OGC Opinion No. 09-08-02

The Office of General Counsel issued the following opinion on August 5, 2009 representing the position of the New York State Insurance Department.

RE: Acceptance of Third-Party Subpoena by the Superintendent

Question Presented:

May the Superintendent accept service of a subpoena on an authorized insurer when the insurer is not a defendant in the underlying legal action (“a third-party subpoena”)?

Conclusion:

No. The Superintendent is not authorized to accept such a subpoena, because N.Y. Ins. Law § 1212 only requires an insurer to appoint the Superintendent to accept lawful process on its behalf when such process is associated with an action against the insurer.

Facts:

Pursuant to a longstanding interpretation of the Insurance Law, the Department returned a subpoena duces tecum that it received, supposedly on behalf of ABC Insurance Company, because the insurer was not a defendant in the underlying legal action. The inquirer asserts that the Superintendent may accept the subpoena. The inquirer asserts that N.Y. Civil Practice Law and Rules (“CPLR”) § 2303 states that a “subpoena duces tecum shall be served in the same manner as a summons,” and that, pursuant to Insurance Law § 1212, a summons may be served upon the Superintendent of Insurance on behalf of an authorized insurer.

Analysis:

Insurance Law § 1212(a), which derives from Section 59 of the Insurance Law of 1939 without significant modification, is relevant to the inquiry. That statute requires authorized insurers and fraternal benefit societies to file with the Superintendent a power of attorney authorizing the Superintendent to accept service on the insurer’s behalf in any action against the insurer. The statute reads as follows:

The inquirer relies on the statute’s use of the phrase “on a cause of action” to assert that the Superintendent may accept a third-party subpoena. But that phrase must be read in conjunction with the rest of the statutory provision, which clearly limits the Superintendent’s authority to accepting lawful process in a proceeding against the insurer that is (1) on a contract delivered or issued for delivery in this state, or (2) on a cause of action arising in this state. Thus, in context, the “cause of action” phrase is limited to causes of actions in proceedings brought against the insurer. Such a reading is consistent with the Department’s longstanding interpretation of the statute and its predecessors. See Opinion of the Office of General Counsel (“OGC”) dated June 18, 1952.

The doctrine of the last antecedent confirms the Department’s reading of the statute. According to that canon of statutory interpretation, “relative and qualifying words, phrases and clauses are to be applied to the words or phrases immediately preceding and not to be construed as extending to or including others more remote . . . .” McKinney’s Cons. Laws of NY, Book 1, Statutes § 254. Here, the phrase “in any proceeding against it” acts to limit the phrase “all lawful process.” Thus, the only lawful process that the insurer must authorize the Superintendent to accept pursuant to Insurance Law § 1212 is such process connected with an action against an insurer, whether the action concerns a contract or another cause of action.

Further, contrary to the inquirer’s assertions, CPLR § 2303, which states that “a subpoena requiring attendance or a subpoena duces tecum shall be served in the same manner as a summons,” does not enlarge the authority given the Superintendent by an authorized insurer pursuant to Insurance Law § 1212. CPLR § 2303 simply provides that such a subpoena must be served in the same manner as a summons. CPLR § 311(a)(1), which sets out the method for serving a summons on a corporation, states that a summons may be served on a corporation by delivering it “to an officer, director, managing or general agent, or cashier or assistant cashier or to any other agent authorized by appointment or by law to receive service.” In that the Superintendent’s appointment is limited to accepting legal process connected with an action against an insurer, the Superintendent is not authorized to accept third-party subpoenas on an insurer.

Even if Insurance Law § 1212 were inconsistent with CPLR § 311(a)(1), such inconsistency would not expand the proper construction of Insurance Law § 1212. Indeed, in Horowitz v. Village of Roslyn, 144 A.D.2d 639 (2d Dep’t 1988) the court noted a canon of construction that “where a specific statute is inconsistent with a statute general in nature[,] the former governs.” Id. at 640. Thus, given the narrow and specific nature of Insurance Law § 1212, and the more general provision in CPLR § 2303 that any valid means of service of a summons can also suffice to serve a subpoena, CPLR § 2303 cannot serve as a basis to allow service of a third-party subpoena on an insurance company by delivery to the Superintendent in contradiction to the plain words in Insurance Law § 1212.

There have been only two reported court cases considering service of a subpoena on an insurer by delivery to the Superintendent, both dating from 1939. Both cases implicate what was then Section 30 of the Insurance Law of 1909, which is a predecessor section to the current Insurance Law § 1212, and special proceedings under Civil Practice Act (“CPA”) Article 45 (replaced in part by CPLR Article 52, omitted in part), which specified procedures for enforcement of money judgments by way of “Proceedings Supplementary to Judgment.” Insurance Law § 30 provided in pertinent part as follows:

The first of the two 1939 cases construing this provision, Broderick v. Shapiro, 172 Misc. 28 (Sup. Ct. N.Y. Co. 1939), supports the Department’s interpretation. That case concerned a subpoena duces tecum on John Hancock Life Insurance Company, which was a licensed foreign insurer in New York, for examination of the insurer as a witness. The subpoena was served on the Department, and apparently forwarded to John Hancock by the Department. John Hancock moved to quash the subpoena on the grounds it had not been properly served. The court quoted from Section 30 of the Insurance Law of 1939 and noted:

172 Misc. at 29.

The other 1939 case is National City Bank of New York v. Desz, 281 N.Y. 430 (1939), which the inquirer cites as controlling authority. In Desz, the Court of Appeals held that a judgment creditor’s service of a third-party subpoena on a “managing agent” of a foreign life insurer was not sufficient service because the judgment creditor could have served the subpoena by delivering it to the Superintendent of Insurance. At that time, Civil Practice Act § 229 permitted service on a foreign corporation by delivery to a managing agent of the corporation, but only if service on an officer of the insurer could not be made with due diligence, or the insurer could not be served by delivery to a public official authorized to accept service by law or appointment – here, the Superintendent. Although the court determined that under the particular facts the subpoena could have been served on the insurer by delivery of the subpoena to the Superintendent, the decision did not include any analysis of then Section 30 of the Insurance Law of 1939, or a discussion of whether the particular facts involved an action against the insurer.

Desz may appear at first blush to contradict the Department’s position on third-party subpoenas. But Section 30 of the Insurance Law of 1939 clearly limited the Superintendent’s authority to accept legal process to process connected with an action against the insurer. The result in the Desz case, thus, must derive from the then-existing idiosyncrasies of the CPA.

Under CPA Article 45, a “third party” was any person who possessed property of the judgment debtor exceeding ten dollars in value, or who was indebted to the judgment debtor in an amount more than the ten dollars, or who there was reason to believe possessed such property, or was so indebted. See CPA § 779. Pursuant to Section 774 of the CPA, an attorney for a judgment creditor could commence a proceeding for the examination of a third party by simply serving a subpoena on the “third party,” the judgment debtor or a witness, without any summons or complaint. See also Report of the Temporary Commission on the Courts, Legislative Documents No. 20 (1960) at 239. After commencement of a proceeding authorized under Article 45, such as the proceeding to examine a third party, and testimony was taken in the proceeding, the court had discretion to order a third party found indebted to the judgment debtor to pay such debt to the sheriff, or the judgment creditor. CPA § 794. See also Jeffers Motion Practice: A Treatise and Handbook on Motion Practice under the Civil Practice Act of the State of New York (1938) at 554-561. Such an order could be docketed by the court as a judgment against the third party. See CPA § 794. CPA § 796 provided a similar remedy under which the court had the discretion to order the third party to deliver any property of the judgment debtor held by the third-party to the sheriff or a receiver.

Given that the subpoena on the insurer in Desz would have commenced a proceeding pursuant to which a court could order remedies in favor of the judgment creditor against the insurer, the Desz court may have viewed the proceeding as an action against the insurer. Indeed, in an OGC opinion dated January 17, 1947, which cited the holding in Desz, OGC stated the following:

The outcome in Broderick may have differed, however, because the insurer was not subpoenaed as a third party, but as a witness. A witness was a person with information about assets owned by the judgment debtor, not a person indebted to or holding assets of the debtor. See CPA § 782. As such, the court may not have viewed the proceeding at issue in Broderick as one against the insurer, and for that reason, concluded that the subpoena could not have been served by delivery upon the Superintendent.

CPLR Article 52, which replaced CPA Article 45, currently provides a different procedure for examining a third person who may be in possession of a judgment debtor’s property or be indebted to the judgment debtor, and for obtaining possession of such property or payment of debt. To examine the third party, the judgment creditor may issue a subpoena. The subpoena does not commence a special proceeding or an action against the third party. Rather, it is considered an “adjunct of the action that gave rise to the judgment, and ordinarily bears its caption.” Siegel, Practice Commentaries to CPLR § 5224 at 243 (McKinney). To obtain the property of the judgment debtor held by the third party or payment of debt owed by the third party to judgment debtor, the judgment creditor commences a special proceeding against the third party. See CPLR §§ 5225 (b) and 5227. Thus, if the facts giving rise to Desz were to present themselves today, the Court of Appeals almost certainly would reach a different conclusion.

Accordingly, based upon the clear meaning of Insurance Law § 1212, the Superintendent is authorized to accept legal process only if it is associated with an action or proceeding against an insurer.

For further information you may contact Associate Attorney Patrick Harrigan at the Albany Office.