author: Levine, J.

text:
    [674 NE2d 1117, 652 NYS2d 211]
    Canron Corp., on Behalf of Itself and All Others Similarly Situated, Respondent, v City of New York et al., Appellants.
    Argued October 9, 1996;
    decided November 19, 1996

      POINTS OF COUNSEL

      Paul A. Crotty, Corporation Counsel of New York City (Michael S. Adler and Francis F. Caputo of counsel), for appellants.

      Wilson, Elser, Moskowitz, Edelman & Dicker, New York City (Glenn J. Fuerth and David S. Sheiffer of counsel), for respondent.
   OPINION OF THE COURT

Levine, J.

In 1978, the New York City Department of Ports and Terminals, on behalf of the City, and Northeast Marine Terminal Co. (Northeast) entered into a long-term lease agreement pursuant to which Northeast occupied a City-owned marine terminal in Brooklyn, for the operation of its stevedoring business. The lease covered the terminal facility and the structures and fixtures located there, including two fixed Star-porter cranes used to unload cargo. Under the terms of the lease, Northeast agreed to obtain "for the benefit of [the City] Lessor, [casualty] insurance for the buildings, structures and improvements * * * on the Demised Premises and the equipment thereon” (Lease § 11.01). In accordance with that provision, Northeast obtained an insurance policy from Federal Insurance Co., an affiliate of Chubb & Sons, Inc. (Chubb), which included an equipment floater covering the two Starporter cranes. The City was designated as an additional insured with respect to these cranes.

Subsequently, in the summer of 1980, the two Starporter cranes were damaged during a violent windstorm. The lease agreement gave the City the option to apply the insurance proceeds to repair the cranes, without any abatement of rent, and the City elected to do so. Chubb agreed that it would pay as the casualty loss all reasonable costs incurred for material and labor necessary to repair the cranes. To facilitate the repairs, the City and Northeast made a separate agreement pursuant to which (1) Northeast would act in the role of a general contractor to supervise the necessary repair work; (2) Canron Corporation (Canron) would be retained by Northeast to do the bulk of the actual repair work; (3) Northeast would prepare and submit to the insurer all documentation necessary for the payment of the casualty loss; and (4) the City would pay to Northeast all of its charges for the repair of the cranes, upon approval of the work, to the extent of the insurance proceeds actually received by the City from Chubb for this purpose.

Pursuant to that agreement, Canron was retained by Northeast to do the work on the cranes and the repairs were accomplished during 1980 and 1981. As the repairs progressed to completion, Canron submitted a series of invoices totaling $797,549.05 to Northeast, who, after approving each one, remitted them to Chubb for payment along with its own invoices for its performance under the agreement. Chubb approved all of the invoices submitted by Northeast for payment under the policy and issued six checks representing the total amount of charges by Northeast and Canron under the repair contract. Chubb delivered these checks, made payable to both Northeast and the City, to Northeast who endorsed them and then turned them over to the City. Generally, accompanying the endorsed Chubb checks delivered to the City were Northeast’s own vouchers demanding payment from the City in the amount paid by Chubb. The insurance checks were then endorsed by the City and deposited into a City account. After independently approving the invoices for payment, as permitted under its agreement with Northeast, the City drew and delivered its own checks to Northeast, who then paid Canron the amount due it for its approved repair work.

This procedure, whereby the insurance proceeds were routed from Chubb through Northeast to the City and then back (via a check drawn on a City account) to Northeast, was followed for the first five insurance proceeds checks issued by Chubb for the crane repairs. However, it was not followed with respect to the sixth and final insurance check, the disposition of which is the subject matter of this appeal.

At the time the final check was issued by Chubb on June 25, 1981 (in the amount of $290,579.03), Northeast had accrued rent arrears under the marine terminal facility lease of over $1.8 million. During 1980 and 1981, while the repairs of the cranes were going on, the City and Northeast had entered a series of oral agreements regarding Northeast’s payment of the mounting rent arrears. Finally, on July 9,1981, the parties entered into a written stipulation which provided for the payment of current rent as it became due and the payment of past due rent amortized over two years. Upon execution of the stipulation, Northeast also delivered to the City three checks total-ling more than $525,000, to be applied to the sum due under the rent arrears stipulation. One of these checks was the final check issued by Chubb to the City and Northeast for the crane repairs. In a letter accompanying the signed stipulation and checks, Northeast assigned "all [of its] right title and interest in said Chubb draft” and agreed to indemnify the City "for any claim of non-payment arising or occurring by virtue of not applying any or all of the proceeds of the Chubb draft toward payment of the repair of the crane.”

The City accepted the assignment of the insurance check and, instead of using the insurance proceeds to make payment to Northeast on its final and outstanding payment voucher for the crane repair work, applied this final Chubb payment against the balance then due from Northeast under the lease and rent stipulation. The City thus accounted for the sixth Chubb check both as a payment on Northeast’s debt to it under the lease and rent arrears stipulation, and as payment of its debt to Northeast under the crane repair agreement.

Because of the foregoing rent arrears payment arrangement, Northeast was unable to pay over to Canron the balance due for Canron’s work on the crane repairs ($265,271.90), as it had done with respect to prior progress payments from insurance proceeds. Northeast filed for bankruptcy in November 1981, leaving that balance unpaid. Canron sought payment from the City of the final amount due it. When the City rejected its demand for payment Canron instituted this action seeking to impose a statutory trust under article 3-A of the Lien Law upon the funds that Chubb had paid for the repairs to the damaged cranes and which remained in the City’s control.

Following extensive motion practice, the parties submitted the case to Supreme Court for disposition on stipulated facts and documentary evidence. Supreme Court found in Canron’s favor, holding that by assigning its interest in the sixth Chubb check to the City with the request that the funds be applied to its lease rent arrears, Northeast had waived its right of action against the City upon the balance due it under the crane repair agreement, and that this waiver constituted a diversion of a trust asset (the trust asset being the right of action for funds due or earned by a contractor under a public improvement contract) within the meaning of Lien Law § 72. Supreme Court ordered the City to account to Canron as to the full amount of the insurance proceeds (see, Lien Law § 77 [3] [a] [i]) and directed that Canron recover against the proceeds to the extent of its claim of nonpayment, plus interest (see, id.).

The City defendants appealed and the Appellate Division, one Justice dissenting, affirmed (214 AD2d 115), primarily on the theory that the agreement between Northeast and the City as to the use of the sixth Chubb check constituted an improper diversion of funds received under the crane repair contract (rather than the diversion of a right of action to those funds) {id., at 119-122). That Court having granted defendants leave to appeal, we now affirm.

Article 3-A of the Lien Law (Lien Law §§ 70 — 79-a) "create[s] trust funds out of certain construction payments or funds to assure payment of subcontractors, suppliers, architects, engineers, laborers, as well as specified taxes and expenses of construction” (Caristo Constr. Corp. v Diners Fin. Corp., 21 NY2d 507, 512). These statutory provisions "were intended to insure that funds obtained for financing of an improvement of real property and moneys earned in the performance of a contract for either a privately owned improvement or a public improvement will in fact be used to pay the costs of that improvement” (1959 Report of NY Law Rev Commn, at 209, reprinted in 1959 NY Legis Doc No. 65 [F], at 25; see also, West-Fair Elec. Contrs. v Aetna Cas. & Sur. Co., 87 NY2d 148, 157-158). As pertinent to this case, the statute defines as a trust asset "funds * * * received by a contractor under or in connection with * * * a contract for a public improvement in this state * * * and any right of action for any such funds” (Lien Law § 70 [1]).

The contractor must hold and apply those trust assets for certain expenditures arising out of the improvement and incurred in the performance of its contract, including the "payment of claims of subcontractors” (Lien Law § 71 [2] [a]). The subcontractor’s claim for payment for work performed on the improvement is thus deemed a "trust claim” (Lien Law § 71 [3] [b]) and the subcontractor is designated a "beneficiary” of the contractor’s "trust” (Lien Law § 71 [4]).

An improper diversion of the contractor’s trust assets occurs when any such trust asset is paid, transferred or applied for a nontrust purpose, that is, for any purpose other than the expenditures authorized in section 71 (2), before all of the trust claims have been paid or discharged (Lien Law § 72 [1]). A trust beneficiary may enforce its rights against any nonbeneficiary who receives trust assets with knowledge of their trust status (Lien Law § 77 [3] [a] [i], [vi]; Caristo Constr. Corp. v Diners Fin. Corp., 21 NY2d, at 512, supra).

The City does not dispute that if the insurance proceeds represented by the final Chubb check had been disposed of according to the parties’ prior practice, by routing the proceeds through a City account to Northeast (in the form of a City check issued as payment under the repair contract), a trust asset would have been created and payment to the City of an unrelated debt with those funds would have constituted an unlawful diversion under the statute (Caristo Constr. Corp. v Diners Fin. Corp., supra, at 510). Accordingly, the issue devolves to whether, by the procedure of Northeast and the City with respect to the application of the proceeds of the final Chubb check under an assignment from Northeast to the City without actual delivery of the funds, those parties prevented a trust asset from coming into existence. We agree with both courts below that a trust asset was nonetheless created in this final transaction, under either of two validly applicable rationales.

First, in the final transaction as structured by Northeast and the City, Northeast obtained the benefit of the proceeds of the Chubb draft because they were applied to an unrelated debt, and Northeast obtained this benefit in connection with the crane repair agreement since the City also accounted for the insurance proceeds as payment on its debt to Northeast under that agreement. Thus, functionally, the proceeds were "funds * * * received by a contractor * * * in connection with * * * [this] contract for a public improvement” (Lien Law § 70 [1]), and in that way a trust asset was created. We have consistently recognized that the primary purpose of the Lien Law is to ensure that "those who have directly expended labor and materials to improve real property [or a public improvement] at the direction of the owner or a general contractor” receive payment for the work actually performed (West-Fair Elec. Contrs. v Aetna Cas. & Sur. Co., 87 NY2d 148, 157, supra; see, Aquilino v United States, 10 NY2d 271, 278-279). In light of that protective purpose there is no reason not to apply the doctrine, primarily utilized to prevent tax avoidance, whereby a party who has the right to receive compensation is held to have constructively received or come into possession of it upon directing application of the funds to satisfy a personal debt or to achieve some other personally desired result (see, Lucas v Earl, 281 US 111 [salary that would have been actually received by taxpayer if not for partial assignment held to have been constructively received by taxpayer for purposes of Federal income tax liability]; Old Colony Trust Co. v Commissioner of Internal Revenue, 279 US 716, 729 [employer’s payment of employee’s income tax obligation constitutes additional income constructively received by employee]; United States v Mews, 923 F2d 67, 68 ["a shareholder cannot, by directing his corporation to pay to X rather than to himself what corporation law deems a dividend to him, avoid having to report it as income”]). Moreover, the legislative history of the Lien Law trust provisions indicates that such constructive possession was always understood to be sufficient to confer trust status on contract funds so held (see, 1942 Report of NY Law Rev Commn, at 326-327, reprinted in 1942 NY Legis Doc No. 65 [H], at 56-57 [noting that under the trust provisions as they existed prior to the 1942 amendment which first designated a right of action for payment as an asset of the statutory trusts, "it is necessary that the trustee * * * have (at least) constructive possession of the fund * * * for a trust to arise”] [emphasis supplied]).

Alternatively, it cannot be doubted that Northeast, at the time of disposition of the final insurance check, possessed a trust asset in the form of a "right of action for any such funds” (Lien Law § 70 [1]). That trust asset was illegally diverted for a nontrust purpose when Northeast agreed to apply the proceeds to its rent arrears, in full satisfaction of the balance legally due it under the public improvement contract. The Lien Law was expanded in 1942 to add as a trust asset a right of action for funds received in connection with a public or private real property improvement contract (L 1942, ch 808). The purpose of this amendment was to fill a gap in the existing law which did not at that time recognize such a right of action as an asset of the statutory trusts (see, 1942 Report of NY Law Rev Commn, at 284, reprinted in 1942 NY Legis Doc No. 65 [H], at 14 ["Under present law, the right to receive moneys which, if received, would constitute trust funds, is not a trust res. This is a gap in the law. The Commission proposes that the trust res, for the purposes of a civil action only, should be expanded to enable a beneficiary to reach such choses in action.”]).

We reject the City’s position, adopted by the dissenting Justice at the Appellate Division, that no trust asset of any value was diverted in light of the proviso in Lien Law § 70 (1), added in 1959 (L 1959, ch 696), that "the fact that the right [of action] is a trust asset does not enlarge the right.” The City insists that the quoted language means that the general contractor’s right of action to receive payment is limited by and subject to any offsets and counterclaims which the owner may have against the contractor’s claim for payment under the improvement contract, and thus, because Northeast’s right of action was always subject to complete offset by the City’s greater claim for rent arrears, the allegedly diverted trust asset had no value. We disagree.

Defendants’ position rests entirely on the assumption that the Legislature, in adding the "no-enlargement” proviso to the trust asset status of the contractor’s right of action for payment, intended to subject that trust asset to any and all offsets or counterclaims that the particular owner might have against the particular contractor. However, neither the plain meaning of the right of action trust asset amendment, nor its legislative history, supports defendants’ interpretation. Moreover, to accept the City’s position would largely frustrate the salutary purposes of the Lien Law trust fund article.

The specific provision upon which the City relies, states in full:

"For the purposes of this section: (a) any right to receive payment at a future time shall be deemed a right of action therefor and an asset of the trust even though it is contingent upon performance or upon some other event, but the fact that the right is a trust asset does not enlarge the right or excuse any performance or condition upon which it depends” (Lien Law § 70 [1] [a] [emphasis supplied]).

By its express terms (the "right to receive payment at a future time”) and its legislative history, the 1959 amendment adding this proviso was primarily intended to extend the right of action as a trust asset to contingent, not fully matured rights to receive payment for work in progress. Thus, the Law Revision Commission’s sponsoring memorandum for the 1959 amendment states that it "clarifies the phrase ['right of action’] by stating that it includes any right to receive payment at a future time, even though contingent” (1959 Report of NY Law Rev Commn, at 218, reprinted in 1959 NY Legis Doc No. 65 [F], at 34).

Taken in the light of this expansive purpose of the amendment containing the limiting language relied upon by the City, the meaning of the proviso is self-evident — to ensure that the enforcement rights of trust beneficiaries against the owner were not greater than the rights of the contractor under the contract and subject to the owner’s defenses to payment, if any, under the contract. Thus, the proviso in question states that the expansion of the right of action concept as a trust asset to unmatured claims would not "excuse any performance or condition upon which it depends.” This more restricted purpose of the "no-enlargement” proviso is again confirmed by legislative history {see, Mem of Banking Dept, Bill Jacket, L 1959, ch 696 [by the addition of this language, "(a)n inchoate right to receive a payment at a future time is deemed an asset of the trust, even though the recipient must comply with some condition, as the performance of services, before becoming entitled to the money”] [emphasis supplied]).

Moreover, defendants’ position is inconsistent with the long-settled principle that the contractor-trustee holds the trust assets in a fiduciary capacity akin to that of the trustee of an express trust (Aquilino v United States, 10 NY2d, at 276, 279, supra) and thus, "does not have a sufficient beneficial interest in the moneys, due or to become due from the owner under the contract, to give him a property right in them, except insofar as there is a balance remaining after all subcontractors and other statutory beneficiaries have been paid” (id., at 282 [emphasis supplied]). Consistent with these fiduciary obligations, the contractor is statutorily prohibited from applying trust assets to his personal debts to the detriment of valid trust claims (see, id., at 280). Similarly, the contractor’s trust obligations would be transgressed by an attempt to transfer, free of trust status, a right of action to payment under the improvement contract on the theory that the right of action has no value as a trust asset because of a greater personal debt owed by the contractor to the transferee — as was attempted by Northeast in this case.

Additionally, the effect of the City’s position — to afford the personal and unrelated debts of the contractor precedence over what would otherwise constitute a valid trust claim— undermines the statute’s primary goal of "protecting] those whose skill, labor and materials made possible the performance of a construction contract and who in fact, creating the improvement, actually gave rise to the owner’s obligation to pay” (Aquilino v United States, supra, at 278-279; see, West-Fair Elec. Contrs. v Aetna Cas. & Sur. Co., 87 NY2d, at 158, supra [recognizing that the foreclosure provisions of the Lien Law favor subcontractor’s liens over those of the general contractors]).

In sum, subjecting trust claims to defenses that are personal to the general contractor-trustee and unrelated to the improvement contract contradicts both the language of the statute, and its remedial and protective purpose.

It follows from the foregoing that the City is answerable to Canron for the diversion to it of the trust asset which came into existence here. It is undisputed that sums were due Canron from Northeast upon completion of the crane repairs, that the amount due was outstanding when Northeast assigned the insurance proceeds to the City and agreed that they would be applied to its rent arrears in full satisfaction of the City’s debt to Northeast for completion of performance under the improvement contract, and that the City was aware of all of the foregoing facts. Thus, the City was not a bona fide transferee for value without notice of the transferred funds’ trust status and is plainly liable to Canron, a statutory trust beneficiary, for the diversion (see, Caristo Constr. Corp. v Diners Fin. Corp., 21 NY2d 507, supra [holding factor to whom contractor assigned money due it under construction contracts liable for knowing participation in diversion of trust assets]).

We have considered defendants’ remaining contentions, and likewise find them to be without merit.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye and Judges Simons, Titone, Bellacosa, Smith and Ciparick concur.

Order affirmed, with costs.

      . This interpretation is consistent with the general rule that an "owner’s liability to [a] subcontractor is limited to the unpaid portion of the value or agreed to price of the improvements” (West-Fair Elec. Contrs. v Aetna Cas. & Sur. Co., 87 NY2d, at 157, supra [citing Lien Law § 4 (1)]).

      . We reject the City’s attempt to characterize the right of action which Canron seeks to enforce as arising out of the same transaction as Northeast’s rental obligation. The trust claim arises out of the repair agreement. The terminal lease did not require that Northeast or the City agree that Northeast would act as general contractor in accomplishing any necessary repairs that the City elected to make. And nothing in the description of the crane repair agreement, as set forth in the parties’ statement of stipulated facts, or in. any of the documentary evidence, indicates that the agreement between Northeast and the City regarding the repair of the cranes was subject to the terms of the lease.


source: Caselaw Access Project

author: Smith, J.

license: Public Domain

text:
    [674 NE2d 1124, 652 NYS2d 218]
    Blue Cross and Blue Shield of Central New York, Inc., et al., Respondents, v H. Carl McCall, as Comptroller of the State of New York, et al., Appellants.
    Argued October 17, 1996;
    decided November 19, 1996

      POINTS OF COUNSEL

      Dennis C. Vacco, Attorney-General, Albany (Michael S. Buskus, Peter H. Schiff and Barbara G. Billet of counsel), for appellants.

      j(Unman, Straub, Pigors & Manning, P. C., Albany (Bartley J. Costello, III, Eileen M. Considine and Cheryl Potvin Hogan of counsel), for respondents.

      S. Stephen Rosenfeld and Amy D. Porter, of the Massachusetts Bar, admitted pro hac vice, for National Coalition for Patient Rights, amicus curiae.

   OPINION OF THE COURT

Smith, J.

The primary issue before this Court is whether the Legislature has the constitutional authority to assign to the Comptroller the power to conduct audits of private health insurance corporations which are subject to substantial State regulation. We hold that the plain language of the New York State Constitution prohibits the Legislature from doing so. Despite the broad authority given to the Legislature to delegate duties to the Comptroller, such powers may not abrogate constitutionally defined limitations. The order of the Appellate Division so holding should therefore be affirmed.

Plaintiffs are private not-for-profit health insurance providers organized under Insurance Law article 43. That article, titled "Non-Profit Medical and Indemnity, or Health and Hospital Service Corporations,” contains requirements for establishing, controlling and administering nonprofit health insurance corporations. According to defendants, "these corporations are generally non-profit entities organized to furnish medical expense indemnity and hospital service coverage.”

The Superintendent of Insurance, as the head of the Insurance Department of the State of New York, has been given full authority to supervise and regulate the business of insurance in this State (Insurance Law §§ 201, 301). The responsibility to conduct independent management and financial audits of corporations organized under Insurance Law article 43 was given to the Superintendent of Insurance by legislation enacted in 1992 (L 1992, ch 501, § 12; see, Insurance Law § 4308 [d], [e]).

In April 1993, the Legislature passed a budget bill which gave the State Comptroller the same authority as the Superintendent of Insurance to conduct management and financial audits of not-for-profit health insurers in New York (L 1993, ch 50). These audit powers were extended by legislation enacted in April 1994 (L 1994, ch 50). The Legislature appropriated special funding to pay for these audits. In the initial bill, the funding was "deemed expenses of the insurance department” (L 1993, ch 50, [Dept of Audit and Control"Maintenance Undistributed”]). The following year, funding was again allocated to the Insurance Department but suballocated to the Comptroller (L 1994, ch 50 [Ins Dept — "Maintenance Undistributed”]).

In May 1994, the Superintendent of Insurance and the State Comptroller agreed to a plan concerning the scope of article 43 audits to avoid any duplication of efforts or activities. Under the plan, the State Comptroller would "coordinate audits of Article 43 corporations with the New York State Insurance Department.” The plan required the Comptroller to give the Deputy Superintendent of Insurance notice concerning which audits would be performed, the basis for selection, and the objectives of such audits.

Pursuant to this plan, the Comptroller audited plaintiffs. During the audit, the Comptroller issued subpoenas for claims records and supporting documentation which the plaintiffs objected to as burdensome. When the Comptroller refused to withdraw the subpoenas, the plaintiffs filed the instant action which challenged the legislation authorizing the audit as unconstitutional. Plaintiffs’ argument was based upon an interpretation of article V, § 1 of the New York State Constitution which states in pertinent part:

"The comptroller shall be required: (1) To audit all vouchers before payment and all official accounts; (2) to audit the accrual and collection of all revenues and receipts; and (3) to prescribe such methods of accounting as are necessary for the performance of the foregoing duties. The payment of any money of the state, or of any money under its control, or the refund of any money paid to the state, except upon audit by the comptroller, shall be void, and may be restrained upon the suit of any taxpayer with the consent of the supreme court in appellate division on notice to the attorney-general. In such respect the legislature shall define his powers and duties and may also assign to him: (1) supervision of the accounts of any political division of the state; and (2) powers and duties pertaining to or connected with the assessment and taxation of real estate, including determination of ratios which the assessed valuation of taxable real property bears to the full valuation thereof, but not including any of those powers and duties reserved to officers of a county, city, town or village by virtue of sections seven and eight of article nine of this constitution. The legislature shall assign to him no administrative duties, excepting such as may be incidental to the performance of these functions, any other provision of this constitution to the contrary notwithstanding.”

Supreme Court rejected plaintiffs’ constitutional argument but quashed the subpoenas as "onerous and overly broad.” On appeal, the Appellate Division reversed and declared the statute unconstitutional as beyond the "express provision of NY Constitution, article V, § 1, which prohibits the assignment of administrative duties not incidental to the specified functions” of the Comptroller (218 AD2d 140, 144).

On appeal, defendants contend that the State Constitution expressly permits the assignment of the auditing duties permitted under the Insurance Law to the Comptroller. We disagree.

I

We note at the outset that the State Legislature has long been empowered to regulate the insurance industry through a variety of means (see, Health Ins. Assn. v Harnett, 44 NY2d 302, 308). Such regulation, even down to "the minutest particular in the interest of the public, has never been questioned” (People v Formosa, 131 NY 478, 484). Indeed, the organization of an insurance company and the conduct of the business of writing insurance is not a right but a privilege granted by the State subject to the conditions imposed by it to promote the public welfare (Health Ins. Assn., 44 NY2d, at 309).

Not coincidentally, the administrative agency with regulatory authority for the insurance industry is the Insurance Department of the State of New York (see, Formosa, 131 NY, at 483 [noting that a "department of the state government has been constituted to supervise” and regulate those engaged in the business of insurance]). The head of that Department, the Superintendent of Insurance, has been granted " 'broad power to interpret, clarify, and implement the legislative policy’ ” underlying the provisions of the Insurance Law (Matter of New York Pub. Interest Research Group v New York State Dept. of Ins., 66 NY2d 444, 448, citing Ostrer v Schenck, 41 NY2d 782, 785).

Article 3 of the Insurance Law outlines the general "Administrative and Procedural Provisions” for the Superintendent. Pursuant to his administrative powers, the Superintendent may make any "order affecting any insurer, insurance agent, insurance broker or other person subject to the provisions of this chapter” (Insurance Law § 302). The Legislature has also decreed that insurance businesses of a certain size must submit to the office of the Superintendent an annual financial statement audited by an independent certified public accountant (Insurance Law § 307). The Superintendent may also make an examination into the affairs of any insurer (Insurance Law § 309; cf., Schenck v Executive Life Ins. Co., 74 Misc 2d 12, affd 42 AD2d 540) and must be given access "at all reasonable hours to the books, records, files, securities and other documents” of the insurer which are relevant to the examination (Insurance Law § 310 [a] [2]).

Specific procedures for article 43 audits are outlined in section 4308 of the Insurance Law. That the article 43 audits are a proper exercise of the administrative powers of the Insurance Department is conceded. It is further conceded that the Legislature has delegated duplicative auditing duties under article 43 of the Insurance Law to the Comptroller.

Defendants contend that the only constitutional prohibition against the Legislature making such an assignment of duties to the Comptroller is contained in article V, § 1. That provision prohibits the assignment of "administrative duties” that are not incidental to the constitutionally defined duties of the Comptroller. All of the duties defined within article V, § 1, whether required or discretionary, are in furtherance of the fundamental duty of the office, to "[s]uperintend the fiscal concerns of the state” (State Finance Law § 8; 4 Report of 1938 New York State Constitutional Convention Committee on State and Local Government in New York, at 337).

Article 43 audits are within the administrative duties of the Insurance Department. Those same duties, funded by moneys suballocated from the Insurance Department, are also "administrative duties” when performed by the Comptroller. The Constitution prohibits the Legislature from delegating administrative duties to the Comptroller that are not incidental to the supervision of the fiscal affairs of the State. That fundamental duty of the Comptroller is not served by administrative audits of private not-for-profit insurers.

The conclusion is manifest: audits of corporations organized under article 43 of the Insurance Law are administrative duties which may not be delegated to the Comptroller when the Constitution prohibits the Legislature from doing so. Thus, under the plain language of article V, § 1, the administrative duties at issue here may not be delegated to the Comptroller.

II

Defendants seek to avoid the obvious conclusion in this case by urging a narrow construction upon the plain language of article V, § 1. According to defendants, the legislative history of the 1925 amendment to article V, § 1 demonstrates that the term " 'administrative duties’ had a well-defined meaning: it referred principally to activities involving the accrual, levying and collection of taxes and other revenues.”

Prior to 1925, various tasks relating to taxing the public had devolved upon the Comptroller’s office. In 1925, as part of a major restructuring of government departments and responsibilities, the Comptroller’s duties of an "administrative nature” and concerned with the "accrual and collection of taxes and revenues” were reassigned to other departments including one that is currently known as the Department of Taxation and Finance. With the adoption of article V, § 1, the fundamental duties of the Comptroller were established. The provision also removed the Legislature’s power to assign further administrative tasks to the Comptroller that were not incidental to the defined, fundamental duties of that office. At the same time, the Legislature adopted article V, § 3, which provided, in pertinent part:

"Subject to the limitations contained in this constitution, the legislature may from time to time assign by law new powers and functions to departments, officers, boards, commissions or executive offices of the governor, and increase, modify or diminish their powers and functions”.

Contending that the prohibited "administrative duties” noted in article V, § 1 referred only to "nonauditing activities,” and observing that the Legislature was concurrently given a broad grant of power to assign new functions to any State department, defendants argue that the history behind the constitutional amendments permits the article 43 audits at issue.

The plain language of the Constitution provides the framework for our analysis. The limits placed upon the Legislature against assigning "administrative duties” to the Comptroller were adopted notwithstanding "any other provision of [the] constitution to the contrary” (art V, § 1). Moreover, the powers given to the Legislature by article V, § 3 were "[sjubject to the limitations contained in [the] constitution.” Of course, the plain language of article V, § 1 does not support defendants’ narrow reading of the term "administrative duties.”

In fact, defendants’ argument ignores the overriding principles which guided the government restructuring in 1925 — to delineate the lines of responsibility and control spiraling government costs. In listing the underlying principles for the "Proposed Plan of Retrenchment,” a bipartisan panel stated: "[b]ecause of the enormous growth in expenditures and the small prospect under present state organization and procedures of preventing excessive increases in the future, it is necessary to impress upon the people of the State the need of retrenchment and reorganization” {see, Report of Reconstruction Commission to Governor Alfred E. Smith on Retrenchment and Reorganization in the State Government [Oct. 10, 1919] [1919 Report] part I, at 3).

The panel noted that the present administrative structure was "a miscellaneous collection of 187 offices, boards, commissions, and other agencies” without direct or effective supervision (1919 Report, at 6). In creating its government restructuring proposal, the panel was primarily concerned with the "retrenchment and responsibility in the government of the State of New York” which it concluded could be "achieved only through” certain steps which included (1) the consolidation of the myriad of then existing administrative departments, commissions, offices, boards and other agencies and (2) the grouping of related offices and work in each of several departments into appropriate divisions and bureaus (1919 Report, at 11). Despite such a directive, the Legislature did not simply assign all auditing duties to the Comptroller.

It is important to note that the Insurance Department had long since been established and empowered to conduct audits and examinations of businesses and agents involved in the insurance business (see L 1892, ch 690 [Insurance Law], §§ 39, 44; L 1906, ch 326, § 10 [amending Insurance Law § 39]; L 1939, ch 882 [Insurance Law], §§ 28-29). Indeed, annual reports of State insurers were originally required to be filed with the Comptroller but were subsequently required to be submitted to the Insurance Department. As noted by Supreme Court in Case v People (6 Abb NC 151, 160, affd 14 Hun 503, rev on other grounds 76 NY 242):

"In 1859, the legislature saw fit to change the system of the laws in relation to insurance, and instead of requiring that system to be administered by the comptroller of the State, as it hitherto had been, it created a new and independent department — denominated the insurance department * * * It will be observed that the language takes from the comptroller and carries over to the new department the execution of the laws theretofore passed, or that thereafter might be passed in relation to insurance. If we examine those laws, we discover a system for the purpose of regulating the insurance companies of the State, to be carried out previously by the comptroller, but necessarily, after the passage of the act of 1869 to be carried out by the superintendent of insurance, placed at the head of a new department”.

That legislative intent is evident in the laws enacted in 1892. Section 2 of chapter 690 of the Laws of 1892 states:

"There shall continue to be a separate and distinct department charged with the execution of the laws relating to insurance, to be known as the insurance department * * * All books, papers, documents, securities, stocks, bonds and mortgages, and all other papers whatever, in the office of the comptroller and in the office of the secretary of state at the time of the passage of chapter 366 of the laws of 1859, relating to the business of insurance, shall, on demand, be delivered and transferred to the superintendent, and be and remain in his charge and custody” (L 1892, ch 690, § 2; see also, L 1906, ch 326, § 1 [amending Insurance Law § 2]).

As noted in the legislative reviews of the 1925 constitutional amendments, the duties of the Insurance Department remained unchanged following the restructuring (see, Report of State Reorganization Commission, 1926 NY Legis Doc, No. 72, at 67 [Feb. 26, 1926] ["It is recommended * * * (t)hat the Department of Insurance be continued as at present organized, with the same functions as are now provided by law”]).

Thus, financial oversight of private, nonpublic insurers remained under the auspices of the Insurance Department. Under the restructuring plan, while some departments, such as the Insurance Department, would continue to conduct audits as part of their administrative duties, the Department of Audit and Control was further streamlined so that it could better perform its fundamental duty — to superintend the fiscal concerns of the State (1919 Report, at 14). As noted above, certain responsibilities of the Comptroller which had been reassigned to the Insurance Department years before were not returned to the Comptroller.

In sum, defendants’ attempt to narrow the definition of the term "administrative duties” to merely nonauditing duties finds support neither in the history nor in the plain language of article V, § 1. Article 43 audits may not be delegated to the Comptroller.

Ill

Defendants make several arguments based upon practical concerns and public policy. For example, defendants argue that the Comptroller has substantial experience in auditing Medicaid and other State-sponsored insurance programs. Defendants offer no explanation as to why funding suballocated to the Comptroller may not be retained by the Insurance Department to perform the auditing functions it has performed for over a century.

Defendants also argue that this Court should simply defer to the Legislature’s law-making power; that there is no longer a "bright line” distinction between the "public” and "private” sectors; and that "the development of New York’s health care delivery system and how services are paid for is now a matter of significant governmental concern.” Defendants’ arguments essentially boil down to a single premise: since the State is empowered to audit plaintiffs, the State auditor should be allowed to do it. Defendants do not explain how or why any of these reasons would overcome a plainly expressed constitutional prohibition against the passage of the same legislation it seeks to implement (cf., Matter of New York Pub. Interest Research Group v New York State Thruway Auth., 77 NY2d 86 [statute impermissibly infringed upon Comptroller’s discretionary powers]; Patterson v Carey, 41 NY2d 714 [statute impermissibly infringed upon Comptroller’s discretionary power to supervise financial accounts of public authorities]). Simply, the Legislature may not delegate administrative duties of the Insurance Department relating to article 43 audits of private insurers when such duties are clearly administrative and not incidental to the primary function of the Comptroller.

The order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye and Judges Simons, Titone, Bellacosa, Levine and Ciparick concur.

Order affirmed, with costs.

      . Defendants also argue that Supreme Court erred in striking the subpoenas as overbroad. Because we decide that the Legislature wrongly delegated article 43 auditing duties to the Comptroller, we do not reach the issue of the sufficiency of the subpoenas issued pursuant to such authority.

      . The record contains evidence that plaintiffs were audited every three years by the Insurance Department.