Opposition Brief — Seguros La Republica, S. A. v. British International Insurance
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satis | Cour, ha
No. 00-200
mee OF THE CLERK
IN THE —
Supreme Court of the United States
SEGUROS LA REPUBLICA, S.A.,
Petitioner,
V.
BRITISH INTERNATIONAL INSURANCE
COMPANY LIMITED,
Respondent.
On PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COuRT OF APPEALS FOR THE SECOND CIRCUIT
BRIEF IN OPPOSITION
SHAWN L. KELLY
Counsel of Record
MICHAEL R. O’ DONNELL
THOMAS J. PERRY
Desra D. TEDESCO
RIKER, DANZIG, SCHERER,
HYLAND & Perretti LLP
Attorneys for Respondent
Headquarters Plaza
One Speedwell Avenue
Morristown, NJ 07692
(973) 538-0800
162741 @) Counsel Press LLC
(800) 274-3321 + (800) 359-6859
yzrP
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i
COUNTERSTATEMENT OF
QUESTION PRESENTED
Whether New York Insurance Law § 1213 requiring an
alien unauthorized reinsurance company, which incurred an
indebtedness while doing business in New York, to either:
(i) obtain a license to do business in New York; or (ii) deposit
a bond or cash requirements, after notice and hearing before
defending an action to recover that indebtedness in New
York, violates the Fourteenth Amendment’s Due Process
Clause?
il
STATEMENT PURSUANT TO RULE 29.6
Respondent British International Insurance Company’s
interests in this case were assigned to British Insurance
Company of Cayman (“BICC”) during the pendency of this
action. BICC is wholly-owned by White Mountains
Insurance Group, Ltd. (“White Mountains”). White
Mountains’ stock is publicly traded on the New York Stock
Exchange.
ill
TABLE OF CONTENTS
Page
Counterstatement of Question Presented ......... 1
Statement Pursuant to Rule 29.6 ............... li
Table of Contents .......... Serre eae ae orn lil
DORM GECMOG AWTIOTIIGS 2. ccc ce cces. Vv
EE Cre ee eee X
Counterstatement of the Case ...............05. l
Reasons for Denying the Writ ................. 3
I. La Republica’s Petition Fails To State A
Reason Compelling This Court To Review
The Constitutionality Of New York Insurance
RE OED. ccs Va waswesas dace e ees 3
II. The Second Circuit’s Ruling Is Consistent
With, Not Contrary To, With The Principles .
Enunciated In Connecticut v. Doehr ...... 10
A. The Doehr Line Of Cases Support The
Constitutionality Of NYIL § 1213. ... 10
I ee Ba hie ak es ack eK 10
2. Fuentes and Sniadach .......... 14
iv |
;
Contents |
{
Page
B. NYIL § 1213 And The Statute At Issue
In Doehr Are Completely Dissimilar ... 15
III. NYIL § 1213 Applies To Reinsurers ...... 18
IV. Declaring Pre-Answer Security Statutes
Enacted In Over Thirty-Six States
Unconstitutional Would Have A Significant
Impact On The Global Reinsurance Market
TABLE OF CITED AUTHORITIES
Page
Cases:
Ace Grain Co. v. American Eagle Fire Ins. Co., 95
F. Supp. 784 (S.D.N.Y. 1951) ............ 6, 7, 8, 19
Aero Assocs., Inc. v. La Metropolitana, 183 F. Supp.
Rh ae er rt ae Bee 13
Brockett v. Spokane Arcades, Inc., 472 U.S. 491
Fs SEES CE Ey ee ern ak i ie *
Christopher Lasalle and Company v. Heller Fin.,
Inc., 731 F. Supp. 279 (E.D. Ill. 1990) ........ 17
Connecticut v. Doehr, 501 U.S. 1 (1991) . 3, 10, 11, 12, 15
Curiale v. Ardra Ins. Co., 88 N.Y .2d 268, 667 N.E.2d
PEP CUE bow Sass idle ele ees 4,17, 19
Curiale v. Phoenix Gen. Ins. Co. of Greece, S.A.,
1992 WL 320535 (S.D.N.Y. Oct. 23,1992) .... 17 |
Dean Construction Company, Inc. v. Agricultural
Insurance Co., 42 Misc. 2d 834, 249 N.Y.S.2d
247 (Sup. Ct. Nassau County), aff’d, 22 A.D. 82,
254 N.Y.S.2d 196 (N.Y.A.D. 1964) ........ 8, 16, 17
Fuentes v. Shevin, 407 U.S. 67(1971) ....... 10, 14, 15
Heller v. Doe, 509 U.S. 312 os) ee vee een 4
vi
Cited Authorities
Page
John Hancock Property and Cas. Ins. Co. v.
Universale Reinsurance Co., Ltd., 147 F.R.D. 40
CE 54 4s x08 0h bu Say Crees eee eee 18
Kaye v. Doe, 204 Misc. 719, 125 N.Y.S.2d 135 (Sup.
Ses NE Gs EOE. cv'ckd bua Baba Chea eons 6,7
Lakehead Pipe Line Co., Inc. v. American Home
Assur. Co., 981 F. Supp. 1205 (D. Minn. 1997)
A ree POET TT ee Per ero ee ee 4
Mathews v. Eldridge, 424 U.S. 319 (1976) ....... 12
Mid-American Indemn. Ins. Co. v. King, 1995
te gL a ee OS ree ee 4
Mitchell v. W.T. Grant & Co., 416 U.S. 600 (1973) .
Wes Set nik Sa ea ae CREE ENE TIER 11
Moore v. Nat’l Distiller and Chem. Corp., 143
~ F.R.D. 526 (S.D.N.Y. 1992), aff'd, 69 F.3d 1226
PL SOE: 6s sxe e cach ins bWhaeesiete ks 17
Morgan v. American Risk Mgmt., No. 89 Civ. 2999,
1990 WL 106837 (S.D.N.Y. July 20, 1990) ....13, 18
Mullane v. Central Hanover Bank & Trust Co., 339
Ti REE 6 sks ke ad sh Ue. cee Ra res 14
Mutual Fire, Marine & Inland Ins. Co. v. Norad
Reins. Co., 868 F.2d 52 (3d Cir. 1989) ........ 20
_ —_-
Vii
Cited Authorities
Page
Ownbey v. Morgan, 256 U.S. 94 (1921) ........5,6, 16
Paul v. Virginia, 75 U.S. 168, 181 (1869) ........ 7
Prudential Ins. Co. v. Benjamin, 328 U.S. 408
CRON 550s ck or ieee eel ok ee ees 7
Signal Mut. Indem. Ass'n v. Rice Mohawk U.S.
Constr. Co., Ltd., 1997 WL 148813 (S.D.N.Y.
ccstca, Riel) PRET EEC Pe an 13, 20
Sniadach v. Family Fin. Corp., 395 U.S. 337
be See re rere ey ey ee ee are 10, 14, 15
Travelers Health Ass'n v. Virginia, 339 U.S. 643
SE See RR raat Tne este a crn aap An tae al Cae 8
Trihedron Int'l Assur. v. Superior Ct., 218 Cal. App.
3d 934, 267 Cal. Rptr. 418 (1990) ............ 4,8,9
Zacharakis v. Bunkerhill Mut. Ins. Co., 281 A.D.
487, 120 N.Y.S.2d 418 (1* Dept. 1953) ....... 6
Statutes:
Be Mees OE OMRON oo Nessa dak cov Ses 7
Conn. Gen. Stat. § 52-278e (1991) ............. 15
Pee Hk eS 8K Gao eRe eee 6,7
|
|
vill
Cited Authorities
Page
eS 8 oie 19
I NN: cs Gai ete ee ues eee es 19 |
Se FA ae ee ake eed sarees passim
oo ed 13
WES TS oc 13
ge ME Go hs 1: IR epenre pa caries piu nero erere ste: 2,6
RE A NN <n ssh ee 16
VTL, © DIS nn. oh 16
United States Constitution:
Fourteenth Amendment ....................0-- : 14
Rules:
United States Supreme Court Rule 10 ........... 3
United States Supreme Court Rule 10(a) ........ 4
ix
Cited Authorities
Page
Other Authorities:
Barry R. Ostrager, Thomas R. Newman, Handbook
on Insurance Coverage Disputes § 13.03 (3d ed.
ROOD | <4 sala whe viene ok UA CLL DA ed 1]
Uniform Unauthorized Insurers Act, Prefatory Note,
Section 6
een ae
TABLE OF APPENDICES
Appendix A — Unauthorized Insurers Process Act . .
Appendix B — Memorandum Opinion And Order
Of The United States District Court For The
Southern District Of New York In Curiale v.
Phoenix General Insurance Company Of Greece,
S.A., No. 83 Civ. 4687 (CSH) Dated October 23,
EP SE Re Pe PR tne ae ee ere eee ie ee
Appendix C — Memorandum And Order Of The
United States District Court For The Southern
District Of New York In Signal Mutual Indemnity
Association, Ltd. v. Rice Mohawk U.S.
Construction Company, Ltd., No. 95 Civ. 3721
(LMM) Dated March 28, 1997 ...............
Appendix D — Opinion And Order Of The United
States District Court For The Southern District
Of New York In Morgan v. American Risk
Management, Inc., No. 89 Civ 2999 (JSM) (KAR)
ee 8 ME ee etree ee eee
Page
la
15a
19a
ee eee
COUNTERSTATEMENT OF THE CASE
American Centennial Insurance Company (“ACIC”)
issued various insurance policies (excess, umbrella,
general liability) to diverse insureds. ACIC reinsured these
policies through the Petitioner, Seguros La Republica
(“La Republica”), pursuant to 26 facultative certificates
(the “Facultative Certificates”).' ACIC paid losses to its
insureds under these policies and then sought to recover the
proportionate reinsurance owed it by La Republica.
The instant collection suit is occasioned by
La Republica’s refusal to indemnify Respondent British
International Insurance Company, Limited’s (“BIIC”),
ACIC’s successor-in-interest, pursuant to the Facultative
Certificates. Presently, La Republica owes BIIC over $11
million. Pet. App. B at 15a-18a.
Following La Republica’s refusal to honor its obligations
under the Facultative Certificates, BIIC (ACIC) commenced
this action in April 1990 by filing a complaint seeking
(i) judgment against La Republica for breach of contract,
account stated and monies due and owing, and (ii) a
declaration that La Republica is obligated to indemnify BIIC
for future losses reinsured by the Facultative Certificates.
1. Facultative reinsurance is one of two basic types of
reinsurance contracts. Facultative reinsurance is negotiated with
respect to specific risks insured by particular policies. Barry R.
Ostrager, Thomas R. Newman, Handbook on Insurance Coverage
Disputes § 13.03 at 419 (3d ed. 1990). Under a facultative contract
between the ceding insurer and the reinsurer, the reinsurer has the
option of accepting or rejecting each risk offered by the ceding
company, and a separate reinsurance certificate is issued with respect
to each risk assumed. Jd.
2
Since then, La Republica has argued before the United States
Court for the Southern District of New York (the “Southern
District”) and United States Court of Appeals for the Second
Circuit (the “Second Circuit”) — and lost — issues involving
personal jurisdiction, improper service of process, and the
constitutionality of New York Insurance Law (“NYIL”)
§ 1213. In doing so, the Southern District afforded La
Republica every conceivable procedure to ensure that its
rights were protected, including two separate evidentiary
hearings and untold motions.
After a decade of motion practice, the Southern District
ultimately entered a default judgment in favor of BIIC in
the amount of $11,251,696.35, plus interest (Pet. App. C at
19a-20a), due to La Republica’s failure to obtain a license
to do business in New York or to comply with the Southern
District’s order directing it “to deposit with the Clerk of the
Court cash or securities or a surety bond in the amount of
Five Million Seven Hundred Thousand Dollars ($5,700,000)
to secure payment of any final judgment that may
be rendered in this action....” Pet. App. E at 27a.
See NYIL § 1213(c)(1).?
On June 16, 1999, La Republica appealed the default
judgment. The Second Circuit rejected La Republica’s attack
on the constitutionality of NYIL § 1213 and affirmed the
Southern District’s ruling — holding specifically that
“it comports with due process.” British Int'l Ins. Co. Ltd. v.
Seguros La Republica, S.A., 212 F.3d 138, 144 (2d Cir.
2. While La Republica claims that Article 64 of Mexico’s
General Law of Insurance Institutions and Mutual Companies
prohibits it from posting a bond (Pet. at 3), BITC submitted expert
evidence establishing the contrary. Thus, La Republica’s failure to
post a bond is due to its own intransigence.
3
2000).* This is the sole issue on which La Republica bases
its Petition for Writ of Certiorari.
REASONS FOR DENYING THE WRIT
This Court should deny La Republica’s Petition for Writ
of Certiorari because: (i) there is no compelling reason to
warrant review; and (ii) the Second Circuit’s decision does
not conflict with Connecticut v. Doehr, 501 U.S. | (1991)
(“Doehr”).
I. LA REPUBLICA’S PETITION FAILS TO STATE
A REASON COMPELLING THIS COURT TO
REVIEW THE CONSTITUTIONALITY OF NEW
YORK INSURANCE LAW SECTION 1213
The sole question presented by La Republica’s Petition
is whether NYIL § 1213 as applied violates its constitutional
right to Due Process under the Fourteenth Amendment.
Pet. at i. For the reasons expressed in the Circuit Court’s
opinion below and as discussed herein under Point II,
NYIL § 1213 as applied in this case passes constitutional
muster. La Republica has not advanced a compelling reason
to warrant this Court to grant review. Rules of Supreme
Court, Rule 10 (“A petition for a writ of certiorari will be
granted only for compelling reasons”).
3. In a separate unpublished summary order entered the same
day, the Second Circuit remanded for the Southern District’s
determination whether: (i) the facultative reinsurance certificates
covered declaratory judgment expenses; (ii) BIIC’s complaint sought
recovery of declaratory judgment expenses; and (iii) the record
supported La Republica’s claim that BIIC failed to prove its
entitlement to $52,987.22 in claims.
4
{
Moreover, the Second Circuit’s decision conforms
with the decisions of all other courts addressing the
constitutionality of pre-answer security statutes.
All analogous statutes have been held to be constitutional.
See Rules of the Supreme Court, Rule 10(a) (reasons the
Court considers in exercising its discretion to grant review
includes whether “a United States court of appeals has
entered a decision in conflict with the decision of another
United States court of appeals on the same important matter”
or “has decided an important federal question in a way that
conflicts with a decision by a state court of last resort’).
See also Brockett v. Spokane Arcades, Inc., 472 U.S. 491
(1985) (as a matter of normal practice, the Court will defer
to the construction of a state statute given to it by the lower
federal courts).
Furthermore, La Republica has not sustained its burden
to rebut NYIL § 1213’s presumed constitutionality.
“[A] statute is presumed to be constitutional, ... and the
burden is on the one attacking the legislative arrangement to
negative every conceivable basis which might support it.”
Heller v. Doe, 509 U.S. 312, 320 (1993). In that context,
NYIL § 1213 and other pre-answer security statutes have
universally withstood constitutional challenges due to their
recognized purpose to further a substantial government
interest (i.e., the regulation of insurance by the states).
Indeed, not one court has struck down an insurance
pre-answer security statute to date. See, e.g., Lakehead Pipe
Line Co., Inc. v. American Home Assur. Co., 981 F. Supp.
1205 (D. Minn. 1997); Mid-American Indemn. Ins. Co. v.
King, 1995 WL 407388 (S. Ct. Tx. 1995); Curiale v. Ardra
Ins. Co., 88 N.Y.2d 268, 667 N.E.2d 313 (1996); Trihedron
Int'l Assur. v. Superior Ct., 218 Cal. App. 3d 934, 267 Cal.
Rptr. 418 (1990).
5
Section 1213 is New York’s version of the Uniform
Unauthorized Insurers Act (the “Unauthorized Insurers Act”)
promulgated by the National Association of Insurance
Commissioners in 1948 (the “NAIC”). Forty states have
adopted the Unauthorized Insurers Act in some form.
(Res. App. A at 8a-14a).4 The NAIC was acutely aware of
due process concerns when drafting the Unauthorized |
Insurers Act:
As to the Constitutionality of this section,
reference may be made to the case of Ownbey v.
Morgan, 256 U.S. 94 [(1921)], wherein the
Delaware statute requiring posting of bond by a
nonresident whose property has been attached
before any defense could be made in the action
was upheld. Care was taken in the drafting of the
act to keep the same constitutional bounds.
Uniform Unauthorized Insurers Act, Prefatory Note,
Section 6.
In Ownbey, this Court upheld, against due process
challenges, a Delaware statute conditioning defendant’s right
to appear and contest the merits of plaintiff's demand upon
his first giving security — in the form of special bail or a
surety’s undertaking — for the payment of judgment.°
4. Nebraska’s, Ohio’s and Oregon’s version of the
Unauthorized Insurers Act, however, does not contain pre-answer
security requirements. Additionally, Pennsylvania has since repealed
its enactment of the Act.
5. The obligation of the out-of-state debtor to post a bond under
the Delaware statute at issue in Ownbey was triggered upon a creditor
(Cont'd)
6
In holding the statute constitutional, this Court stated
that:
the statute in plain terms gives to defendant the
opportunity to appear and make his defense,
conditioned only upon his giving security to the
value of the property attached. Hence the question
reduces itself to whether this condition is an
arbitrary and unreasonable requirement, so
inconsistent with established modes of
administering justice that it amounts to a denial
of due process.
Ownbey, 256 U.S. at 102-03. Indeed, despite the debtor’s
claims of hardship, this Court unequivocally concluded that
the statute was not arbitrary or unreasonable. /d. at 112.
New York courts have repeatedly upheld the
constitutionality of NYIL § 1213 and its predecessor statute,
Insurance Law § 59-a. See Ace Grain Co. v. American Eagle
Fire Ins. Co., 95 F. Supp. 784 (S.D.N.Y. 1951); Zacharakis
v. Bunkerhill Mut. Ins. Co., 281 A.D. 487, 120 N.Y.S.2d
418, 423-24 (1* Dept. 1953); Kaye v. Doe, 204 Misc. 719,
125 N.Y.S.2d 135, 139 (Sup. Ct. Bronx Co. 1953). In Kaye
v. Doe, for example, the court found that if an unauthorized
insurer voluntarily engaged in purposeful activity in New
York which brought it within the purview of NYIL § 1213,
(Cont'd)
attaching the in-state property of the debtor. An unauthorized alien
reinsurer’s obligation under Section 1213(c)(1) to post a bond or
obtain a license, however, is triggered upon the commencement of -
a proceeding against it. See infra at 17.
J
there was no violation of any constitutional provisions arising
from its application:
Any other conclusion would tend to give the out-
of-state insurer greater (not equal) protection of
the laws, impair the just claims of New York
citizens, and deprive them of the obligations to
them voluntarily assumed by such insurer. Due
process does not impose such frustration.
Id. at 142 (construing NYIL § 59-a) (emphasis added).
By voluntarily carrying on insurance business in New
York, La Republica has consented and submitted to be sued
there and it is subject to the conditions imposed by that state.
New York may impose such terms and conditions as it deems
proper and may exact such security for the performance of
its contracts as in its judgment will best promote the public
interest. See Paul v. Virginia, 75 U.S. 168, 181 (1869);
cf. Ace Grair Co., 95 F. Supp. at 787 (rejecting defendant’s
Constitutional challenge to the jurisdictional aspects of NYIL
§ 59-a noting that “[i]t is too late to question the power of
New York to impose appropriate regulations on foreign
insurers who seek authorization to do business in the state’’).
The business of insurance, particularly on an interstate
and international level, is “affected with a vast public
interest.” See, e.g., Prudential Ins. Co. v. Benjamin, 328 U.S.
408 (1946). Its regulation is left to the states pursuant to
the McCarran-Ferguson Act. 15 U.S.C. § 1011, et seg.
Accordingly, it is subject to the reasonable exercise of the
state’s police power. The only restriction on the exercise of
this power is that the state’s action shall be “reasonably
related to the public interest and shall not be arbitrary or
g
improperly discriminatory.” Trihedron, 218 Cal. App. 3d at
941, 267 Cal. Rptr. at 422 (citations omitted). The state’s
interest in ensuring that the obligations arising under
insurance contracts and the consequences of those obligations
are “faithfully carried out” are to be given “great weight”
in determining the state’s power to regulate. Ace Grain, 95
F. Supp. at 787 (quoting Travelers Health Ass'n v. Virginia,
339 U.S. 643, 649 (1950)).°
Relying on this reasoning, the California Court of
Appeals in 7rihedron sustained the constitutionality of
California’s version of NYIL § 1213:
Here, when a case arises out of a non-admitted
foreign or alien insurer transacting business in
California, the state has a valid interest in forcing
the insurer to comply with the state’s certification
6. The obligations created through the provisions of
NYIL § 1213 are well within the state’s power to regulate the
business of insurance. Indeed, as noted in Dean Construction
Company, Inc. v. Agricultural Insurance Co., 42 Misc. 2d 834, 249
N.Y.S.2d 247 (Sup. Ct. Nassau County), aff'd, 22 A.D. 82, 254
N.Y.S.2d 196 (N.Y.A.D. 1964):
the public policy of this State is to afford residents
protection against the obstacles encountered in pursuing
their legal rights against alien insurers in foreign forums.
The purpose is accomplished first by making
unauthorized foreign insurers subject to the jurisdiction
of our courts through service on the Secretary of State,
and secondly, by requiring the deposit of money or the
filing of a bond to insure a fund for the payment of any
judgment that may be obtained in the action.
Id. at 249.
9
requirements thereby protecting California
insureds and beneficiaries. Section 1616 in the
first instance requires compliance with those
certification requirements. The statute provides
the insurer with the generally less onerous
alternative of posting a bond in lieu of meeting
the certification requirements. Under the unique
circumstances, the bonding requirement can
hardly be viewed as a deprivation of a significant
property interest subject to due process
requirements. ... Section 1616’s requirements
therefore do not deprive insurers of any
substantial interest or existing right. Rather the
section encourages compliance with the already
existing statutory mandate. Accordingly, we
conclude section 1616 does not violate a non-
admitted foreign or alien insurer's due process
rights when the insurer is sued in connection with
transacting insurance business in California.
Trihedron, 218 Cal. App. 3d at 947-48, 267 Cal. Rptr. at
426 (emphasis added).
Accordingly, BIIC respectfully submits that La
Republica’s petition fails to establish any reason, let alone a
“compelling” reason, for this Court to exercise its discretion
to grant review. Therefore, BIIC requests that this Court deny
La Republica’s Petition for a Writ of Certiorari.
10
Il. THE SECOND CIRCUIT’S RULING IS
CONSISTENT WITH, NOT CONTRARY TO,
WITH THE PRINCIPLES ENUNCIATED IN
CONNECTICUT v. DOEHR
A. THE DOEHR LINE OF CASES SUPPORT THE
CONSTITUTIONALITY OF NYIL § 1213.
La Republica’s reliance upon Doehr and its progenitor
cases is completely without merit. In those cases, this Court
struck down prejudgment summary ex parte remedies
available to general creditors. Doehr, 501 U.S. at 5
(attachment of real property); Fuentes v. Shevin, 407 U.S.
67, 91-92 (1971) (replevin of personalty); Sniadach v. Family
Fin. Corp., 395 U.S. 337 (1969) (garnishment of wages).
Unlike NYIL § 1213, each of the statutes at issue in those
cases involved an outright seizure of property without notice
or hearing, depriving its owner of actual possession and
enjoyment of the property involved. Accordingly, the Doehr
line of cases is readily distinguishable.
1. Doehr
Unhke the instant case involving a suit against an
unlicensed insurance company doing business in New York
for money it owes, Connecticut v. Doehr involved an action
by one private citizen against another for unliquidated
damages arising from an assault and battery. As Doehr
correctly recognized, due process is not a “technical
conception with a fixed content unrelated to time, place and
circumstance.” Doehr, 501 U.S. at 10 (citation omitted).
Doehr dealt with procedural due process depriving a private
individual of his property in favor of another private
individual. That is on its face quite different from the
1]
regulation and responsibilities of alien, unlicensed insurance
and reinsurance companies who are doing business in New
York and whose obligations arise out of that business. Even
so, the proceedings herein meet the three pronged due process
test of Connecticut v. Doehr.
First, of what property interest is the Petitioner deprived?
La Republica has the right to defend the suit. All it needs to
do is to obtain a license, as other insurance companies have
done, to carry on business in New York — something which
La Republica should have done when it entered into its
agreement with BIIC. Alternatively, the Petitioner could post
a bond or money to satisfy its proportionate share of the
insurance losses paid to the insured by the plaintiff. A due
process violation should not be triggered under these
circumstances since this procedure is not the same as — or
similar to — an attachment or lien on property.
Second, unlike Doehr, the risk of erroneous deprivation
of property through the procedures under attack and the
probable value of alternative safeguards is missing here.
La Republica was afforded notice and a hearing. Contrary
to Doehr, the issue here involves determining the “existence
of a debt,” an uncomplicated matter that lends itself to
documentary proof. Mitchell v. W.T. Grant & Co., 416 U.S.
600, 606 (1973) (upholding a statute finding that determining
the existence of a debt or delinquent payments concerns
uncomplicated matters than lend themselves to documentary
proof). As noted above, La Republica can obtain a license to
do business in New York. Further, if it chooses to post a
bond or money, there is court supervision over the amount.
The safeguards adequately reduce the risk.
12
Third, it is self-evident that BIIC’s interest is not
de minimis. As with any insurance company which pays its
claims, BIIC needs the ability to obtain satisfaction of its
reinsurance debts due and owing. This is in harmony with
the state’s interest in assuring that insurance companies
subject to its jurisdiction meet their obligations.
Finally, although Doehr modified the third prong of
the tripartite due process analysis set forth in Mathews
v. Eldridge, 424 U.S. 319 (1976) from assessing
“the Government’s interest, including the function involved
and the fiscal and administrative burdens that the additional
or substitute procedural requirements would entail”
(Doehr, 501 U.S. at 10 (citing Mathews, 424 U.S. at 335))
to assessing the interest of the private party seeking the
prejudgment remedy, it did so with “due regard for any
ancillary interest the government may have in providing the
procedure or forgoing the added burden of providing greater
protections.” /d. at 11.
In this case, BIIC’s interest — the collection of
reinsurance balances owed to it under the Facultative
Certificates — is on par with New York’s ancillary
interest as articulated in the preamble to NYIL § 1213.
The legislature declares that it is a subject of
concern that many residents of this state hold
policies of insurance issued or delivered in this
__state by insurers while not authorized to do
business in this state, thus presenting to such
residents the often insuperable obstacle of
- Aer er
13
resorting to distant forums for the purpose of
asserting legal rights under such policies.
NYIL § 1213(a).’ See Signal Mut. Indem. Ass'n y. Rice
Mohawk U.S. Constr. Co., Ltd., 1997 WL 148813, *2
(S.D.N.Y. Mar. 28, 1997) (“Insurance Law §1213(c)
ensures that New York residents can readily access foreign
insurer’s funds to satisfy judgments against the insurer”)
(Res. App. C at 24a). Section 1213 may be invoked by any
insurance company authorized to do business in New York.
See § 1213(b)(1)(A); Morgan v. American Risk Memt.,
No. 89 Civ. 2999, 1990 WL 106837 at *6 (S.D.N.Y. July
20, 1990) (“ARM”) (extending § 1213 to “corporations
authorized to do business” in New York) (Res. App. D at
45a); Aero Assocs., Inc. v. La Metropolitana, 183 F. Supp
357, 359 (S.D.N.Y. 1960) (“the primary objective of the
legislation was to protect New York residents, but the statute
went further and encompassed those corporations authorized
to do business in New York”).* Clearly, BIIC and New York
7. Itis here that the safeguards of NYIL § 1213 protecting parties
against having to endure the “insuperable obstacle of resorting to distant
forums” is most illustrative. During the pendency of this case before
the Southern District, La Republica filed suit in 1995 in Mexico against
nine defendants and fifteen third-party defendants, including BIIC
(the “Mexican action”). In doing so, La Republica sought, among other
things, to have the very same Facultative Certificates at issue here
declared void ab initio. La Republica also sought and was granted an
injunction enjoining BIIC from taking any action in Mexico to enforce
any judgments against La Republica until the Mexican action is
completely resolved. Five years later, only BIIC and four of the other
fifteen third-party defendants have been served with process in the
Mexican action, thwarting any efforts by BIIC to enforce the default
judgment in Mexico indefinitely.
8. BIIC’s predecessor, ACIC, was authorized to do business in
New York at all relevant times, including during the time La Republica
issued the Facultative Certificates to ACIC.
14
have the same interest in seeing La Republica pay the $11
million plus claims it owes pursuant to the Facultative
Certificates.
2. Fuentes and Sniadach
In Fuentes, this Court expressly recognized that
prejudgment provisional creditors’ remedies are fully
justified when those provisions serve an important
governmental interest or general public interest. Fuentes, 407
U.S. at 91. The Court, however, held the statutes
unconstitutional because they allowed debtors’ property to
be seized without notice to the debtor. /d. at 83. As discussed
above, that is not the case with NYIL § 1213.
Sniadach required a determination as to whether a
Wisconsin statute which permitted an employer to garnish
an employee’s wages without notice violated the due process
requirements of the Fourteenth Amendment. “What happens
in Wisconsin is that the clerk of the court issues the summons
at the request of the creditor’s lawyer; and it is the latter
who by serving the garnishee sets in motion the machinery
whereby the wages are frozen.” Sniadach, 395 U.S. at 339.
The employee argued that the process deprived him of
“his enjoyment of earned wages without the opportunity to
be heard... .” Jd. The Sniadach Court agreed with the
employee and ruled Wisconsin’s garnishment statute
unconstitutional. The Sniadach Court’s ratio deciendi turned
on the fact that, although the statute ultimately gave the
employee a right to be heard, such a provision had “little
reality or worth unless one is informed that the matter is
pending and can choose for himself whether to appear or
default, acquiesce or contest.” Id. at 339-40 (quoting Mullane
v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314
(1950)).
15
Again, NYIL § 1213 unequivocally mandates that
La Republica be served with notice of the matter. La Republica
does not dispute this point. Indeed, after receiving such notice,
La Republica chose to appear and over the next decade take
advantage of all the due process protections it now claims were
never afforded. La Republica seized every opportunity to be
heard and to contest this matter. The fact that it lost on each of
those opportunities — as it should have — does not diminish
the constitutional safeguards afforded by NYIL § 1213. Hence,
under the facts of this case and NYIL § 1213’s constitutional
pre-answer security requirements, BIIC submits that the
potential for unwarranted attachment present in Sniadach and
Fuentes is simply not present here.
B. NYIL § 1213 AND THE STATUTE AT ISSUE IN
DOEHR ARE COMPLETELY DISSIMILAR
Even if NYIL § 1213 is analogized to the creditors’
remedies at issue in Doehr and like cases, it readily transcends
any constitutional challenge since the Connecticut Statute at
issue in Doehr is not even remotely similar to NYIL § 1213
The Connecticut statute provided, in relevant part, that:
[t]he court or a judge of the court may allow the
prejudgment remedy to be issued by an attomey
without hearing . . . upon verification by oath of the
plaintiff or of some competent affiant, that there is
probable cause to sustain the validity of the
plaintiff's claims and (1) that the prejudgment
remedy requested is for an attachment of real
property. .. .
Conn. Gen. Stat. § 52-278e (1991). The practical effect of the
statute allowed the personal injury plaintiff in Doehr to obtain
an ex parte attachment on defendant’s real property.
Doehr, 501 U.S. at 5.
16
By contrast, NYIL § 1213 does not operate to deprive
La Republica of possession of its property. Rather, it provides
the following choice
Before any unauthorized foreign or alien insurer
files any pleading in any proceeding against it, it
shall either: ;
(A) deposit with the clerk of the court
in which the proceeding is pending,
cash or securities or file with such clerk
a bond with good and sufficient sureties,
to be approved by the court, in an
amount to be fixed by the court
sufficient to secure payment of any final
judgment which may be rendered in the
proceeding, but the court may in its
discretion make an order dispensing
with such deposit or bond if the
superintendent certifies to it that such
insurer maintains within this state funds
or securities in trust or otherwise
sufficient and available to satisfy any
final judgment which may be entered in
the proceeding, or
(B) procure a license to do an
insurance business in this state.
NYIL § 1213(c)(1)(A) and (B) (emphasis added). NYIL § 1213’s
security requirement, like the bond requirement upheld in
Ownbey, is simply a condition precedent to the right to defend
a particular type of suit under New York Insurance law.
Dean Constr. Co. v. Agric. Ins. Co., 42 Misc. 2d 834, 835, 249
17
N.Y.S.2d 247, 248 (Sup. Ct. Nassau Co. 1964). In this regard,
NYIL § 1213 may be analogized to the requirement that an
appellant post a supersedeas bond as a condition of obtaining
a stay pending appeal — a requirement that has repeatedly
withstood Constitutional scrutiny. See, e.g., Christopher
Lasalle and Company v. Heller Fin., Inc., 731 F. Supp. 279
(E.D. Ill. 1990). |
Moreover, NYIL § 1213 merely imposes an obligation
upon La Republica to deposit cash, securities or a bond — it
does not authorize BIIC to take or seize any of La Republica’s
specific property. Indeed, NYIL § 1213 is the antithesis of
an ex parte attachment — it “mandates court supervision
before an insurer may be required to post security.”
Curiale, 88 N.Y.2d at 278. And, in enforcing the statute, the
court does not rely on its equitable powers — NYIL § 1213
is self-executing since an unauthorized alien reinsurer’s
obligation to post security (or obtain a license to do business)
is triggered upon notice of the proceeding commenced
against it and before filing any pleading in that proceeding.
Moore v. Nat'l Distiller and Chem. Corp., 143 F.R.D. 526,
531 (S.D.N.Y. 1992), aff'd, 69 F.3d 1226 (2d Cir. 1995);
Curiale v. Phoenix Gen. Ins. Co. of Greece, S.A., 1992
WL 320535, *1 (S.D.N.Y. Oct. 23, 1992) (Res. App. B).
Thus, all defendants subject to NYIL § 1213 are “provided
notice and an opportunity to be heard. ...” Curiale, 88
N.Y.2d at 278. :
18
Ill. NYIL § 1213 APPLIES TO REINSURERS
Although the sole issue upon which La Republica bases
its Petition is whether NYIL § 1213 violates its rights to
due process, it nonetheless overtly seeks a decision that
NYIL § 1213 only applies to insurers — not reinsurers.
Pet. at 6-7. Although La Republica raised this argument in
the Southern District and lost, it did not appeal this issue
before the Second Circuit. British Int'l, 212 F.3d at 140-41.
Nonetheless, the Second Circuit felt compelled “to address
the point, as this status resolution, underpins the statute’s
applicability.” /d. at 141. In doing so, the Second Circuit
looked to the ARM case, supra, and adopted its and other
courts’ “reasoning, that the argument that a reinsurance
contract is not a ‘policy of insurance’ or a ‘contract of
insurance’ is not sufficient to contravene the express
language of § 1101(b)(2).” /d. (citing ARM, 1990 WL
106837, at *6 (Res. App. D at 4la-44a)). Accord John
Hancock Property and Cas. Ins. Co. v. Universale
Reinsurance Co., Ltd., 147 F.R.D. 40, 50 (1993) (adopting
the reasoning of ARM). ARM and thus, the Second Circuit,
expressly rejected La Republica’s attempted distinction:
The express language of § 1101(b)(2)
demonstrates that “although the legislature
recognized that the business of reinsurance was
to be distinguished for some purposes from the
business of insurance, ... it did not intend that
unauthorized reinsurers be exempted from New
York’s long arm statute and _ security
requirements.”
19
[Indeed], “it makes little sense for the legislature
to protect residents by subjecting alien reinsurers
to the jurisdiction of the New York courts, but
not to have the security requirements.”
British Int’l, 212 F.3d at 14] (citations omitted).
Accordingly, the Second Circuit correctly rejected La
Republica’s contention that it did not have to comply with
New York’s licensing requirements. British Int’ Ins. Co.,
212 F.3d at 143 (citing Curiale, 88 N.Y. 2d at 277, 644
N.Y.S.2d 663, 667 N.E.2d 313) (“[T]he ability to conduct
insurance business free from legitimate government
regulation is not a constitutionally protected property or
liberty interest.”)). See Ace Grain, 95 F. Supp. at 787
(“In requiring [La Republica] to post a sufficient bond as a
condition of filing on answer and making defense, New York
is requiring no more of [La Republica] than it constitutionally
requires of any authorized foreign insurer. [La Republica]
has no constitutional right to preferential treatment”).
Finally, while advancing its argument before this Court
that NYIL § 1101(b)(2)(G) exempts it from the licensing -
and other requirements imposed by New York’s insurance
law, La Republica conveniently ignores NYIL § 1108 which
specifically identifies types of insurers who are exempt from
New York’s stringent insurance regulations; none of which
apply to do unauthorized alien reinsurers such as
La Republica. Although, La Republica suggests that it has
unfettered discretion as to how it conducts business in New
York, in reality La Republica is faced with a choice of
becoming licensed to do business in New York or posting a
bond or other security before defending any actions.
The fact that La Republica is unwilling to comply with the
choices offered by New York does not equate to a deprivation
of its due process rights.
20
IV. DECLARING PRE-ANSWER SECURITY
STATUTES ENACTED IN OVER THIRTY-SIX
STATES UNCONSTITUTIONAL WOULD HAVE
A SIGNIFICANT IMPACT ON THE GLOBAL
REINSURANCE MARKET
La Republica’s final claim is that continued enforcement
of pre-answer security statutes restricts insurance companies’
access to the entire global reinsurance market. La Republica’s
arguments stand the modern reinsurance world on its head.
Contrary to this argument, security statutes are directly
responsible for the global reinsurance market’s continued
survival. One need only look to the proliferation of
reinsurance disputes caused by, among other things,
the environmental and product liability cases brought in
the 1980s to see the fallacy of La Republica’s logic.
See, e.g., Mutual Fire, Marine & Inland Ins. Co. v. Norad
Reins. Co., 868 F.2d 52 (3d Cir. 1989). Pre-answer security
statutes which require financial certainty, helped the
insurance market survive the 1980s and remain intact today.
Indeed, if all reinsurers were permitted to breach their
reinsurance obligations, abscond with the premiums, and take
refuge behind their international borders, insurance
companies would be forced to pay millions of dollars in
claims without recourse to the reinsurance protection which
was purchased. The potential catastrophic consequences —
including the potential insolvency of the insurance company
— should not be a policy goal of international reinsurance.
See Signal Mut., 1997 WL 148813, *2 (Res: App. C at 22a-
24a) (“Insurance Law §1213(c) ensures ... [ready] access
[to] foreign insurer’s funds to satisfy judgments against the
insurer.”’).
21
Accordingly, BIIC respectfully submits that pre-answer
security statutes help ‘to maintain a level playing field as
between a domestic insurer and its forei gn or alien reinsurers.
Therefore, contrary to La Republica’s claims, any repudiation
thereof would have a catastrophic effect upon the global
reinsurance market.
CONCLUSION
For the reasons set forth above, Respondent BIIC
respectfully requests that this Court deny La Republica’s
Petition for Writ of Certiorari.
Respectfully submitted,
SHAWN L. KELLY
Counsel of Record
MICHAEL R. O’DonNELL
THomas J. PERRY
Desra D. TEDESCo
RIKER, DANZIG, SCHERER,
HYLAND & Perretti LLP
Attorneys for Respondent
Headquarters Plaza
One Speedwell Avenue
Morristown, NJ 07692
(973) 538-0800
APPENDIX
la
APPENDIX A — UNAUTHORIZED
INSURERS PROCESS ACT
Model Regulation Service — October 1994
UNAUTHORIZED INSURERS PROCESS ACT
Table of Contents
Introduction
Section 1. Purpose of Act
Section 2. Service of Process Upon Unauthorized Insurer
Section 3. Defense of Action by Unauthorized Insurer
Section 4. Attorney Fees
Section 5. Constitutionality
Section 6. Short Title
Introduction
An Act relating to insurers not authorized to transact business
in this state; providing for actions in this state against and
for the service of Process upon these insurers; prescribing
how a defense may be made by these insurers; and providing
for the allowance of attorneys’ fees in actions against these
insurers.
Section 1. Purpose of Act
The purpose of this Act is to subject certain insurers to the
jurisdiction of courts of this state in suits by or on behalf of
insureds or beneficiaries under insurance contracts.
The legislature declares that it is a subject of concern that
many residents of this state hold policies of insurance issued
2a
Appendix A
or delivered in this state by insurers while not authorized to
do business in this state, thus presenting to these residents
the often insuperable obstacle of resorting to distant forums
for the purpose of asserting legal rights under these policies.
In furtherance of the state interest, the legislature herein
provides a method of substituted service of process upon
the insurers and declares that in so doing it exercises its power
to protect its residents and to define, for the purpose of this
statute, what constitutes doing business in thts state, and also
exercises powers and privileges available to the state by
virtue of United States Code tit. 15 § 1011, which declares
that the business of insurance and every person engaged
therein shall be subject to the laws of the several states.
Section 2. Service of Process Upon Unauthorized Insurer
A. Any of the following acts in this state, effected by
mail or otherwise, by an unauthorized foreign or alien
insurer is equivalent to and shall constitute an
appointment by the insurer of the Commissioner of
Insurance and the commissioner’s successor or
successors in office, to be its true and lawful attorney,
upon whom may be served all lawful process in any
action, suit or proceeding instituted by or on behalf
of an insured or beneficiary arising out of a contract
of insurance, and any act shall be signification of its
agreement that the service of process is of the same
legal force and validity as personal service of process
in this state upon the insurer.
(1) The issuance or delivery of insurance contracts
to residents of this state or to corporations
authorized to do business in the state;
3a
Appendix A
(2) The solicitation of applications for insurance
contracts;
(3) The collection of premiums, membership fees,
assessments or other considerations for
insurance contracts; or
(4) Any other transaction of insurance business.
Drafting Note: Insert the title of the chief regulatory official
wherever the term “commissioner” appears.
B. Service of process shall be made by delivering to
and leaving with the commissioner or some person
in apparent charge of the office two (2) copies thereof
and the payment of the fees prescribed by law. The
commissioner shall forthwith mail by registered mail
one of the copies of the process to the defendant at
its last known principal place of business, and shall
keep a record of all Process so served upon the
commissioner. The service of Process is sufficient,
provided notice of such service and a copy of the
Process are sent within ten (10) days thereafter by
registered mail by the plaintiff or plaintiff s attorney
to the defendant at its last known principal place of
business, and the defendant’s receipt, or receipt
issued by the post office with which the letter is
registered, Showing the name of the sender of the
letter and the name and address of the person to
whom the letter is addressed, and the affidavit of the
plaintiff or plaintiff's attorney showing compliance
are filed with the clerk of the court in which the action
4a
Appendix A
is pending on or before the date the defendant is
required to appear, or within a further time the court
may allow.
. Service of process in an action, suit or proceeding
shall, in addition to the manner provided in
Subsection B of this section, be valid if served upon
a person within this state who, in this state on behalf
of the insurer, is:
(1) Soliciting insurance; or
(2) Making, issuing or delivering any contract of
insurance; or
(3) Collecting or receiving any premium, membership
fee, assessment or other consideration for
insurance;
and a copy of the process is sent within ten (10) days
thereafter by registered mail by the plaintiff or
plaintiffs attorney to the defendant at the last known
principal place of business of the defendant, and the
defendant’s receipt, or the receipt issued by the post
office with which the letter in registered, showing
the name of the sender of the letter and the name
and address of the person to whom the letter is
addressed, and the affidavit of the plaintiff or
plaintiff's attorney showing a compliance herewith
are filed with the clerk of the court in which the action
is pending on or before the date the defendant is
required to appear, or within a further time the court
may allow.
Sa
Appendix A
D. A plaintiff or complainant shall not be entitled to a
[insert appropriate state procedure, either judgment
by default, or a judgment with leave to prove
damages, or a judgment pro confesso] under this
section until the expiration of thirty (30) days from
the date of the filing of the affidavit of compliance.
E. Nothing in this section contained shall limit or
abridge the right to serve any process, notice or
demand upon any insurer in any other manner now
or hereafter permitted by law.
Section 3. Defense of Action By Unauthorized Insurer
A. Before any unauthorized foreign or alien insurer shall
file or cause to be filed any pleading in any action,
Suit Or proceeding instituted against it, the
unauthorized insurer shall deposit with the clerk of
the court in which the action, suit or proceeding is
pending, cash or securities or file with the clerk a
bond with good and sufficient sureties, to be
approved by the court, in an amount to be fixed by
the court sufficient to secure the payment of any final
judgment which may be rendered in the action; or
procure a certificate of authority to transact the
business of insurance in this state.
B. The court in any action, suit or proceeding in which
service is made in the manner provided in Section
2B or 2C may, in its discretion, order such
postponement as may be necessary to afford the
defendant reasonable opportunity to comply with the
6a
Appendix A
provisions of Subsection A of this section and to
defend the action.
C. Nothing in Subsection A of this section is to be
construed to prevent an unauthorized foreign or alien
insurer from filing a motion to quash a writ or to set
aside service thereof made in the manner provided
in Section 2B or 2C on the ground either that:
(1) The unauthorized insurer has not done any of
the acts enumerated in Section 2A; or
(2) The person on whom service was made pursuant
to Section 2C was not doing any of the acts
therein enumerated.
Section 4. Attorney Fees
In an action against an unauthorized foreign or alien insurer
upon a contract of insurance issued or delivered in this state
to a resident thereof or to a corporation authorized to do
business therein, if the insurer has failed for thirty (30) days
after demand prior to the commencement of the action to
make payment in accordance with the terms of the contract,
and it appears to the court that the refusal was vexatious and
without reasonable cause, the court may allow to the plaintiff
a reasonable attorney fee and include the fee in any judgment
that may be rendered in the action. The fee shall not exceed
twelve and one-half percent (12-1/2%) of the amount that
the court or jury finds the plaintiff is entitled to recover
against the insurer, but in no event shall the fee be less than
$25. Failure of an insurer to defend an action shall be deemed
7a
Appendix A
prima facie evidence that its failure to make payment was
vexatious and without reasonable cause.
Section 5. Constitutionality
If any provision of this Act or the application thereof to any
person or circumstances is held invalid, the invalidity shall
not affect other provisions or applications of the Act which
can be given effect without the invalid provision or
application, and to this end the provisions of this Act are
declared to be severable.
Section 6. Short Title
This Act may be cited as the Unauthorized Insurers Process
Act.
Legislative History (all references are to the Proceedings
of the NAIC).
1949 Proc. 315-316 (adopted).
1951 Proc. 161, 166-168, 182 (printed and reaffirmed).
8a
Appendix A
The date in parentheses is the effective date of the legislation
or regulation, with latest amendments.
NAIC MODEL/ RELATED
MEMBER SIMILAR LEGIS. LEGIS./REGS.
Alabama _ ALA. CODE
§§ 27-10-50 to 27-10-56
(1951/1971).
Alaska - ALASKA STAT.
§§ 21.33.011 to
21.33.035
(1968/1992).
Arizona ARIZ. REV. STAT.
ANN. §§ 20-403 to
20-406 (1972).
Arkansas ARK. STAT. ANN.
§§ 23-65-201 to
23-65-205 (1959).
California CAL. INS. CODE CAL. INS. CODE
§§ 1610 to 1619 § 12931
(1949/1982). (1970/1985).
Colorado COLO. REV. STAT.
§§ 10-3-1001 to
10-3-1005 (1955/1963).
Connecticut
Delaware
D.C.
Florida
Georgia
Guam
Hawaii
Idaho
Illinois
9a
Appendix A
CONN. GEN. STAT.
§ 38a-27 (1970/1990).
DEL. CODE ANN.
tit. 18 §§ 2101 to 2108
(1956).
NO ACTION TO DATE
FLA. STAT. §§ 626.904
to 626.912 (1982).
GA. CODE §§ 33-5-50
to 33-5-59 (1960).
GUAM GOV’T.
CODE §§ 43129 to
43131 (1959).
HAWAII REV. STAT.
§§ 431:8-206 to
431:8-211 (1988).
IDAHO CODE
§§ 41-1204 to 41-1210
(1961).
215 ILL. COMP.
STATS. 5/123 -
(1949/1983).
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
10a
Appendix A
IND. CODE §§ 27-4-4-1
to 27-4-4-8 (1955/1985).
IOWA CODE
§ 507A.6 (1967).
KAN. STAT. ANN.
§§ 40-2001 to 40-2006
(1949).
KY. REV. STAT.
§ 304.11-040 (1982).
LA. REV. STAT. ANN.
-§§ 22:1253 to 1256
(1958/1968).
ME. REV. STAT. ANN.
tit. 24-A §§ 2102 to
2108 (1970/1973).
MD. ANN. CODE
INS. § 4-206
(1957/1997).
MASS. GEN. LAWS
ch. 175B §§ 1 to6
(1950).
NO ACTION TO DATE
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New
Hampshire
New Jersey
lla
Appendix A
MINN. STAT. § 60A-21
(1978/1984).
MISS. CODE ANN.
§§ 83-21-33 to 83-21-51
(1958).
_ MO. REV. STAT.
§§ 375.256 to 375.301
(1967).
MONT. CODE ANN.
§§ 33-1-611 to 33-1-616
(1959).
NEB. REV. STAT.
§§ 44-137.01 to
44-137.10 (1949/1989).
NEV. REV. STAT.
§§ 685B.050 to
685B.080 (1971).
N.H. REV. STAT.
ANN. §§ 406-B:4 to
406-B:7 (1967/1971).
N.J. REV. STAT.
§§ 17B:33-1 to
17B:33-9 (1971);
17:51-1 to 17:51-5
(1952/1953).
New Mexico
New York
North
Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Puerto Rico
12a ;
Appendix A
N.M. STAT. ANN.
§§ 59A-15-6 to
59A-15-8 (1985).
N.Y. INS. LAW § 1213
(1984).
N.C. GEN. STAT.
§ 58-16-35 (1955/1990).
N.D. CENT. CODE
§§ 26.1-02-10 to
26.1-02-12 (1983).
OHIO REV. CODE
ANN. § 3901.26 (1965).
OR. REV. STAT.
§§ 746.320 (1967/1981).
PA. CONS. STAT.
§ 40-1-206 (1976).
OKLA. STAT.
tit. 36 §§ 1103 to
1105 (1957).
P.R. LAWS ANN.
tit. 26 §§ 1005 to
1006 (1977).
Rhode Island
South
Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virgin Islands
13a
Appendix A
R.I. GEN. LAWS
§§ 27-16-3 to 27-16-14
(1956).
S.C. CODE ANN.
§§ 38-25-510 to
38-25-560 (1988).
S.D. CODIFIED LAWS
ANN. §§ 58-8-6 to
58-8-19 (1966/1975).
TENN. CODE ANN.
§§ 56-2-601 to 56-2-609
(1955).
TEX. INS. CODE ANN.
art. 1.14-1 (1967/1983);
art. 1.35 (1987).
VT. STAT. ANN. tit. 8
§§ 3381 to 3390 (1968).
UTAH CODE
ANN.
§§ 31A-2-309 to
31A-2-311 (1965).
V.I. CODE ANN.
tit. 22 § 665 (1968).
l4a
Appendix A
Virginia
Washington
West Virginia W.VA. CODE § 33-4-13
(1957/1992).
Wisconsin
Wyoming
VA. CODE
§§ 38.2-800 to
38.2-807 (1986).
WASH. REV.
CODE ANN.
§§ 48.05.200 to
48.05.220
(1947/1981).
WIS. STAT.
§§ 601.72 to 601.73
(1979/1981).
WYO. STAT.
§§ 26-12-201 to
26-12-206
(1967/1983).
15a
APPENDIX B — MEMORANDUM OPINION AND
ORDER OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK IN
CURIALE v. PHOENIX GENERAL INSURANCE
COMPANY OF GREECE, S.A., No. 83 Civ. 4687 (CSH)
DATED OCTOBER 23, 1992
United States District Court
S.D. New York.
Salvatore R. CURIALE, Superintendent of Insurance of the
State of New York, as Liquidator of Ideal Mutual Insurance,
Plaintiff,
V.
PHOENIX GENERAL INSURANCE COMPANY
OF GREECE, S.A.,
Defendant.
No. 83 Civ. 4687 (CSH).
Oct. 23, 1992.
MEMORANDUM OPINION AND ORDER
HAIGHT, District Judge:
By Notice of Motion dated December 27, 1991 , plaintiff
moves for an order compelling defendant to post security
for judgment, pursuant to New York Insurance Law
§ 1213(c)(1)(A). In the alternative, plaintiff moves to strike
|
i
i
|
|
16a
Appendix B
defendant’s answer and moves for the entry of a default
judgment.
Familiarity with the facts of this case, which are set forth
in several previous opinions by this Court, is assumed. For
the purposes of this motion, the relevant facts are set forth
briefly as follows.
Plaintiff Salvatore R. Curiale is the Liquidator of the
Ideal Mutual Insurance Company (“Ideal”), a New York
corporation. Defendant Phoenix General Insurance Company
of Greece, S.A. (“Phoenix”) is an insurance company
organized under thetaws of Greece.
From 1975 to 1984, Ideal used the services of Global
Aviation Insurance Manager, Inc. (“Global Aviation”) to
manage the reinsurance of aviation insurance policies issued
by Ideal. Global in turn used the services of London
reinsurance intermediaries, who negotiated reinsurance
treaties with an array of reinsurers, including defendant
Phoenix. In this lawsuit Curiale, Ideal’s Liquidator, seeks
more than $1.6 million in damages for Phoenix’s breach of
reinsurance agreements.
After referring the case to arbitration on July 2, 1984,
this Court rescinded the arbitration order in 1987 and restored
the case to the Court’s active calendar. In December 1988
this Court entered an order formally substituting the
Liquidator as the plaintiff. Settlement negotiations collapsed
in early 1991, and Curiale filed an amended complaint on
July 9, 1991. The amended compiaint set forth the specific
balances owed to the Liquidator under the relevant
17a
Appendix B
reinsurance agreements. On July 26, 1991, defendant
answered. Plaintiff advised defendant of the security
requirements of § 1213(c)(1)(A), but defendant resisted.
Plaintiff then filed the motion presently before the Court.
Defendant opposes plaintiff's motion on three grounds:
1) that Section 1213(c)(1)(A) of the New York Insurance
Law applies to insurers — not reinsurers; 2) that plaintiff
waived its right to raise the security requirement; and 3) that
the application of Section 1213(c)(1)(A) to this case would
be unconstitutional. |
The ‘first issue raised by Phoenix has previously been
considered by this Court. For the reasons stated in Morgan
v. American Risk Management, Inc., 89 Civ. 2999, 1990
WL 106837 (S.D.N.Y. July 20, 1990), I hold that Section
1213(c) applies to reinsurers as well as insurers. See also
Moore v. National Distillers and Chemical Corporation,
91 Civ. 2901, 1992 WL 238181 (S.D.N.Y. Aug. 14, 1992);
American Centennial Insurance Company v. Seguros
La Republica, S.A., 91 Civ. 1235, 1992 WL 162770
(S.D.N.Y. June 22, 1992); American Centennial Insurance
Company v. Seguros La Republica, S.A., 90 Civ. 2370, 1992
WL 147626 (S.D.N.Y. June 16, 1992).
The waiver argument has also been addressed by this
Court. In her opinion in Moore, Magistrate Judge Roberts
noted that “the language of § 1213 does not require a timely
demand of pre-answer security; the language only sets a
trigger for security.” 1992 WL 238181, at *4. In the case at
bar, Curiale simply waited until defendant answered to see
if defendant would post the security. Defendant did not do
18a
Appendix B
so, so plaintiff filed the present motion. That hardly provides
fodder for a waiver argument.
As for defendant’s third argument, the New York
legislature enacted § 1213 pursuant to that power conferred
upon the States by the McCarran-Ferguson Act, 15 U.S.C.
§ 1011 et seq. As the Supreme Court has stated, “Congress
removed all Commerce Clause limitations on the authority
of the States to regulate and tax the business of insurance
when it passed the McCarran-Ferguson Act... .” Western
and Southern Life Ins. Co. v. State Board of Equalization,
451 U.S. 648, 653 (1981) (citations omitted). See also Levy
v. Lewis, 635 F.2d 960, 963-64 (2d Cir.1980) (McCarran-
Ferguson states a clear congressional mandate “that
regulation of the insurance industry be left to the individual
states.”). Accordingly, I reyect Phoenix’s constitutional
attack. See Moore, 1992 WL 238181, at *6.
The defendant is directed to post a bond with the Clerk
of the Court in the amount of $1,633,674.92 by’ November
16, 1992. If defendant fails to do so, its answer will be
stricken and default judgment will be entered against it.
It is SO ORDERED.
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19a
APPENDIX C — MEMORANDUM AND ORDER OF
THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK IN SIGNAL
MUTUAL INDEMNITY ASSOCIATION, LTD. v. RICE
MOHAWK U.S. CONSTRUCTION COMPANY, LTD.,
No. 95 Civ. 3721 (LMM) DATED MARCH 28, 1997
United States District Court,
S.D. New York.
SIGNAL MUTUAL INDEMNITY ASSOCIATION, LTD.,
a foreign corporation,
Plaintiff,
v.
RICE MOHAWK U.S. CONSTRUCTION COMPANY,
Ltd., a New York corporation,
Defendant.
No. 95 Civ. 3721 (LMM).
March 28, 1997.
MEMORANDUM AND ORDER
MCKENNA, District Judge.
Defendant, Rice Mohawk U.S. Construction Company,
Ltd. (“Rice”) moves to strike the reply of Plaintiff, Signal
Mutual Indemnity Association, Ltd. (“Signal”), to Rice’s
20a
Appendix C
counterclaim, on the ground that Signal failed to comply with
state insurance law.
For the reasons set forth below, Defendant’s motion to
strike Signal’s reply to its counterclaim and for entry of
default judgment on its counterclaim is denied on the
condition that plaintiff post a bond for $100,000 in
accordance with New York Insurance Law § 1213(c)(1)
within forty-five (45) days of the date of this Memorandum
and Order.
I. Factual Background
Signal is a foreign corporation, incorporated under the
laws of Bermuda, with its principal place of business in
Bermuda. As a self-insurer under the Longshore and Harbor
Workers’ Compensation Act, 33 U.S.C. § 901 et seq.,
(“LHWCA”), Signal provides insurance coverage to its
“members,” most of which are employers whose employees
are covered by the LHWCA. (Complaint 4f 1, 3-4). Rice is
a New York corporation with its principal place of business
in New York. (Compiaint 2).
In November 1992, Signal and Rice entered into a
contract whereby Rice became a “member” of Signal in
exchange for Signal’s commitment to provide workers’
compensation to Rice’s entitled employees. (Complaint
{7 4, 5). Under state law, Signal’s obligations to Rice allowed
Signal to operate as a foreign insurer in New York.
On May 22, 1995, Signal commenced this action by
filing a complaint against Rice for breach of this contract.
2la
Appendix C
Signal alleges that Rice failed to make mandatory payments
in accordance with Signal’s by-laws.' On July 18, 1996, Rice
answered the complaint and counterclaimed, alleging that
Signal, not Rice, breached the contract in question. Rice,
citing Signal’s failure to comply with a New York State
Insurance Law provision, moves to strike Signal’s reply to
Rice’s counterclaim and to enter a default judgiment in its
favor.
II. Discussion
A. New York Insurance Law § 1213(c)(1)
Federal regulations require LHWCA self-insurers to
deposit funds in the United States as security and proof of
financial accountability. 20 CFR § 703.301 (1996). New
York State insurance laws require foreign insurers to deposit
a bond with the court or to procure an insurance license from
the state before such insurer pleads in any proceeding against
that insurer. N.Y. INSURANCE LAW § 1213(c)(1)
(McKinney 1985). Signal maintains accounts in Illinois, in
accordance with the federal requirement, but has neither
deposited a bond nor received an insurance license in New
York to comply with state law.
Rice argues that Signal’s failure to comply with
§ 1213(c)(1) precludes Signal from replying to Rice’s
counterclaim. Signal counters that although it has failed to
1. For a more detailed history of this dispute, see this Court’s
order denying defendant’s 12(b)(1), 12(b)(4), and 12(b)(6) motions
dated June 17, 1996.
22a
Appendix C
comply with § 1213(c)(1), the LHWCA pre-empts the New
York statute. According to Signal, this federal pre-emption
relieves Signal of any obligation to comply with the New
York law.
B. Pre-emption Generally
The pre-emption doctrine, under which Federal statutes
displace state laws and regulations, originates in the
Supremacy Clause, U.S. CONST., Art. VI, cl. 2.
Consideration of the pre-emption doctrine requires the court
to examine both explicit and implicit congressional intent.
Barnett Bank of Marion Country, N.A. v. Nelson, 517 U.S.
25, _, 116 S.Ct. 1103, 1107, 134 L.Ed.2d 237 (1996);
Fidelity Fed. Say. and Loan Assoc. v. de la Cuesta, 458 U.S.
141, 152-153, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982). Rarely
will the language of a federal statute explicitly state that
federal law pre-empts existing state laws. Barnett Bank, 517
U.S. at __, 116 S.Ct. at 1108. Therefore, the court must
consider the language and purpose of the federal statute in
search of an implicit intent to pre-empt state law. Id.; Pacific
Gas & Elec. Co. v. State Energy Resources Conservation &
Dev. Comm’n., 461 U.S. 190, 203, 103 S.Ct. 1713,
75 L.Ed.2d 752 (1983).
Absent such intent, federal law will pre-empt state law
only when compliance with both is either a “physical
impossibility,” Florida Lime & Avocado Growers, Inc. v.
Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 10 L.Ed.2d 248
(1963), or when the state law impedes Congress’ objectives.
Fidelity Fed., 458 U.S. at 153 (quoting Hines v. Davidowitz,
312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941)).
23a
Appendix C
Consequently, application of the pre-emption doctrine must
remain flexible, “especially where the State has a substantial
interest in regulation of the conduct at issue and the State’s
interest is one that does not threaten undue interference with
the federal regulatory scheme.” Farmer v. United Bhd. of
Carpenters and Joiners of Am., 430 U.S. 290, 302, 97 S.Ct.
1056, 51 L.Ed.2d 338 (1977).
C. The Longshore and Harbor Workers’
Compensation Act
Congress created the LHWCA to guarantee
compensation for marine workers previously excluded by
the then-existent maritime laws. Sun Ship, Inc. v.
Pennsylvania, 447 U.S. 715, 717-718, 100 S.Ct. 2432,
65 L.Ed.2d 458 (1980). Signal contends that the self-insurer
regulations contained in the LHWCA evidence Congress’
intent to pre-empt state laws governing workers’
compensation. In Sun Ship, Inc., however, the Supreme Court
found “no sign. . . that Congress wished to alter the accepted
understanding that federal jurisdiction would co-exist with
State compensation laws.” Id. at 722 (holding that injured
maritime workers eligible for compensation under the
LHWCA could nevertheless claim compensation under state
compensation laws).
Nor has Congress tacitly indicated a desire to pre-empt
New York state insurance law. A state law “must do ‘major
damage’ to ‘clear and substantial’ federal interests before
the Supremacy Clause will demand that state law be
overridden.” Hisquierdo v. Hisquierdo, 439 U.S. 572, 581,
99 S.Ct. 802, 59 L.Ed.2d 1 (1979). In the instant case, Signal
24a
Appendix C
can adhere to state regulations without compromising
Congress’ interests in the welfare of the maritime workers.
Florida Lime, 373 U.S. at 142-43.
Signal fails to differentiate between Congress’ purpose
in creating the LHWCA, and the New York legislature’s
purpose in establishing the laws governing foreign insurers.
Congress enacted the LHWCA in the interest of maritime
workers. Director, Office of Workers’ Compensation
Programs, U.S. Dep’t of Labor v. Perini North River Assoc.,
459 U.S. 297, 306, 103 S.Ct. 634, 74 L.Ed.2d 465 (1983). In
contrast, the New York legislature created Insurance Law
§ 1213(c) for the protection of its residents. N.Y.
INSURANCE LAW § 1213(c) (McKinney 1985 & Supp.
1997); Curiale v. Ardra Ins. Co., 88 N.Y.2d 268, 644
N.Y.S.2d 663, 667-8, 667 N.E.2d 313 (Ct.App.1996).
Insurance Law § 1213(c) ensures that New York residents
can readily access a foreign insurer’s funds to satisfy
judgments against that insurer. Curiale, 644 N.Y.S.2d at 667,
667 N.E.2d 313. Such precautions enable foreign insurers
like Signal to operate in New York without first obtaining
insurance licenses. Consequently, this provision benefits both
the residents of New York and the foreign insurance
companies allowed to operate in New York.
D. McCarran-Ferguson Act Anti-Pre-emption Rule
The McCarran-Ferguson Act instructs that “No Act of
Congress shall be construed to invalidate, impair, or
supersede any law enacted by any State for the purpose of
regulating the business of insurance ... unless such Act
specifically relates to the business of insurance.” 15 U.S.C.
25a
Appendix C
§ 1012(b) (1976). Signal argues that the existence of this
statute, and the language contained therein, provides further
evidence of Congress’ intent to pre-empt states’ participation
in insurance regulation. Signal overlooks, however, that the
“the first clause of [§ 1012] 2(b) was intended to further
Congress’ primary objective of granting the States broad
regulatory authority over the business of insurance. The
second clause accomplishes Congress’ secondary goal, which
was to carve out only a narrow exemption for ‘the business
of insurance’ from the federal antitrust laws.” U.S. Dep’t. of
Treasury v. Fabe, 508 U.S. 491, 505, 113 S.Ct. 2202, 124
L.Ed.2d 449 (1993).
The McCarran-Ferguson Act expands state control over
insurance industries operating within the state. This
expansion necessarily includes New York State’s ability to
regulate the activities of foreign insurers. Additionally,
Congress created the McCarran-F erguson Act to ensure that
state regulation would not be subject to inadvertent federal
intrusion. Barnett Bank, 517 U.S. at __»__» 116 S.Ct. at 1112,
15 U.S.C. § 1012 (1976 & Supp.1996). The Act provides
that state law should prevail unless a federal Statute
specifically relating to the “business of insurance” conflicts
with a state law. 15 U.S.C. § 1012 (1976 & Supp.1996);
see also Barnett Bank, 517 U:S. at __, 116 S.Ct. at 1111.
No such conflict exists between the New York State law for
foreign insurers and insurer obligations enumerated under
the LHWCA.
Finally, to qualify for exception under the McCarran-
Ferguson Act, the LHWCA would have to specifically relate
to the “business of insurance.” As discussed above, the
26a
Appendix C
LHWCA creates and guarantees workers’ compensation for
maritime workers. 33 U.S.C. § 901, et seq. (1986 & Supp.
1996). Thus, the insurance policies created to support the
provisions of the LHWCA are incidental.
III. Conclusion
For the reasons set forth above, defendant’s motion to
strike plaintiff's reply and for entry of default judgment on
its counterclaim is denied on the condition that plaintiff post
a bond for $100,000 in accordance with § 1213(c) of the
New York Insurance Law within forty-five (45) days of the
date of this Memorandum and Order. Either party may move,
for good cause shown, to increase or decrease the amount of
the bond.
SO ORDERED.
27a
APPENDIX D — OPINION AND ORDER OF THE
UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK IN MORGAN
v. AMERICAN RISK MANA GEMENT, INC., No. 89 CIV
2999 (JSM) (KAR) DATED JULY 20, 1990
United States District Court,
S.D. New York.
Leroy MORGAN, Commissioner of Insurance of the
Commonwealth of Kentucky, in his capacity as Liquidator
of Delta America Re Insurance Company,
Plaintiff,
V.
AMERICAN RISK MANAGEMENT, INC., et al.,
Defendants.
No. 89CIV2999(JSM)(KAR).
July 20, 1990.
* * &
OPINION AND ORDER
KATHLEEN A. ROBERTS, United States Magistrate:
This action for declaratory relief, specific performance,
and damages arises from a management contract and
reinsurance treaties entered into by Delta America Re
28a
Appendix D
Insurance Company (“Delta Re”) and defendants. The suit
was filed on May 2, 1989 and referred to me on July 18,
1989 to supervise discovery, and on October 30, 1989 to
decide the pending motion.
Plaintiff, the Kentucky Commissioner of Insurance,
commenced this action in his capacity as the Liquidator of
Delta Re, an insolvent reinsurance company chartered under
the laws of Kentucky and, prior to its insolvency, authorized
to do business in New York. Complaint {J 1, 2. Defendant
American Risk Management, Inc. (“ARM”), an Ohio
Corporation, provided management services to Delta Re from
1983 until the reinsurance company was declared to be
insolvent in September, 1985. Id. ¥4 4, 7. Defendant Frederic
Reiss was the sole shareholder and chairman of ARM, as
well as of defendants International Risk Management
Limited, European Risk Management Limited, Transnational
Risk Management Limited, Universal Management Limited,
and Transnational Risk Management (Guernsey) Limited,
foreign corporations that also provided insurance
management services. These foreign corporations, together
with ARM, were allegedly operated under a common
management structure headed by Mr. Reiss. Id. J 5, 6.
Defendants Robert Norton, John Ryan, Brian Murphy, and
Arthur Deters, were officers and directors of Delta Re and
of ARM or of other Reiss companies. Id. J] 8-12. The
remaining defendants are twenty-three foreign and alien
retrocessionaires (the “retrocessionaires”), who signed
reinsurance treaties’ with Delta Re, agreeing to accept a share
1. A contract for reinsurance is called a “reinsurance treaty.”
Reinsurance is “the ceding by one insurance company to another of
(Cont'd)
29a
Appendix D
of the risks underwritten by Delta Re in 1984 and 1985.2 Id.
1 15-37. The treaties were delivered to and signed by Delta
Re in New York. ;
Presently before the court is a motion by the
retrocessionaires to be relieved of the requirement of posting
pre-answer security pursuant to N-Y.Ins.Law § 1213(c)(1)
(McKinney 1985),? which plaintiff contends is applicable to
(Cont'd)
all or a portion of its risks for a stipulated portion of the premium,
in which the liability of the reinsurer is solely to the reinsured, which
is the ceding company, and in which contract the ceding company
retains all contact with the original insured, and handles all matters
prior to and subsequent to loss.” 13A J. Appleman & J. Appleman,
Insurance Law and Practice § 7681, at 480-81 (rev. ed. 1976).
Retrocessionaires, in turn, reinsure the risks assumed by the
reinsurer. See Complaint § 13.
2. The retrocessionaires are companies organized under the
laws of, and operating in various foreign jurisdictions, including
Bermuda, the Cayman Islands, and the Channel Islands. Two of the
retrocessionaires are organized under the laws of Vermont. None of
them is authorized to conduct an insurance business in New York.
3. Section 1213(c)(1) provides:
Before any unauthorized foreign or alien insurer files
any pleading in any proceeding against it, it shall either:
(A) deposit with the clerk of the court in which the
proceeding is pending, cash or securities or file with
such clerk a bond with good and sufficient sureties, to
be approved by the court, in an amount to be fixed by
(Cont’d)
30a
Appendix D
this action.* See Complaint ¥ 39. The retrocessionaires argue
(Cont’d)
the court sufficient to secure payment of any final
judgment which may be rendered in the proceeding, but
the court may in its discretion make an order dispensing
with such deposit or bond if the superintendent certifies
to it that such insurer maintains within this state funds
or securities in trust or otherwise sufficient and available
to satisfy any final judgment which may be entered in
the proceeding, or
(B) procure a license to do an insurance business in
this state.
4. The following defendant-retrocessionaires are represented
by Bower & Gardner: Aegis Indemnity Ltd., Bakerlooe Insurance
Co., Ltd., Berda Developments Ltd., Brittany Insurance Co., Ltd.,
Centennial Assurance Co., Ltd., Conoplex Insurance Co., Ltd., .
Constantine Insurance Co., Ltd., Elco Insurance Co., Inc., Elwood
Insurance Co., Ltd., General Insurance Co., Ltd., Horizon Insurance
Co. Ltd., Riscott Insurance Ltd., Ross Insurance Ltd., Sperry
Insurance Co., Ltd., Three Rivers Insurance Co., Trochus Insurance
Company, Ltd., Twinsurance, Ltd., United Insurance Co., ver Bes’
Insurance Co., and Westburne Insurance Co., Ltd. Bower & Gardner
submitted a memorandum of law dated September 5, 1989 (“Bower
& Gardner Memorandum”) and a reply letter dated October 18, 1989
(“Bower & Gardner Reply”). Defendant-retrocessionaire Saturn
Insurance Co., Ltd., is represented by Jones, Day, Reavis & Pogue,
who submitted a letter memorandum of law dated September 5, 1989
(“Jones, Day Memorandum”) and a reply letter dated October 13,
1989 (“Jones, Day Reply”). Defendant-retrocessionaire
Transnational Ltd. is represented by LeBoeuf, Lamb, Leiby &
MacRae, who submitted a letter memorandum of law dated October
13, 1989 (“LeBoeuf, Lamb Memorandum”) and a reply letter dated
(Cont’d)
3la
Appendix D
1) that the statute is inapplicable to disputes over reinsurance
treaties; 2) that even if the statute did apply to reinsurance,
plaintiff is not presently a “resident” of New York, and
therefore not entitled to invoke it; and 3) that the statute can
only apply to actions to determine the scope of an insurance
contract — that is, to coverage claims — not to an action
such as this one to determine the contract’s validity. In the
alternative, the retrocessionaires argue that the amount of
pre-answer security should be no more than that which would
be immediately payable to plaintiff upon a judgment in his
favor.
For the reasons set forth below, I find that the
retrocessionaires are required to post pre-answer security
pursuant to § 1213(c)(1). However, I find that the amount of
security should not exceed the retrocessionaires’
proportionate share of Delta Re’s paid losses — that is, the
amount that Delta Re’s ceding insurance companies have
reported as paid claims — minus the amount the Liquidator
has already drawn down on the letters of credit earlier
provided by the retrocessionaires.
(Cont’d)
May 1, 1990 (“LeBoeuf, Lamb Reply”). Defendant-retrocessionaire
Trafford Park Insurance, Ltd. is represented by Werbel McMillin &
Carnelutti and joined in the pending motion by a letter to the court
dated September 5, 1989.
Plaintiff submitted a memorandum of law dated October 2, 1989
(“Plaintiff's Memorandum”) and a sur-reply memorandum of law
dated May 1, 1990 (“Plaintiff's Sur-Reply”).
32a
Appendix D
BACKGROUND
On September 30, 1983, Delta Holdings, Inc. bought
Elkhorn Insurance Company (“Elkhorn”) from National
Distillers and Chemical Corporation (“Distillers”) for
$18 million.*® After its sale, Elkhorn was renamed Delta Re.
Delta Re was a reinsurance company organized under
the laws of Kentucky, with offices in Louisville, Kentucky
and New York City. Prior to insolvency proceedings in 1985,
Delta Re was licensed to conduct an insurance business in
New York and Kentucky. Delta Re and the retrocessionaires
entered into a one-year 40% Quota Share Treaty (“Treaty”)
effective January 1, 1984. This Treaty, actually twenty-four
separate agreements with the individual retrocessionaires,
was renewed effective January 1, 1985. In each case, the
Treaty was delivered to Delta Re in New York. Under the
Treaty, Delta Re ceded to each retrocessionaire a given
percentage of its risks, totalling 40 percent of Delta Re’s
business. Before Delta Re’s liquidation, the retrocessionaires
provided Delta Re with $5.3 million dollars in irrevocable
letters of credit, in compliance with Article X of the Treaty,
which gave Delta Re the night to request funding for “unearned
premiums and outstanding losses including, where appropriate,
an allowance for incurred but not reported losses * * *.”
5. In Delta Holdings, Inc. v. National Distillers and Chemical
Corp., 85 Civ. 3439 (April 10, 1990), Judge Keenan ordered the
rescission of the sale of Elkhorn because of Distillers’
misrepresentations and omissions regarding the true financial
condition of Elkhorn, which had been insolvent for some time prior
to the sale. Distillers, renamed Quantum Chemical Corporation, has
been joined as a third-party defendant in this action.
33a
Appendix D
On September 15, 1985, the Franklin, Kentucky Circuit
Court found Delta Re to be insolvent and appointed plaintiff
as Liquidator to supervise its dissolution. When the
retrocessionaires learned that Delta Re had been insolvent
as early as 1983, at the time it solicited their participation in
the 40% Quota Share Treaty, they notified the Liquidator of
their rescission of the Treaty, on the alternative grounds of
misrepresentation or mutual mistake of fact. The Liquidator
then demanded that the retrocessionaires post additional
letters of credit pursuant to Article X of the Treaty. The
retrocessionaires, who regarded the Treaty as void, refused
to do so. Prior to commencement of this action, the Liquidator
drew down the $5.3 million in letters of credit earlier
provided by the retrocessionaires and treated the cash —
today totalling over $6 million (including interest) — “as
assets of Delta Re.
The Liquidator commenced this action against Delta
Re’s retrocessionaires and against the management company
that operated Delta Re on May 2, 1989. The complaint alleges
that the retrocessionaires have refused to pay sums due Delta
Re under the Treaty and have indicated their refusal to pay
sums that may become due in the future. Complaint 4 55.
The Liquidator alleges that the Treaty is fully enforceable
and seeks a declaratory judgment of the parties’ rights and
obligations under it. Id. I 56, 58. The Liquidator further
seeks damages in the amount of the sums allegedly past due
under the Treaty, as well as an order requiring the
retrocessionaires to specifically perform their future payment
obligations under the Treaty. Id. 9 62. As against the
management company, the Liquidator seeks to recover the
same sums and all future “reinsurance recoverables” if the
34a
Appendix D
retrocessionaires are held not liable for them. Id. JJ 56,
66, 69.
Pursuant to N.Y.Ins.Law § 1213(c)(1), plaintiff also
seeks an order directing the retrocessionaire defendants to
post a bond for $41,893,700, an amount consisting of three
components. Plaintiff's Memorandum at 3; Affidavit of
James E. Dickinson, dated September 28, 1989 (Dickinson
Aff.) The first component ($6,746,071), “paid losses,”
consists of claims that the ceding insurance companies have
reported as paid and for which the ceding companies await
indemnification from Delta Re. The second component
($12,672,729), “case reserves” or “outstanding loss
reserves,” are claims of loss received by the ceding
companies and reported to Delta Re, but not yet paid by the
ceding companies. The third component ($22,474,900),
“incurred but not reported losses” (IBNR), represents an
actuarial estimate of Delta Re’s liability for losses that have
occurred, but have not yet been reported as claims.
See Dickinson Aff. 9§ 7-8, 10; Bower & Gardner
Memorandum at 8; Jones, Day Memorandum at 13-14.
The Parties’ Contentions
The retrocessionaires argue that the statute does not
apply to disputes over reinsurance treaties. See Bower &
Gardner Memorandum at 11-14; Jones, Day Memorandum
at 6-10; LeBoeuf, Lamb Memorandum at 6-10. This
argument is based, in part, on the statement of legislative
intent contained in § 1213(a), which declares that the statute
was intended to aid residents holding “policies of insurance”
delivered in the state by unauthorized insurers, by making
35a
Appendix D
those insurers amenable to process in New York. N.Y.Ins.
Law § 1213(a). Reinsurance treaties, the retrocessionaires
assert, are not “policies of insurance,” but “contracts of
indemnity,” a category that the statute does not cover.
Moreover, the retrocessionaires contend, § 1213 was
intended as a “consumer” statute, designed to equalize the
balance of power between the small policyholder and the
large, sophisticated insurance company, not as a tool for an
experienced reinsurance company to gain a “tactical
advantage” over other reinsurers, with whom it stands on
equal footing. Bower & Gardner Memorandum at 10-11;
Jones, Day Memorandum at 8-10; LeBoeuf, Lamb
Memorandum at 3-4.
The retrocessionaires further argue that the Liquidator
is not entitled to invoke the pre-answer security requirement
of § 1213(c)(1) because Delta Re, which has not been
authorized to do business in New York for over four years,
is not presently a “resident” of New York. Bower & Gardner
Memorandum at 12-14; Bower & Gardner Reply at 1-5;
Jones, Day Reply at 3-4. Moreover, the retrocessionaires
claim that “simple authorization to do business” in New York
is insufficient for a foreign insured to invoke the statute;
rather, the foreign insured must actually be conducting
business in New York before it can seek pre-answer security.
On this basis, the retrocessionaires also suggest that
application of § 1213 to this action will violate their due
process rights. Bower & Gardner Reply at 4-5. As a policy
matter, the retrocessionaires point out the irony of allowing
a Kentucky liquidator to travel to a New York court and
invoke a security requirement intended to prevent New York
residents from having to resort to “distant forums” to enforce
36a
Appendix D
rights under their insurance policies.® Jones, Day
Memorandum at 10; see N.Y.Ins.Law § 1213(a).
In addition, the retrocessionaires argue that § 1213(c)(1)
was intended to apply to coverage claims, that is, to disputes
over whether a given claim falls within the terms of a valid
insurance policy. Jones, Day Memorandum at 10-11; Jones,
Day Reply at 4. In this action, the retrocessionaires point
out, the validity of the reinsurance treaty itself is at issue.
They argue that it would be unfair to require them to tie up a
huge amount of assets — thereby giving the Liquidator undue
leverage — where, if they prevail, it will be found that the
Liquidator holds no enforceable rights against them at all.
6. The retrocessionaires suggest that the Liquidator’s motive
for bringing this suit in New York is to take advantage of the security
requirement of § 1213. They contend that Kentucky’s cognate
statute, Ky.Rev.Stat. § 304.11-040(7) (1987), exempts reinsurers
from posting pre-answer security. Bower & Gardner Reply at 2 &
n. 1; LeBoeuf, Lamb Memorandum at 6 & n. 3. It is not at all clear
that this is the case. Their argument is that because
§ 304.11-030(1)(b) allows reinsurers to transact business in
Kentucky without a certificate of authority, and because
§ 304.11-040(7) requires unauthorized insurers to post security or
procure a certificate of authority before filing a pleading in a court
action, reinsurers are not subject to the security requirement. On
the other hand, plaintiff insists that the retrocessionaires would be
subject to the pre-answer security requirement in Kentucky.
See Plaintiff's Memorandum at 5; Plaintiff's Sur-Reply at 18-19.
Moreover, at a conference before me on February 2, 1990, plaintiff
offered to bring this action in Kentucky if defendants would consent
to jurisdiction there; the Bower & Gardner defendants objected to
any such change of venue. In any event, because I find that § 1213
expressly applies to reinsurers, I need not consider the scope of
Kentucky’s cognate statute.
37a
Appendix D
Jones, Day Memorandum at 11. Moreover, the
retrocessionaires claim that the merit of their defense is Clear,
given Judge Keenan’s recent finding in Delta Holdings, Inc.
v. National Distillers and Chemical Corp., 85 Civ. 3439
(April 10, 1990), that Delta Re had been insolvent long before
it solicited the retrocessionaires’ participation in the Treaty.
See Letter of Thomas Newman, Esq. to Magistrate Roberts
dated April 18, 1990; Letter of William Primps, Esq. to
Magistrate Roberts dated April 19, 1990; see also Complaint
{ 45 (alleging that Delta Re “was technically insolvent as
early as 1982”).
Finally, defendant Transnational Limited points to
Regulation 98, N.Y.Comp.Codes R. & Regs. tit. 11,
§§ 32.0-32.4 (1982) (“Regulation 98”), promulgated by the
New York Superintendent of Insurance, which it claims
would be superfluous if § 1213(c)(1) were construed to apply
to reinsurers. LeBoeuf, Lamb Memorandum at 7. Regulation
98 requires reinsurance intermediaries — insurance agents
or brokers — to include in any reinsurance contracts with
unauthorized reinsurers a provision for the appointment of a
local attorney for service of process. N.Y.Comp.Codes R.
& Regs. tit. 11, § 32.1(e).
Plaintiff, on the other hand, makes several statutory
arguments to demonstrate that § 1213(c)(1) applies to
reinsurance treaties. First, plaintiff claims that the broad
statutory definitions of “contract of insurance” and “insurer”
contained in Article 11 of the New York Insurance Law
encompass contracts for reinsurance and reinsurers.
See Plaintiff's Sur-Reply at 5-6; N.Y.Ins.Law §§ 1101(a)(1),
107(27). Moreover, plaintiff points to N.Y.Ins.Law
38a
Appendix D
§ 1101(b)(2)(G), which states that § 1213 is applicable to
“transactions with respect to the reinsurance of risks of
authorized insurers * * *.” See Plaintiff's Sur-Reply at 7-8.
Plaintiff also notes that while N.Y.Ins.Law § 1213(e)
specifically exempts certain classes of insurance, it does not
single out reinsurers for exemption. Id. at 8-9. Plaintiff
further contends that the presence of a comprehensive
consumer protection scheme in Article 31 of the New York
Insurance Law undercuts the retrocessionaires’ argument that
§ 1213 was intended as a consumer protection measure.
Plaintiff notes that Article 31 specifically exempts
reinsurance contracts (see N.Y.Ins.Law § 3108), an
indication that when the legislature wishes to exclude a class
of business from the reach of an insurance law, it does so
explicitly. Plaintiff's Sur-Reply at 9-10. In addition, plaintiff
refutes Transnational Limited’s argument that Regulation 98
is inconsistent with the application of § 1213 to reinsurers,
claiming that “Regulation 98 and § 1213 are simply different
ways of meeting the legislative objective of assuring the
accountability of foreign or alien insurers.” Id. at 11 n. 10.
Plaintiff also points out that Regulation 98 does not apply to
the Treaty at issue, which was arranged directly between
Delta Re and the retrocessionaires, not through reinsurance
intermediaries. Id.
Plaintiff asserts that Delta Re was authorized to do
business in New York when the Treaty was signed, did most
of its business here, and had all of its employees stationed
here, and is therefore a “resident” within the meaning of
§ 1213(b)(1). Plaintiff's Memorandum at 6. Moreover,
plaintiff argues that even if Delta Re was not a “resident” of
New York, § 1213 requires only that a corporation invoking
39a
Appendix D
the statute be “authorized to do business” in the state. Id. at
6-7. Plaintiff further contends that § 1213 is triggered when
an unauthorized insurer engages in any of the activities listed
in § 1213(b)(1 )(A)-(D), so that the Liquidator’s right to
invoke the security requirement is not affected by the fact
that Delta Re is no longer authorized to do business in New
York. Plaintiff's Sur-Reply at 13.
Finally, plaintiff claims that the retrocessionaires’
substantive defenses are irrelevant to the application of
1213(c)(1), since the statute requires security before the
defendant files any responsive pleading. Plaintiff’s
Sur-Reply at 16-17.
DISCUSSION
Section 1213 of the New York Insurance Law is
primarily a long-arm statute, derived from the Uniform
Unauthorized Insurers Act. The Statute addresses the
“concern that many residents of this state hold policies of
insurance issued or delivered in this state by insurers while
not authorized to do business in this State, thus presenting to
such residents the often insuperable obstacle of resorting to
distant forums for the purpose of asserting legal rights under
such policies.” N.Y.Ins.Law § 1213(a). The principal purpose
of the statute, then, is to subject unauthorized foreign and
alien insurers’ who have transacted business in the state to
7. A “foreign insurer” is “any insurer incorporated or organized
under the laws of any state * * * other than [New York].”
N.Y.Ins.Law § 107(21) (McKinney 1985). An “alien insurer” is “any
insurer incorporated or organized under the laws of any foreign
nation * * *.” Id. § 107(5).
40a
Appendix D
the jurisdiction of the New York courts. The statute
accomplishes this purpose by declaring that certain activities
on the part of the foreign unauthorized insurer constitute the
appointment of the New York Superintendent of Insurance
as its attorney for service of process. Id. § 1213(b)(1). In
addition, the statute requires the unauthorized insurer, before
filing a pleading in a court action, to deposit money or file a
bond to insure a fund for the payment of any judgment
obtained in the action. Id. § 1213(c)(1)(A); see Dean
Construction Co. v. Agricultural Ins. Co., 42 Misc.2d 834,
835, 249 N.Y.S.2d 247, 248-49 (Sup.Ct. Nassau County
1964) (discussing statutory predecessor to § 1213). The
activities that bring the unauthorized insurer within the reach
of the statute are: “(A) the issuance or delivery of contracts
of insurance to residents of this state or to corporations
authorized to do business therein, (B) the solicitation of
applications for such contracts, (C) the collection of
premiums, membership fees, assessments or other
considerations for such contracts, or (D) any other transaction
of business.” N.Y.Ins.Law § 1213(b)(1).
It is notable that Section 1213 falls within Article 12 of
the New York Insurance Law, entitled “Organization and
Corporate Procedure.” Section 1212 requires the appointment
of the Superintendent of Insurance as attorney for service of
process by authorized domestic, foreign, and alien insurers.
Section 1214 prohibits insurance agents or brokers from
procuring or soliciting policies or certificates of insurance
from foreign insurers who have not appointed the
Superintendent of Insurance as attorney for service of
process. Taken together, these provisions attempt to
guarantee that all insurers transacting business in the state
4la
Appendix D
— authorized and unauthorized — will appear in suits
brought against them in New York courts.
Section 1213 does not explicitly state that it applies to
unauthorized foreign or alien reinsurers; nor does the rather
Sparse case law construing the statute address this issue.
However, § 1101(b), the provision that defines what
constitutes “doing an insurance business,” appears to deal
with the question head-on. Section 1101(b)(2) provides:
Notwithstanding [the activities listed in
subsection (1) that constitute “doing an insurance
business”) the following acts or transactions, if
effected by mail from outside this state by an
unauthorized foreign or alien insurer duly licensed
to transact the business of insurance in and by
the laws of its domicile, shall not constitute doing
an insurance business in this State, but [§ 1213]
of this chapter shall nevertheless be applicable to
such insurers:
* * *
(G) transactions with respect to the reinsurance
of risks of authorized insurers to the extent that
such reinsurance is permitted by this chapter.
N.Y.Ins.Law § 1101(b)(2) (emphasis added).
Thus, although the legislature recognized that the
business of reinsurance was to be distinguished for some
Purposes from the business of insurance, it appears that it
42a
Appendix D
did not intend that unauthorized reinsurers be exempted from
New York’s long-arm statute and security requirement. The
only language in § 1213 itself that lends support to
defendants’ theory that the section does not apply to
reinsurers is the statement of legislative purpose, contained
in subsection (a), that the provision was enacted to protect
residents holding “policies of insurance.” While a reinsurance
treaty is arguably not a “policy of insurance” or even a
“contract of insurance,’ the contention that the legislature
therefore did not intend § 1213 to apply to reinsurance must
be rejected in light of the express language of
§ 1101(b)(2)(G).
8. Courts have recognized reinsurance as a distinct class of
insurance. See, e.g., Liberty Mutual Ins. Co. v. Gibbs, 773 F.2d 15,
18 (1st Cir.1985) (reinsurance contracts are distinct from contracts
“ ‘insuring against liability’ ”); Security Mutual Casualty Co. v.
Century Casualty Co., 531 F.2d 974, 977 (10th Cir.), cert. denied,
429 U.S. 860 (1976) (“a reinsurance treaty is a contract for insurance,
not a contract or policy of insurance”); In re Liquidation of General
Indemnity Corp., 274 N.Y. 510, 511, 10 N.E.2d 523, 524 (1937)
(reinsureds are not “policyholders”); 19 Couch on Insurance 2d
§ 80.1, at 624 (rev. ed 1983) (“As a general rule, a reinsurance treaty
is an indemnity contract as opposed to one for liability.”). The
principal significance of this distinction appears to be that “[i]n
contrast to an insurer’s obligation to pay and defend against its
insured’s liability whether or not the insured has paid injured third
parties, the reinsuer’s liability is conditioned upon the insurer’s prior
payment of loss.” Skandia American Reinsurance Corp. v. Schenck,
441 F.Supp. 715, 724 (S.D.N.Y.1977). Consequently, the insured
is not considered a third-party beneficiary of the reinsurance treaty,
and cannot recover against the reinsurer, even if the insurer becomes
insolvent. Id.; see 13A J. Appleman & J. Appleman, supra, § 7695,
at 537-38.
43a
Appendix D
Turning to the question of who may invoke § 1213, the
statute extends its protections to “residents of this state or to
corporations authorized to do business therein.” N.Y.Ins.Law
§ 1213(b)(1)(A). In Clifton Products, Inc. v. American
Universal Ins. Co., 169 F.Supp. 842 (S.D.N.Y.1959), the
court found that the plaintiff, an Ohio corporation, could not
obtain jurisdiction in New York over the defendant, a Rhode
Island insurance company that had delivered a policy to the
plaintiff in Ohio. The plaintiff's only apparent contact with
New York was that it had employed a New York insurance
broker to place the risk. In holding that the statutory
predecessor to § 1213 did not apply to nonresident plaintiffs,
the court noted that the statute “protects only New York
residents in suits based on policies delivered to them in this
state.” Id. at 845.
In Aero Associates, Inc. v. La Metropolitana, 183
F.Supp. 357 (S.D.N.Y.1960), the court permitted the
plaintiff, a New York corporation acting as manager for three
authorized foreign insurance companies, to invoke the
Statutory predecessor to § 1213 to obtain personal jurisdiction
over a group of Latin American reinsurers, who had delivered
a contract for reinsurance, through their New York broker,
to the plaintiff in New York. The court observed: “Certain
it is that the primary objective of the legislation was to protect
New York residents but the statute went further and
encompassed those corporations authorized to do business
in New York.” Id. at 359. The court found that its assumption
of jurisdiction over the defendants was consistent with due
9. I note that the defendant-reinsurers in Aero Associates did
not raise the objection that the Statutory predecessor to § 1213 was
inapplicable to reinsurers.
44a
Appendix D
process and that, indeed, the statute “contemplated such
jurisdiction in favor of foreign corporations licensed to
conduct business in this state.”!° Id. at 360. The court noted
that its holding was not in conflict with Clifton Products,
decided one year earlier. Id.
In G.C. Murphy Co. v. Reserve Ins. Co., 101 Misc.2d
729, 421 N.Y.S.2d 1006 (Sup.Ct. N.Y.County 1979),
modified on other grounds, 74 A.D.2d 235, 427 N.Y.S.2d
800 (1st Dep’t 1980), the court held that the plaintiff, a
Delaware corporation authorized to do business in New York,
was entitled to the protection of the statutory predecessor to
§ i213, including the filing of a bond, in a suit against an
unauthorized Illinois insurance company that had delivered
a policy to the plaintiff in New York. The court observed
that
a foreign corporation licensed to do business in
the State and doing business in the State is a
“resident” within the meaning of such statute; and,
it would undoubtedly be a violation of [the
plaintiff’s] rights under the Fourteenth
Amendment to the United States Constitution to
be afforded less protection under law than is
10. The retrocessionaires attempt to distinguish Aero
Associates on the ground that the plaintiff was actually a New York
corporation, acting for the benefit of three foreign corporations.
See Bower & Gardner Reply at 3-4. However, the court’s language
indicates that its holding turned on the fact the statute expressly
applied to foreign corporations authorized to do business in
New York.
45a
Appendix D
provided to New York citizens when it is present
in this jurisdiction and doing business here.
Id. at 733, 421 N.Y.S.2d at 1009,
Based on these cases, | reject the retrocessionaires’
argument that the Liquidator, as a nonresident plaintiff, is
not entitled to invoke the bonding requirement of
§ 1213(c)(1). As an initial matter, it is clear that the statute
extends its protections to “corporations authorized to do
business” in New York. N.Y.Ins.Law § 1213(b)(1)(A).
Defendants’ contention that G.C. Murphy introduces a
two-pronged test which a plaintiff must satisfy to fall within
the purview of the statute is simply inaccurate. Under the
facts of that case, the plaintiff was present and doing business
in New York; the court found that the statute required nothing
more. As to whether a foreign corporation that is merely
authorized to do business in New York may invoke the
Statute, Aero Associates and the express language of the
statute indicate that it may do so.
I agree with plaintiff that the fact that Delta Re has not
been authorized to do business and has not done business in
New York since it was declared insolvent in 1985 is irrelevant
to the court’s exercise of jurisdiction over defendants in this
action. When the retrocessionaires executed and delivered
the Treaty to Delta Re in New York, Delta Re was present in
New York and authorized to do business here. It is the
transaction out of which this action arose that triggers the
court’s jurisdiction under § 1213(b)(1), not the status of the
plaintiff at the time the action was commenced.
46a
Appendix D
Moreover, I reject the retrocessionaires’ contention,
relying on dictum in Clifton Products, that the application
of § 1213 to this action denies them constitutional due
process. Although at first glance it appears anomalous for a
Kentucky liquidator to bring an action on behalf of an
insolvent Kentucky reinsurance company against alien and
foreign reinsurers in a New York court, plaintiff's motive
for bringing the action here seems clear: the action arises
out of business allegedly transacted in New York and it is
unlikely that plaintiff will be able to obtain personal
jurisdiction over the majority of the retrocessionaires in any
other forum.
Finally, turning to the retrocessionaires’ argument that
the security requirement of § 1213(c)(1) was not intended to
apply to actions where the validity of the contract is
challenged, the language and structure of the statute do not
support this theory. The statute requires that security be
posted before any responsive pleading is filed. Thus,
defendants’ defenses, no matter how meritorious, have no
bearing on the security requirement. In fact, § 1213(c)(3)
specifically sets out the only pertinent pre-answer defense
— an unauthorized foreign or alien insurer may make a
motion to set aside service on the ground that it did not
engage in any of the activities listed under § 1213(b).
As to the amount of security required, I agree with
defendants that the security should be for the amount that
plaintiff would win as monetary damages, were this case
decided in his favor. If plaintiff prevails in this lawsuit, at
best he would be entitled to a declaratory judgment that the
Treaty is fully enforceable (Complaint 4 58); a decree of
47a
Appendix D
specific performance, which would require the
retrocessionaires to post letters of credit to secure future
payment of claims against Delta Re as they mature
(Complaint ¥ 62); payment of the “reinsurance recoverables”
due Delta Re, plus interest from the date they became due
(Complaint 4 62); and attorney’s fees under N.Y.Ins.Law
§ 1213(d).
Plaintiff seeks, as part of the $41,893,700 bond,
$12,672,729 in case reserves and $22,474,900 in IBNR.
Neither of these components represents fully matured claims.
In fact, in an affidavit submitted by plaintiff, James
Dickinson, Assistant to the Special Deputy of Delta Re,
describes the case reserves as “the estimated losses payable
that accrue from reported unpaid claims,” and the IBNR as
“the current liquidation estate’s estimated liability for losses
that have occurred but have not yet been reported.” Dickinson
Aff. at {J 7, 8 (emphasis added). No matter how accurate
these estimates may be, they remain estimates until Delta
Re’s ceding insurance companies have actually paid out the
claims, thus reducing them to a fixed amount of paid losses.
It is precisely because the case reserves and IBNR are
estimates of sums that the retrocessionaires will allegedly
owe in the future that plaintiff was constrained to request
the relief of specific performance; if the Treaty is upheld,
the retrocessionaires would not be required to pay these sums
to the Liquidator, but rather they would be required, under
Article X, to post of letters of credit. Moreover, I strongly
suspect that the retrocessionaires would challenge the amount
of security requested by the Liquidator and that the issue
would have to be submitted to arbitration under Article XV
of the Treaty.
48a
Appendix D
I therefore find that the case reserves and IBNR —
representing approximately $35,000,000 of the security
requested by plaintiff — are not appropriate components of
a bond “to secure payment of any final judgment which may
be rendered” in this action. N.Y.Ins.Law § 1213(c)(1)
(emphasis added). The language of the statute does not
contemplate the posting of a bond to secure the unauthorized
insurer’s future performance of a contract of insurance.
See Dean Construction Co., 42 Misc.2d at 835, 249 N.Y.S.2d
at 248-49 (purpose of the security requirement is “to insure
a fund for the payment of any judgment”). The remainder of
the security requested by plaintiff — approximately
$7,000,000 in paid losses, that is, claims that Delta Re’s
ceding companies have actually paid — appears to be the
amount that the retrocessionaires would be required to pay
to the Liquidator as monetary damages if he prevails in this
action and is thus the appropriate measure of security under
§ 1213(c)(1).
CONCLUSION
For the foregoing reasons, the retrocessionaires’ motion
to be to be relieved of the requirement of posting pre-answer
security pursuant to N.Y.Ins.Law § 1213(c)(1) is denied.
I find that § 1213 requires the retrocessionaires to post
security in an amount that reflects Delta Re’s paid losses,
that is, the amount that they would be required to pay as
monetary damages should plaintiff prevail in this lawsuit."
In addition, for purposes of determining the amount of
11. Plaintiff may apply for an increase in the amount of security
as the amount of Delta Re’s paid losses increases.
49a
Appendix D
security, the amount that the Liquidator has already drawn
down on the letters of credit posted by the retrocessionaires
should be applied against Delta Re’s paid losses.
The parties are directed to attempt to stipulate to the
exact amount of security that must be posted by each
defendant pursuant to this Opinion and Order no later than
August 17, 1990. In the event the parties are unable to agree
- On these amounts, they are directed to schedule a conference
to be held before me no later than August 31, 1990.
SO ORDERED.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.