Our two-part article on non-con and true sale issues in insurance contexts continues with a deeper dive into the considerations that distinguish these issues from similar remoteness principles in a Bankruptcy Code context. In Part One, we explained some of the basics of state insurance law that bear on these issues and how these can give rise to different approaches in opinion-giving; in this Part Two, we identify some practical obstacles that arise in these kinds of contexts and opinions.

A Pennsylvania Hypothetical

Consider a hypothetical situation in which a Pennsylvania-domiciled insurer is the sponsoring entity in a securitization whose documentation is governed by New York law. Pennsylvania counsel might be asked to render a legal opinion to the effect that the special-purpose entity (SPE) to which the insurer has conveyed assets will not be consolidated with the insurer if it is placed in receivership, and/or that the conveyance of the assets will be respected as a sale in such a receivership. This opinion would be based on an analysis of Pennsylvania insurance law and cases decided thereunder.

Two threshold issues framing the opinion process might be as follows:

  • Counsel might view the governing law of the sale document — New York's, in our hypothetical — as relevant insofar as the Pennsylvania court could base its decision on the integrity of the sale under New York law. For this purpose, counsel may seek to assume true sale status under New York law or rely on a New York opinion. The opinion recipient might take exception to this based on the following:
    • New York law is irrelevant insofar as Pennsylvania counsel is being asked for its opinion on the exercise by Pennsylvania state officials (the receiver and the court) of equitable powers under Pennsylvania statutory and judicial law, not the effect of New York law.
    • A New York-law opinion giver might find it difficult to construct the factual predicate necessary as a basis for the Pennsylvania opinion. After all, the New York lawyer can opine that the sale contract is “enforceable,” and this conclusion is an implicit endorsement of sale treatment, insofar as the contract would recite that the contemplated activity is a “sale.” However, the enforceability opinion would exclude the effects of an insolvency proceeding — the very context faced by the parties.
  • When a state court is presiding over an insurer receivership, it looks to federal bankruptcy law as persuasive guidance on legal issues. Therefore, the typical reasoning of a non-con or true sale opinion in an insurance context is to first address any specific guidance offered by state insurance law, and, failing anything specific, to then discuss the points from a bankruptcy law perspective. Counsel rendering the opinion (Pennsylvania in this case) might not be an expert in bankruptcy law and therefore might seek to rely on other counsel for the bankruptcy analysis itself.

In addition, the fact that insurers are subject to a comprehensive state-law-based regulatory scheme can figure prominently in non-con and true sale opinions. The licensing status of an insurer, a regulator’s approval of a particular transaction, evolving regulatory standards on insurer-affiliate relationships and other regulatory factors can play a role in constructing a reasoned discussion on non-consolidation and true sale issues.

Considerations Regarding New York Insurers

In contexts involving New York-domiciled insurers, additional nuance arises because of specific cases and other legal authority in the state over the years that inform the analysis.


In the non-con context involving a New York-domiciled insurer as a sponsor, counsel should take note of Corcoran v. Frank B. Hall & Co., Inc., 149 A.D.2d 165, 545 N.Y.2d 278 (App. Div. 1st Dept. 1989), which potentially places additional strain on a conclusion of corporate separateness. In this case, the New York insurance superintendent (now known as the superintendent of financial services) in his role as liquidator petitioned the court to consolidate the insurer with certain other entities related to the parent of the insurer. The parent company argued that the superintendent as receiver acts in the place of the insurer itself, and no insurer or other entity can petition a court to pierce its own corporate veil.

The court held otherwise, concluding that, although a “viable” corporate entity could not bring a derivative case to pursue its own consolidation, “where ... the corporate entity is in receivership or insolvent, the receiver’s suit is for the benefit of the company’s creditors and not its shareholders. In [such a] case, therefore, ... a trustee can bring an action piercing the corporate veil.” Such an explicit endorsement of the superintendent’s power to seek equitable consolidation also has been echoed in the courts of other states in similar contexts. (See, e.g., Brown v. ANA Insurance Group, 994 So.2d 1265 (La. 2008); Garamendi v. Executive Life Ins. Co., 17 Cal. App.4th 504 (App. Dist. Div. 3 1993).)

True Sale

True sale opinions for a New York insurer similarly should take into account insurance-specific authority. An opinion (Opinion No. 87-53, Sept. 21, 1987) published in 1987 by the Office of General Counsel (OGC) of the New York Insurance Department (now known as the Department of Financial Services) addressed the attributes of a professed sale-and-leaseback arrangement between a New York-domiciled insurer as seller and an SPE as buyer of certain real property. The seller recorded the transaction as a sale on its statutory filings submitted to the Insurance Department. Although the facts are discussed only elliptically, it seems that the seller leased the “sold” real estate back from the buyer and that the purchase price consisted of an assignment of the seller’s rental payments. The seller had the right to repurchase the property at the end of a 12-year rental period by assuming a mortgage loan issued to the buyer.

The OGC concluded that the transaction did not constitute a “sale” insofar as the following “incidents of ownership” remained with the seller.  The OGC took account of the following factors:

  • The seller was to be treated as the owner for all tax purposes.  
  • No transfer or other tax was paid on the transaction.  
  • The transaction had not been recorded in the applicable county clerk’s office.  
  • The seller had the right to reacquire at any time, without penalty, by assuming all obligations of the buyer.  
  • In the event that condemnation or other legal proceedings were to affect the property, the lease would be terminated, and the seller would redeem all outstanding obligations and pay the amount required to dissolve the buyer’s corporate existence.  
  • The seller was to defend all legal actions that may be brought against the buyer.  
  • The buyer was not permitted to engage in any business activities.  
  • The buyer and the seller “may at any time merge.”  
  • Any challenge to title would be defended by the seller insofar as the buyer made no representation as to title.

Admittedly the OGC opinion relates to real property, rather than the financial assets usually in question in a structured finance context. In addition, a number of the items mentioned in the list above either would not be applicable in every context or would not have a self-evident meaning across different transactions (e.g., “buyer and seller may merge”). Moreover, OGC opinions lack the force of law and are issued informally to specific parties in defined circumstances. Still, the letter provides some textual guidance for what constitutes a “true sale” in an insurance company context and should be analyzed in light of a particular transaction’s facts and circumstances.

Can Collateral Be Reached by the Regulators?

Another OGC opinion (Opinion No. 2000-67, May 11, 2000) relates to security interests granted by an insurer. The correspondent had asked whether a New York-domiciled insurer could post collateral in connection with an unspecified “derivative transaction.” The OGC responded that, while an insurer could post collateral in such a circumstance, the pledge “should not be viewed as insulating those assets from attachment by the Superintendent in the event” of a receivership of the insurer. This suggests that collateral can be “pierced” by the regulator in a receivership, complicating any discussion of the boundaries of an insurer’s insolvency estate.

The OGC opinion cites for this proposition a Depression-era New York Court of Appeals decision, In the Matter of the Application of Van Schaick to Rehabilitate the Title and Mortgage Guarantee Co. of Buffalo, 264 N.Y. 69 (1934). On closer reading, however, Van Schaick does not articulate so broad a holding. At issue in the case was a New York insurer that had issued “certificates” to investors, supported by mortgages and other assets in the insurer’s portfolio. The underlying assets were “deposited” with a trust company, which apparently administered the certificate-issuance program and held the assets for the benefit of the respective classes of investors. When the insurer went into rehabilitation, the superintendent sought an order authorizing him to administer these assets and directing the trust company to deliver such assets to the superintendent. The trust company challenged the order on constitutional grounds. New York’s highest court rejected the challenge, holding that the superintendent as receiver may “administer the property of [the insurer] even though a creditor has a lien on some of such property.” In other words, the superintendent may collect receivables on the underlying assets for purposes of paying the certificate holders.

Notwithstanding the suggestion to the contrary in the OGC’s 2000 opinion, Van Schaick does not authorize the superintendent to “attach,” or recover into the estate, an asset that has been pledged to secure an obligation to a lender. Nevertheless, the opinion remains on the books, and should be navigated and considered when constructing a transaction or rendering an opinion.


In structuring and executing securitization or similar transactions involving regulated insurers, the parties and counsel should consider whether any assets or conveyances in the transaction are at any risk for re-characterization under a state insurance receivership. Although this analysis has much in common with, and incorporates components found in, bankruptcy law, the overlay of state-specific insurance law and the use of regulatory discretion need to be carefully weighed. Idiosyncrasies of state insurance law, insofar as they relate to the powers of the regulator in a receivership, criteria for de-recognition of an asset and other matters, can introduce variables into structured finance transactions that might not otherwise appear. Only with a combined understanding of creditors’ rights and insurance law can these risks be properly mitigated.