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property without a hearing. The Court analyzed the pre‐answer security
requirement and determined that its purpose is to require an unlicensed
insurance company to offer the same security to the public as a licensed
company is required to provide. The Court concluded that the security
feature of the statute is justified (providing funds as is required of a licensed
insurer) to prevent insureds from having to resort to “far‐flung” forums to
press claims against insurers. It is not enough to argue that an erroneous
judgment might be entered because a defendant is prevented from litigating
the merits of a claim if a default judgment is entered against it when it fails
to post security. A motion demanding the posting of pre‐answer security
provides notice and an opportunity to be heard to a defendant. In any
event, according to the Court, Ardra was always aware of the potential
extent of its financial exposure.
In re Cragwood Managers LLC (Reliance Ins. Co.), 132 F. Supp. 2d 285 (S.D.N.Y.
2001). The court upheld an interim arbitration award which required a
management company in the process of winding down to post $4 million bond
to secure a portion of counterclaims against it.
Levin v. Intercontinental Cas. Ins. Co., 719 N.Y.S.2d 634 (N.Y. 2000). The
liquidator sued a reinsurer under a quota share reinsurance agreement and
sought an order requiring the reinsurer, as an unauthorized foreign or alien
insurance carrier, to post bond under the New York statute requiring preanswer
security. The court held that the reinsurer’s motion to dismiss the
complaint was a pleading under the statute, and required the posting of
security.
Moore v. National Distillers & Chemicals Corp., No. 91 Civ. 2901 (JSM)(KAR),
1992 U.S. Dist. LEXIS 12370 (S.D. N.Y. Aug. 14, 1992, as corrected Sept. 8, 1992).
The Liquidator of Delta America Re Insurance Company sued several retrocessionaires
for reinsurance recoverables owed Delta America. The action was
commenced in Kentucky state court, but was removed to the United States
District Court for the Southern District of New York. The Court found that the
Liquidator may seek relief under New York's pre‐answer security requirement
(codified at N.Y. Ins. Law § 1213(c)(1), and that section was applicable in actions
against retrocessionaires. The Court rejected an argument by the Liquidator
that the preemptive effect of the McCarran‐Ferguson Act applies to the
Foreign Sovereign Immunities Act. Finding that three of the retrocessionaires
were "foreign states" as defined under the FSIA, and that these foreign states
had not waived their immunity from pre‐judgment attachment, the Court
declined to apply the pre‐answer security requirement to those reinsurers.
Serio v. Black, Davis & Shue Agency, Inc., No. 05 Civ 15 (MHD), 2005 WL 3642217
(S.D.N.Y. Dec. 30, 2005), stay denied, No. 05CIV.15(MHD), 2006 WL 156395
(S.D.N.Y. Jan. 12, 2006). The court granted a motion for preliminary injunction
filed by the rehabilitator seeking an order requiring the defendant agency to
deposit security in the rehabilitator’s action against the agency to recover
premiums allegedly owed to the insolvent insurer. Security represented the
entire balance of premium funds received by the defendant agency on behalf of
the insolvent insurer. The court refused to require the rehabilitator to post
bond in conjunction with the preliminary injunction order.
Vesta Fire Ins. Corp. v. New Cap Reins. Corp., 244 B.R. 209 (S.D.N.Y. 2000), aff’d
sub nom In re McKenna, 238 F.3d 186 (2d Cir. 2001). Following initiation of
arbitration by a creditor against a reinsurer and the appointment of an
administrator for the reinsurer in a foreign insolvency proceeding, the court