MF Global Holdings Ltd. v. Allied World Assur. Co. (In re MF Global Holdings Ltd.), Chapter 11, No. 11-15059 (MG), (Jointly Administered), Adv. Proc. No. 16-01251 (MG), 2017 Bankr. LEXIS 1585 (Bankr. S.D.N.Y. Jun. 12, 2017).
In this adversary proceeding in a non-reinsurance case, a New York bankruptcy court ordered a Bermuda insurer to pay a US$15 million bond as an unauthorized foreign insurance company under N.Y. Ins. Law 1213(c) before the court would consider the insurer's motion to compel arbitration in Bermuda. The insurer issued an errors and omissions policy to the policyholder, obligating the insurer to contribute up to the US$15 million policy limit in the event of a covered loss. The policy was solicited, negotiated, issued, delivered and all premiums were paid through policyholder's Bermuda-based broker. The policy was then delivered to the policyholder in New York. The court, however, rejected each of the insurer's arguments, seeking to skirt the bond requirement.
First, the court found that a motion to compel arbitration is a pleading that triggers the bond requirement. Second, the court found that, when drafting 1213(c), the New York legislature was concerned with New York residents holding insurance policies issued by unauthorized foreign insurance companies issuing and delivering policies into New York and that the Bermuda insurer fully expected that the policy would be delivered into New York. Thus, the policyholder had satisfied the issued and delivered requirement of 1213(c). Third, the court rejected the insurer's argument that the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) preempted 1213(c)'s bond requirement. The Convention seeks to further the aim of federal policy favoring arbitration. The court found no conflict between the Convention and 1213(c), noting that the bond requirement helps effectuate that goal "by ensuring that should a matter be sent to arbitration, particularly in a foreign country..., sufficient funds to satisfy a judgment will be available to a plaintiff in New York."
The court rejected the policyholder's request for a US$60 million bond, finding that the amount was not warranted based on the facts and circumstances and that a US$15 million bond based on the policy limit was more appropriate.