In re Residential Capital, LLC, No. 12-12020 (MG), 2016 Bankr. LEXIS 3799 (S.D.N.Y. Oct. 21, 2016).

In a non-reinsurance case, a New York bankruptcy court granted excess insurers’ motion to compel arbitration, but stayed the arbitration until the coverage issues in the lower layers were resolved and denied the policyholder’s motion to dismiss or require security under §1213 of New York’s Insurance Law. The case is interesting for its analysis of core and non-core bankruptcy proceedings, when security under §1213 is required and why a stay of arbitration may be necessary when coverage issues underlying high excess policies are yet to be resolved.

The court found that there was no question that the parties agreed to arbitrate and that the arbitration provision was a broad provision that sent all disputes about the policies to arbitration. Because the arbitration would not seriously jeopardize the objectives of the Bankruptcy Code, the court found that it was not uniquely able to interpret and enforce the terms of the excess policies.

The court granted the stay, however, because of the possibility of inconsistent judgments and the risk of collateral estoppel and res judicata. The court also denied the request for a bond under §1213 because the contracts of insurance were not delivered in New York, the policies were delivered in Bermuda, and the insured’s address was not in New York.