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

571 B.R. 80

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 Ltd., and Federal Insurance Co., Defendants.

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

Adv. Proc. No. 16–01251 (MG)

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

Signed August 24, 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 GRANTING ALLIED WORLD'S MOTION TO COMPEL ARBITRATION

MARTIN GLENN, United States Bankruptcy Judge

Shortly after the Plaintiffs¹ filed the Complaint that initiated this adversary proceeding, the Bermuda Insurers² asked this Court to compel arbitration of the insurance coverage dispute underlying the Complaint. Iron–Starr and Federal Insurance Company ("Federal") have settled their disputes with the Plaintiffs,³ but the Court must still decide whether the Plaintiffs' dispute with Allied World must be sent to arbitration in Bermuda pursuant to the arbitration clause in the AWAC E & O Policy (defined below) at issue in this proceeding.

This litigation has a complicated and contentious history, but for the reasons set forth below, the Court concludes that pursuant to the arbitration clause in the AWAC E & O Policy, and based on the facts and circumstances of this case, arbitration of this dispute is appropriate in Bermuda.

I. BACKGROUND

A. Procedural Background

This is the sixth written opinion in this adversary proceeding since it was filed on October 27, 2016.⁴ 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 shortly after the Plaintiffs filed the 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. 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 54.⁵

Early on in these proceedings, the Bermuda Insurers also filed motions to dismiss and motions to compel arbitration. (See ECF Doc. ## 13, 14, 16, 17, 19, 20.) 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 compel arbitration of the underlying dispute in Bermuda. The Plaintiffs filed a supplemental omnibus opposition to the Bermuda Insurers' motion to compel arbitration (the "Omnibus Opposition," ECF Doc. # 125), and the Bermuda Insurers thereafter filed a joint reply in support of their motions to compel arbitration (the "Joint Reply," ECF Doc. # 133).

The Court heard argument on the arbitration motion on April 18, 2017; but, on June 12, 2017, the Court issued the Bond Opinion , requiring the Bermuda Insurers to post a bond in the amount of $15 million, pursuant to New York Insurance Law section 1213, before the Court would rule on the arbitration motion . At the April 18, 2017 hearing, the Court asked the parties to provide the Court with supplemental filings "specifically addressing whether the Bermuda [I]nsurers are asserting any defense regarding the interpretation, applicability or enforcement of the five [bankruptcy court] orders" identified by Plaintiffs at the oral argument on the arbitration motion, which the Bermuda Insurers and the Plaintiffs promptly filed. (See ECF Doc. # 141 (the "Bermuda Insurers Coverage Defenses Letter"); ECF Doc. # 142 (the "Plaintiffs' Applicable Orders Letter").)

On May 10, 2017, Allied World filed a statement (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."⁶ (Id. )

As noted above, the Plaintiffs have resolved their disputes with Iron–Starr and Federal. As such, this Opinion addresses only whether the underlying coverage dispute between Allied World and the Plaintiffs must be sent to arbitration.

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. (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." (Id. )

1. The Bar Order in the Global Settlement

On August 10, 2016, this Court entered an order approving a global settlement in these chapter 11 cases (the "Global Settlement," D.I. 2282).⁷ The Global Settlement included a bar order (the "Bar Order") which provides in relevant part:

3. To the extent not previously authorized by this Court, the plan injunction ("Plan Injunction") as to the Debtors and their respective property established pursuant to paragraph 75 in the Order Confirming Amended and Restated Joint Plan of Liquidation entered by this Court on April 5, 2013, to the extent applicable, shall be modified solely to the extent necessary, and without further order of the Bankruptcy Court, to authorize any and all actions reasonably necessary to consummate the Global Settlement, including without limitation, any payments under certain insurance policies required under the Settlement .... Furthermore, any person or entity that is not a Party to the SettlementAgreement is permanently barred, enjoined, and restrained from commencing, prosecuting, or asserting any claims arising out of payments made under certain insurance policies in accordance with the Settlement Agreement or any other agreement referenced therein or associated therewith.

....

7. Upon entry of this Order, any person or entity that is not a Party to the Settlement Agreement, including any Dissenting Insurer, is permanently barred, enjoined, and restrained from contesting or disputing the Reasonableness of Settlement, or commencing, prosecuting, or asserting any claims, including, without limitation, claims for contribution, indemnity, or comparative fault (however denominated an on whatsoever theory), arising out of or related to the MF Global Actions ....

8. For the avoidance of doubt, nothing in this Order shall preclude :

... (iii) any claims by the Insurance Assignees to enforce the Assigned Rights; (iv) any claim or right asserted by an MFG Plaintiff against any Dissenting Insurer on its own behalf (as distinct from the Assigned Rights) ....

(Global Settlement ¶¶ 3, 7, 8) (emphasis added).

In connection with the Global Settlement, Allied World tendered the full limit of liability of its separately-issued excess directors and officers ("D&O") insurance policy, but declined to make the E & O coverage provided under the Allied World policy available for a settlement as Allied World's adversaries had requested. Pursuant to the Global Settlement, those ostensibly covered by the AWAC E & O Policy were to assign their rights to full payment under the Allied World policy to the Plaintiffs and the assignee would commence action against Allied World to obtain proceeds under the E & O policy.

2. General Background

On October 27, 2016, the Plaintiffs filed the Complaint in this adversary proceeding against the Bermuda Insurers and Federal.⁸ The defendants had issued the top four layers of excess E & O insurance policies to MFGH. All other insurers in MFGH's D&O and E & O insurance towers paid their policy...