Associates, et al.,
Respondents,
et al.,
Defendants.
David B. Hamm, for appellant.
Michael D. Brown, for respondents.
STEIN, J.:
On this appeal, we are asked to decide whether Excess
Line Association of New York (ELANY) -- a legislatively created
advisory association under the supervision of the Department of
Financial Services (DFS) -- has capacity to sue its members to
recover fees that it is statutorily authorized to receive, and to
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compel an accounting to determine amounts allegedly owed. We
hold that it does not.
-I-
Excess line insurance policies are issued by foreign
insurers not authorized to do business in this state. Such
policies are procured by licensed excess line brokers to cover
risks that authorized carriers will not insure. As relevant
here, the Insurance Law requires excess line brokers to remit to
DFS taxes on excess line insurance premiums charged, submit to
ELANY a document containing basic information for each excess
line policy brokered, and pay to ELANY a stamping fee that is
calculated based upon the policy's premium (see Insurance Law §§
2118 [b] [1], [b] [3], [d]; 2130 [f]).
ELANY was created as an "advisory" association,
pursuant to Insurance Law § 2130 (a), in order to facilitate
compliance with the many filing and record keeping requirements
for excess line brokers contained in the Insurance Law (L 1998,
ch 630, § 1). "All excess line licensees shall be deemed to be
members of [ELANY]" (Insurance Law § 2130 [a]). Under ELANY's
enabling statute, it is required to "perform its functions under
[a] plan of operation . . . approved [by DFS]" and to "be
supervised by [DFS]" (id.). Section 2130 enumerates ELANY's
limited powers and duties, which include the authority and
obligation to receive, record, and stamp all excess line
insurance documents filed by excess line brokers. The stamping
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fees required to be paid by members that submit excess line
insurance documents to ELANY are ELANY's sole source of funding
(see id. § 2130 [f]). ELANY's plan of operation provides that
"[a]ny member who is more than 30 days delinquent in the payment
of [stamping] fees may be reported to [DFS] . . . [and] any
delinquency of more than 60 days shall be reported to
[DFS] . . . " (see also 11 NYCRR 27.7 [a] [2] [requiring ELANY to
submit bi-monthly reports identifying excess line brokers that
failed to comply with any part of the excess line regulations or
Insurance Law § 2118]).
Defendants are a third-generation, family-owned and
operated insurance brokerage firm and consortium which, for many
years, operated an "independent" or "direct" placement insurance
program involving placement of insurance directly with syndicates
at Lloyd's of London. In 2010, defendants sought review and
approval of their direct placement program by the Department of
Insurance (now DFS and, collectively, the "Department"). The
Department determined that certain of the placements should have
been classified as excess line placements, subject to the premium
tax required by Insurance Law § 2118 and the accompanying
regulations (11 NYCRR 27 [Regulation 41]). Defendants
subsequently entered into a settlement agreement with the
Department, pursuant to which defendants agreed to pay
approximately $3.4 million in premium taxes, penalties and
interest for placements made from 1995 through 2009. Defendants
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also agreed to operate the Lloyd's of London direct placement
program as an excess line program commencing in 2010. The
agreement provided that full compliance with these obligations
would
"be accepted by the Department in full settlement of
[defendants'] premium tax liability . . . [and] in lieu of
any disciplinary action that could be taken by the
Department against [defendants] . . . in connection with
the failure to pay premium taxes or otherwise comply with
the provisions of Section 2118 of the Insurance Law and
Department Regulation 41."
The agreement did not require defendants to pay ELANY the
stamping fees associated with the improperly classified insurance
placements.
In 2011, ELANY commenced the instant action against
defendants seeking, among other things, to recover stamping fees
for excess line policies allegedly procured from 1989 through
2011 and to enforce its purported right to conduct an examination
and accounting pursuant to the Insurance Law. Supreme Court
granted defendants' motions to dismiss, concluding that ELANY
lacked capacity to sue (see 40 Misc 3d 759 [Sup Ct, Suffolk
County 2013]). On ELANY's appeal, the Appellate Division
affirmed, reasoning that "[c]ontrary to ELANY's contention, none
of the provisions of the [ELANY enabling] statute confers upon it
by necessary implication the capacity to sue to enforce the
provisions of the Insurance Law" (130 AD3d 563, 565 [2d Dept
2015]). We granted ELANY leave to appeal (27 NY3d 901 [2016]).
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-II-
This Court has explained that "[c]apacity to sue is a
threshold question involving the authority of a litigant to
present a grievance for judicial review" (Matter of Town of
Riverhead v New York State Bd. of Real Prop. Servs., 5 NY3d 36,
41 [2005]). Capacity is examined with a view towards the relief
sought (see Matter of Graziano v County of Albany, 3 NY3d 475,
480 [2004]), and is often at issue where, as here, governmental
entities seek to bring suit (see Matter of Town of Riverhead, 5
NY3d at 41). "Being artificial creatures of statute, such
entities have neither an inherent nor a common-law right to sue.
Rather, their right to sue, if it exists at all, must be derived
from the relevant enabling legislation or some other concrete
statutory predicate" (Community Bd. 7 of Borough of Manhattan v
Schaffer, 84 NY2d 148, 155-156 [1994]). However, while the right
must be derived from statute, "[a]n express grant of authority is
not always necessary," and "capacity may be inferred as a
necessary implication from the powers and responsibilities of a
governmental entity, 'provided, of course, that there is no clear
legislative intent negating review'" (Matter of Town of
Riverhead, 5 NY3d at 42, quoting Community Bd. 7, 84 NY2d at
156).
In Community Bd. 7, this Court addressed whether a
legislatively created community board had capacity to maintain a
CPLR article 78 proceeding challenging a Freedom of Information
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Law determination denying it access to certain documents (84 NY2d
at 154). The board's statutorily imposed responsibilities
included studying proposed changes in land use and making
recommendations regarding such proposals to city officials (see
id. at 152). We held that the board's lack of capacity could be
"readily . . . inferred" from its limited role in the land use
planning process and "the terms and history of its own enabling
legislation" (id. at 157). There, the City Charter's Uniform
Land Use Review Procedure provisions and their accompanying
regulations specifically delineated documents to be used by the
board and did not provide the board with any subpoena power,
despite a study group's recommendation that the power to subpoena
be conferred (id.). Moreover, this Court rejected the contention
that the power to bring the proceeding was derived by "necessary
implication" from the board's responsibilities, "which [were]
purely advisory in nature" (id. at 159).
As in Community Bd. 7, the enabling statute at issue
here does not expressly authorize the entity asserting capacity
-- i.e. ELANY -- to sue for the relief sought (see Insurance Law
§ 2130). While the legislative history does not indicate -- as
it did in Community Bd. 7 -- that the legislature considered and
expressly rejected granting ELANY the capacity to sue to collect
the stamping fees, the legislative history also does not provide
any affirmative suggestion that the legislature intended to give
ELANY capacity to sue. Therefore, we rely primarily on the
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statutory scheme, as well as ELANY's own plan of operation.
As the courts below concluded, the statutory scheme
evinces the legislature's intent that DFS be the primary enforcer
of the Insurance Law and corresponding regulations (see Insurance
Law § 109). With regard to excess line broker licenses
specifically, the legislature gave DFS the authority to "suspend
or revoke" such licenses as DFS believes "will best promote the
interests of the people of this state" (id. § 2105 [a]). In
addition, the legislature empowered DFS to impose various
statutorily established monetary penalties which, if not paid,
may be enforced by a civil action in court (see id. § 109 [c],
[d]). The legislature also provided insureds aggrieved by
certain specific conduct with private rights of action against
agents and brokers (see e.g. id. § 2123 [d]).
In stark contrast to DFS's broad, explicit enforcement
function, "ELANY's principal role is to act as a record keeper
for excess line transactions" (Matter of Excess Line Assn. of
N.Y. v Curiale, Sup Ct, NY County, Mar 25, 1994, Huff, J., index
No. 134460/93, affd on mem below 209 AD2d 365 [1st Dept 1994]).
The statutorily enumerated powers of ELANY relate to record
keeping and education, rather than regulatory enforcement (see
Insurance Law § 2130 [a]). Under these circumstances, a right to
sue cannot be "derived from [ELANY's] enabling legislation or
some other concrete statutory predicate" (Community Bd. 7, 84
NY2d at 156).
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While section 2130 does designate ELANY as the
recipient of the stamping fees, we reject ELANY's contention that
capacity to sue for recovery of such fees can be inferred as a
"necessary implication" from its responsibilities (Matter of City
of New York v City Civ. Serv. Commn., 60 NY2d 436, 444 [1983]).
Critically, ELANY is both supervised by DFS and required to
"perform its functions" pursuant to a plan of operation approved
by DFS (Insurance Law § 2130). That plan expressly establishes a
method of enforcing the payment of stamping fees -- the relief
that ELANY seeks here -- by providing that, when such fees go
unpaid, ELANY's remedy is to report the matter to DFS. In other
words, DFS has not authorized ELANY to seek recovery of unpaid
stamping fees through a plenary action. Instead, the plan of
operation -- which governs the scope of ELANY's authorized
activities -- limits ELANY's remedy to reporting violations to
DFS, further supporting the conclusion that ELANY does not have
implied capacity to sue for the relief sought.1
Finally, the legislative history of the statute
creating ELANY demonstrates that the legislature characterized
ELANY as an "advisory association," not a regulator (L 1988, ch
630, § 1). Nor does the plan of operation indicate that DFS has
1
The parties apparently agree that DFS could, if it wished
to do so, approve an amendment to the plan of operation to allow
ELANY to enforce the obligation of its members to pay stamping
fees, subject to DFS's supervision. Under the circumstances
here, we need not pass on the accuracy of this proposition.
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found it necessary, in order for ELANY to carry out its advisory
function, to "accord[] [ELANY] the right to [enforce the payment
of stamping fees] through a plenary judicial proceeding"
(Community Bd. 7, 84 NY2d at 159). In short, the authority that
ELANY urges this Court to recognize is negated by the nature of
the responsibilities conferred upon ELANY, as established by the
statutory structure, legislative history, and ELANY's plan of
operation. Therefore, the courts below correctly concluded that
capacity to sue cannot be inferred here.
In view of the foregoing, ELANY's remaining contentions
are academic. Accordingly, the order of the Appellate Division,
insofar as appealed from, should be affirmed, with costs.
* * * * * * * * * * * * * * * * *
Order, insofar as appealed from, affirmed, with costs. Opinion
by Judge Stein. Chief Judge DiFiore and Judges Fahey, Garcia,
Wilson and Feinman concur. Judge Rivera took no part.
Decided October 19, 2017
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