MF Global Holdings Ltd. v. Allied World Assurance Co. (In re MF Global Holdings Ltd.)

569 B.R. 544

IN RE: MF GLOBAL HOLDINGS LTD., et al., Debtors.

MF Global Holdings Ltd., as Plan Administrator, and MF Global Assigned Assets LLC, Plaintiffs,

v.Allied World Assurance Company Ltd., Iron–Starr Excess Agency Ltd., Ironshore Insurance Ltd., Starr Insurance & Reinsurance Limited., and Federal Insurance Company, Defendants.

Case No. 11–15059 (MG) (Jointly Administered)

Adv. Proc. No. 16–01251 (MG)

United States Bankruptcy Court, S.D. New York.

June 12, 2017

CRAVATH, SWAINE & MOORE LLP, Counsel to Allied World Assurance Company, Ltd, 825 Eighth Avenue, New York, NY 10019 By: Daniel Slifkin, Esq., Omid H. Nasab, Esq.

WHITE AND WILLIAMS, LLP, Counsel to Allied World Assurance Company, Ltd, 7 Times Square, New York, New York 10036, By: Erica Kerstein, Esq.

JONES DAY, Attorneys for MF Global Holdings Ltd., as Plan, Administrator, and MF Global Assigned Assets LLC, 555 South Flower, Street, 50th Floor Los Angeles, California 90071, By: Bruce Bennett, Esq., and JONES DAY, 250 Vesey Street, New York, New York 10281, By: Edward M. Joyce, Esq., Jane Rue Wittstein, Esq.

MEMORANDUM OPINION AND ORDER FINDING THAT ALLIED WORLD MUST POST A BOND PURSUANT TO NEW YORK INSURANCE LAW SECTION 1213

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

Before filing "any pleading in any proceeding," New York Insurance Law section 1213 requires unauthorized foreign insurers to either "procure a license to do an insurance business" within the state, or post a bond "sufficient to secure payment of any final judgment which may be rendered in the proceeding ...." N.Y. Ins. Law § 1213(c) (McKinney). The Plaintiffs¹ here filed a motion (the "Bond Motion," ECF Doc. # 118) seeking to require the Bermuda Insurers² to post a $60 million bond to satisfy a potential judgment in this adversary proceeding.

Iron–Starr and the Plaintiffs have settled the dispute between them,³ but the Court must still decide whether Allied World is required to post a bond in this case, and if so, in what amount. For the reasons set forth below, the Court concludes that Allied World—a foreign unauthorized insurer that delivered an insurance policy to MF Global in New York and filed a pleading in this proceeding—must post a bond in the amount of $15 million before the Court will consider Allied World's pending motion to compel arbitration of this dispute in Bermuda.⁴ If Allied World fails to post a bond, its pleadings will be stricken and a default judgment will be entered.

I. BACKGROUND

A. Procedural Background

This is the fifth written opinion in this adversary proceeding since it was filed on October 27, 2016.⁵ Familiarity with the Prior Opinions is assumed, and the facts relevant to the issue currently before the Court have largely been set forth in the Prior Opinions, but are also recounted below.

The issue currently before the Court arose after the Plaintiffs filed a complaint against the Bermuda Insurers in this adversary proceeding (the "Complaint," ECF Doc. # 1), seeking to recover the full policy limits on policies issued by the Bermuda Insurers plus additional damages resulting from these insurers' refusal to pay policy proceeds in connection with a global settlement of MDL litigation pending in the United States District Court for the Southern District of New York (the "Global Settlement"). Following the filing of the Complaint, the Bermuda Insurers filed cases in the Supreme Court of Bermuda, Civil Jurisdiction (Commercial Court) (the "Bermuda Court") and obtained ex parte anti-suit injunctions (the "Bermuda Anti–Suit Injunctions") prohibiting the Plaintiffs from prosecuting the adversary proceeding in this Court. In several earlier opinions in this case, however, the Court first issued a temporary restraining order ("TRO") barring the Bermuda Insurers from enforcing the Bermuda Anti–Suit Injunctions, then issued a preliminary injunction extending the relief granted in the TRO, and issued an opinion holding the Bermuda Insurers in contempt for violating the TRO. See TRO Opinion , 561 B.R. at 630; Preliminary Injunction Opinion , 562 B.R. at 67; Contempt Opinion , 562 B.R. at 54. In another opinion, the Court also concluded that the Bermuda Insurers violated the Barton Doctrine by filing the Bermuda actions without first seeking authority to do so from this Court. Barton Opinion , 562 B.R. at 877. In the Barton Opinion , the Court ordered the Bermuda Insurers to dismiss the Bermuda actions without prejudice; the Bermuda Insurers complied and discontinued the Bermuda actions. Issues concerning sanctions against Allied World for contempt and for violation of the Barton Doctrine remain to be decided.

Early on in these proceedings, the Bermuda Insurers also filed in this Court motions to dismiss and motions to compel arbitration in Bermuda. (See ECF Doc. ## 13, 14, 16, 17, 19, 20.)⁶ Once the Bermuda Anti–Suit Injunctions were lifted, the Plaintiffs were able to respond to the Bermuda Insurers' motions; the parties have now fully briefed whether this Court should require the Bermuda Insurers to post a bond under New York Insurance Law § 1213 and whether to compel arbitration of the underlying dispute in Bermuda. The Court heard argument on both issues on April 18, 2017, but has not yet entered a decision on the arbitration issue. Because the Court concludes in this Opinion that Allied World must post a bond as required by New York Insurance Law § 1213before the Court will consider Allied World's motion to compel arbitration, decision on that motion must await Allied World's compliance with this Opinion and Order. See Signal Capital Corp. v. Eastern Marine Management, Inc. , 899 F.Supp. 1167, 1171 (S.D.N.Y. 1995) (Sotomayor, J.) (in connection with a plaintiff's motion to strike an unauthorized foreign insurer defendant's answer, concluding that the defendant must "either post a bond or have its [a]nswer stricken and a default judgment entered").

Also, in response to the Plaintiffs' assertions that the Bermuda Insurers violated the Bar Order in the Global Settlement and the Barton Doctrine by filing suit against them in Bermuda without leave of this Court (see ECF Doc. # 68), Allied World and Iron–Starr filed oppositions to the Plaintiffs' application in connection with the Bar Order and Barton Doctrine issues (ECF Doc. ## 62, 64).⁷

Additionally, after the Bermuda Anti–Suit Injunctions were lifted, the Plaintiffs filed the Bond Motion. The Bermuda Insurers, in response, filed a joint opposition to Plaintiffs' Bond Motion (the "Joint Opposition," ECF Doc. # 127). The Plaintiffs then filed a reply (the "Reply," ECF Doc. # 130).

On May 10, 2017, Allied World filed a notice (the "Withdrawal Notice," ECF Doc. # 143) withdrawing its previously-filed motion to dismiss for lack of personal jurisdiction (the "Motion to Dismiss," ECF Doc. # 14) "to the extent such motion is premised upon the contention that personal jurisdiction is lacking over Allied World ... for any reason other than the insufficient service of process upon Allied World." (Withdrawal Notice at 2.) Allied World further noted that it "will not take the position that the Court lacks personal jurisdiction over Allied World ... for any reason other than the insufficient service of process upon Allied World."⁸ (Id. )

As noted above, the Plaintiffs and Iron–Starr have reached a settlement in principle, resolving the dispute between them. As such, this Opinion addresses only the Plaintiffs' demand that Allied World post a bond.

B. Factual Background

Allied World, headquartered and incorporated in Bermuda, "is a specialty reinsurance company that underwrites property and casualty insurance and reinsurance." (Complaint ¶ 23.) The Plaintiffs maintain that Allied World markets and sells insurance products and insures risks located throughout the United States and in the State of New York. (Id. )

Allied World issued an errors and omissions ("E & O") insurance policy to MF Global for the policy period from May 31, 2011 to May 31, 2012 (the "AWAC E & O Policy," Complaint, Ex. B). The AWAC E & O Policy obligated Allied World to contribute up to the $15 million policy limit in the event of a covered loss. (Bond Motion at 2; AWAC E & O Policy at 1). The policy lists "MF Global Holdings Ltd." as the "Named Corporation" with its principal address at "717 Fifth Avenue, 9th Floor, New York, NY 10022–8101." (AWAC E & O Policy at 1.)

Affidavits submitted to the Court by Allied World earlier in these proceedings, which are unrebutted by the Plaintiffs, state that MF Global's broker, Willis (Bermuda) Ltd. ("Willis"), acting on MF Global's behalf, was responsible for the solicitation, negotiation, issuance, and delivery of the policy, and the payment of premiums on the underlying policy. (4/18/2017 Hearing Tr. at 8–0; ECF Doc. # 13–7 ¶ 12 ("The Allied World Policy was negotiated, underwritten, issued, delivered, and paid for exclusively in Bermuda, through [Willis], a Bermuda-based broker that was acting on MFGH's behalf in Bermuda").) It appears that Willis was then responsible for sending or delivering the policy to MF Global in New York. (4/18/2017 Hrg. Tr. 55:8–3.)

II. LEGAL STANDARD

A. New York Insurance Law Section 1213

1. The Purpose of Section 1213(c)

The New York legislature enacted New York Insurance Law section 1213, in part, to address "the often insuperable obstacle of resorting to distant forums for the purpose of asserting legal rights" in relation to insurance policies issued by unauthorized foreign insurance companies. British Int'l Ins. Co. v. Seguros La Republica, S.A. , 212 F.3d 138, 140 (2d Cir. 2000) (per curiam) (quoting N.Y. Ins. Law § 1213(a)'s express intended purpose). The statute also "imposes accountability on foreign or alien carriers who, although not authorized to do business in [the state], issue or deliver insurance policies here," and serves to "assure that a foreign carrier's funds will be available in [the state] to satisfy any potential judgment against it from the proceeding." Levin v. Intercontinental Cas....