Riker Danzig’s Insurance Group was successful in securing an Order from the Court to require pre-pleading security totaling almost $13 million from Defendants in its representation of the New York Liquidation Bureau, as Liquidator of Ideal Mutual Insurance Company (the “Liquidator”), in an ongoing litigation against two reinsurance companies, Rocky Mountain International Insurance Ltd. (“Rocky Mountain”) and United Insurance Company (“United”).
In this ongoing litigation in New York State Court, the Liquidator seeks payment of a total of approximately $8.5 million in reinsurance recoverables from Defendants Rocky Mountain and United. The Liquidator, which administers the Estate of Ideal, an insolvent New York-based insurance company, agreed in 2015 to pay a settlement that resolved several thousand bodily injury and property damage claims against the Estate of Ideal. Those claims had arisen from asbestos related liabilities of Johns-Manville, a policyholder of Ideal in the late 1970s and early 1980s. The Liquidator, in turn, sought partial reimbursement from its reinsurers in connection with the underlying settlement, but the Defendants refused to pay the invoices submitted to them by the Liquidator in May 2015. The Liquidator commenced suit against Rocky Mountain and United in 2019, claiming that the Defendants had breached the reinsurance contracts they had entered into with Ideal in the 1970s.
Under Section 1213 of the New York Insurance Law, foreign, non-admitted insurers and reinsurers are required either to maintain a New York insurance license or, alternatively, to post pre-pleading security in an amount sufficient to satisfy any judgment that may be entered against the Defendants in a lawsuit brought in New York. The Liquidator, accordingly, moved for an order requiring Rocky Mountain and United to post pre-pleading security for the full amounts at issue in the litigation, plus pre-judgment interest dating back to when the reinsurance invoices were first submitted, in the spring of 2015. The Defendants vigorously opposed the Liquidator’s request for pre-pleading security, arguing that certain exceptions applied to the relevant New York Insurance statute and that they should not be required to post security at all. In the alternative, Defendants argued that if any security were required to be posted, it should be in a significantly diminished amount.
Following a lengthy motion hearing, the Court by Order entered March 25, 2022, rejected the Defendants’ arguments entirely, and granted the relief sought by the Liquidator in full. Defendants now must post security with the Court, in an amount totaling almost $13 million, before being permitted to file responsive pleadings in the ongoing litigation.
Brian E. O’Donnell, Riker Danzig Co-Chairman and lead counsel in the matter, commented, “This is an important ruling because it reiterates the strong New York public policy in favor of protecting New York parties that enter into contracts with insurance companies or reinsurance companies that may not have significant assets located in New York. The drafters of the New York Insurance Law made clear the requirement that insurers or reinsurers doing business in New York must either maintain a New York insurance license or else be subject to the pre-pleading security requirements of the New York Insurance Law.” Brian added, “The Liquidator is gratified that the Court did not take up Defendants’ invitation to ignore that clear legislative intent and that the Court required Defendants to adhere to the security requirements in the statute.”
Working on the case with Brian is Riker Danzig Partner Jeffrey M. Beyer, with support from Partner Maura C. Smith and Counsel Casey A. Boyle.
