The Southern District of New York recently struck the answer of an unlicensed foreign insurer that failed to post pre-answer security, and ordered the imposition of statutory penalties of pre-judgment interest and attorneys' fees for its vexatious and unreasonable failure to make payment on a contract of insurance. Odyssey Reinsurance Corp. f/k/a Skandia America Reinsurance Corp. v. Caja Nacional De Ahorro y Seguro, No. 96 Civ. 2301 [KMW], S.D.N.Y.; See, Mealey's Litigation Reports: Reinsurance, Vol. 9 #1 p. 4.
On August 11, 1995, Odyssey Reinsurance Corporation was awarded $394,462 in an undefended arbitration proceeding against Caja Nacional De Ahorro y Seguro, an Argentinean public insuring entity. Odyssey sought confirmation of the award in the Southern District of New York and argued that under New York Insurance Law §1213 Caja must first post security in the amount of the award to oppose confirmation. Failure to post such security, Odyssey argued, should subject Caja to a default judgment in the confirmation proceeding and the additional relief of statutory attorneys fees and pre-judgment interest from the date of the award.
New York Insurance Law Section 1213
Section 1213(c) of the New York Insurance Law requires that before an unauthorized insurer can file any pleading in a proceeding brought against it in the State of New York, the entity must either obtain a license to do business in the State or post a bond in an amount sufficient to satisfy any final judgment entered against it.
The Court of Appeals in Curiale v. Ardra Insurance Company, 644 N.Y.S.2d 663 (April 30, 1996), said that "[t]he purpose of the pre-answer security is evident from the statute itself. Alien insurers must maintain sufficient funds in the State to satisfy any potential judgment arising from the policies of insurance (including reinsurance treaties) they issue." The Court of Appeals further stated that "since insurers, licensed and unlicensed alike, capitalize on the legitimate expectations of the public that funds to satisfy judgments on insurance policies are readily available within the state, the Legislature enacted section 1213(c) to ensure that those expectations would be met."
Therefore the Curiale Court concluded that the "State's interest in ensuring the availability of funds from which a judgment against a foreign or alien unlicensed insurer may be promptly paid, instead of requiring claimants to resort to far-flung forums for satisfaction of their judgments, justifies striking the answer of a foreign or alien insurer if that insurer fails to provide adequate pre-answer security." Id. 644 N.Y.S.2d at 669.
Attorneys' Fees and Pre-Judgment Interest
Section 1213(d) provides that where a nonresident insurer "vexatiously and without reasonable cause" fails to make payment pursuant to a contract of insurance for thirty days after a demand and prior to the commencement of a lawsuit, the court may grant attorneys' fees and pre-judgment interest on any judgment and include such fee in the judgment. Section 1213(d) further provides that "the failure of an insurer to defend an action shall be prima facie evidence that its failure to pay was vexatious and without reasonable cause."
Here, Caja unsuccessfully argued that attorneys' fees in the undefended arbitration proceeding should preclude it from being subjected to such additional relief during the award confirmation process. Odyssey noted, however, that attorneys' fees and pre-judgment interest are a statutory penalty for Caja's failure to either post the mandatory security or pay the award within thirty days and that it could only obtain these statutory remedies through a judicial proceeding.
Foreign Sovereign Immunities
Endeavoring to avoid the Curiale holding, Caja contended that because it is an "agent or instrumentality" of a foreign state, section 1609 of the Foreign Sovereign Immunity Act ("FSIA") immunized its property (i.e., the funds to finance a security) from pre-judgment attachment.
Odyssey argued that Caja did not enjoy immunity under these circumstances because the FSIA explicitly states that:
The property of a foreign state . . . shall not be immune from attachment prior to the entry of a judgment in any action brought in a court of the United States . . . if . . .
The purpose of the attachment is to secure satisfaction of a judgment that has been or may be entered against the foreign state and not to obtain jurisdiction. 28 U.S.C. Section 1610(d) (emphasis added).
Conclusion
The Southern District struck Caja's answer and determined that Caja "failed vexatiously and without reasonable cause to pay the amount awarded by the arbitration panel [or] to answer" the confirmation proceeding. Accordingly, pursuant to §1213(d), the Court awarded Odyssey attorneys' fees in the amount of $61,016, calculated at the statutory rate of 12.5% of the entire arbitration award plus 9% simple interest from the date of the award. In addition, the Court granted Odyssey pre-judgment interest in the amount of 9% simple interest per annum from the date of the arbitration award.