NU Online News Service, Jan. 13, 3:50 p.m. EST

The New York Insurance Association has filed a lawsuit accusing the state of imposing unfair assessments on carriers and using them to improperly fund non-insurance programs.

Prior to filing the action with the Albany State Supreme Court, a county-level tribunal, the association in December released a statement opposing the levies planned for the 2009-2010 state budget.

The assessments, called "332 assessments," are supposed to be used strictly to fund the operations of the New York State Insurance Department, NYIA said.

Instead, said the association, the assessments have been suballocated to other unrelated programs.

"The amount of the assessment, and particularly the percentage of NYSID's budget being suballocated for unrelated programs, have both been growing substantially during the past decade," NYIA said.

According to the organization, "In 2000-2001, the department's budget was roughly $100 million with approximately $14 million in suballocations."

It said the budget has quadrupled and the amount of suballocations has increased by more than 22 times. "The 2009-2010 state budget includes nearly $455 million in assessments on insurers with $317 million in suballocations, which equates to suballocations constituting almost 70 percent of the assessments, with a meager 30 percent being used for the intended purpose of funding the operations of NYSID."

Ellen Melchionni, president of NYIA, said the association is now suing to get a refund on the last two years of assessments for domestic insurers.

"It belongs to the companies," she said, stating that it should not go toward initiatives such as maintaining state building codes or urban search and rescue programs.

While NYIA objects to the assessments and subsequent suballocations in general, she said the increases over the last two years have been "despicable." She added, "The state's greed is out of control."

Ms. Melchionni said NYIA approached the state previously and threatened to bring a lawsuit, to which she said the reply was that "they weren't surprised."

She said the state now has 20 days to file a response or file a motion to dismiss.

A call to the governor's press office was referred to the insurance department, which was referred to the Division of Budget. A spokesperson there declined to comment.

Paul Tetrault, Northeast state affairs manager for the National Association of Mutual Insurance Companies (NAMIC), said in a statement, "This suit reflects the degree to which New York insurers have been aggrieved by indefensible budgetary machinations. As we pointed out in recent testimony to the Assembly Insurance Committee, the practice of increasing assessments to fund government programs unrelated to the insurance department budget is fundamentally unsound and wholly contrary to the statute authorizing assessments."

He added, "State legislatures across the country seeking to balance budgets are increasingly using the insurance industry improperly as a source of revenue, failing to recognize the substantial amounts that insurers already pay in taxes and the consequences of placing inequitable burdens on a vital part of the economy."