Law360, New York (June 27, 2017, 5:59 PM EDT) -- Defunct brokerage MF Global's excess insurer Allied World told a New York bankruptcy court Monday that it had posted a $15 million bond, which a judge had required before the court could consider the insurer's request to arbitrate a coverage dispute in Bermuda.
In ordering Allied World Assurance Co. Ltd. to post the bond, U.S. Bankruptcy Judge Martin Glenn said earlier this month that the insurer cannot evade requirements of New York insurance law.
If Allied World wants to continue a monthslong battle to move an insurance coverage suit from New York to Bermuda, the insurer is going to have to first post a bond for the amount the company would potentially owe MF Global under an errors and omissions policy Allied World issued to the defunct brokerage in 2011, Judge Glenn said in a written opinion issued on June 12.
Under New York law, foreign insurers, like Allied World, that issue and deliver insurance policies to parties in the state must either obtain a required business license or post a bond before filing a pleading in a court proceeding against the insurer, Judge Glenn said. His conclusion, that Allied World cannot skirt the bond requirement, directly repudiates the insurer's argument that the company is exempted under the law because Allied World did not “issue or deliver” an insurance policy in New York, but rather issued and delivered the MF Global policy to a broker for the insured in Bermuda.
“Allied World’s position is unfounded given that such a narrow reading of the term ‘delivered’ would dictate that no policies were ever actually delivered by insurers, as the technical delivery would take place by a mail carrier or some other delivery service, acting as a necessary intermediary,” the judge wrote. “And though it was interacting with MF Global’s broker, presumably Allied World fully expected that the policies would ultimately be delivered to New York — a natural destination given MF Global’s New York address on the policy.”
Judge Glenn also rejected Allied World's position that the insurer's motion to compel arbitration was not a pleading covered by Section 1213.
The insurer was given 14 days to post the bond amount or see its pleadings stricken and a default judgment entered. On the day of the deadline, Allied World on Monday said in a brief filing that “respectfully posts this bond in compliance with the court’s opinion and order.”
In October 2011, MF Global went down in spectacular fashion and dragged along its parent company, MF Global Holdings Ltd., following the discovery of a $1.6 billion shortfall in segregated customer accounts tied to an aggressive investment strategy in European sovereign debt.
In its adversary proceeding, MF Global has alleged that Allied World and other Bermuda-based excess insurers owe at least $25 million for policy coverage and damages of up to $40 million after failing to contribute any money to a $159 million multidistrict litigation settlement to resolve claims against the company’s former managers and directors, including ex-CEO Jon Corzine, a former governor and U.S. senator from New Jersey.
Allied World remains the sole defendant in the dispute after Iron-Starr Excess Agency Ltd. and other affiliated entities recently reached terms of a settlement with MF Global, according to the opinion.
Despite being ordered to post $15 million to prevent a default judgment, Allied World dodged a heftier request that it put up $60 million to potentially cover other forms of damages, including a “bad faith refusal to provide coverage.” According to the judge, “the plaintiffs’ proposed bond is not warranted based on the facts and circumstances of the case at this time.”
Attorneys for either side did not immediately respond to requests for comment Tuesday.
MF Global Inc. and MF Global Holdings Ltd. are represented by Bruce Bennett, Jane Rue Wittstein and Edward Joyce of Jones Day.
Allied World is represented by Daniel Slifkin and Omid H. Nasab of Cravath Swaine & Moore LLP and Erica Kerstein of White and Williams LLP.
The adversary case is MF Global Holdings Ltd. et al. v. Allied World Assurance Co. Ltd. et al., case number 1:16-ap-01251, and the bankruptcy is In re: MF Global Holdings Ltd. et al., case number 1:11-bk-15059, both in the U.S. Bankruptcy Court for the Southern District of New York.
--Additional reporting by Alex Wolf. Editing by Pamela Wilkinson.
the above is all IMHO (consider this my safe harbor statement)
