British International Insurance v. Seguros La Republica

• Citation: 212 F.3d 138
• Decision Date: 26 January 2000
• Docket Number: No. 99-7721,99-7721
• Parties: (2nd Cir. 2000) BRITISH INTERNATIONAL INSURANCE COMPANY LIMITED, Plaintiff-Appellee, v. SEGUROS LA REPUBLICA, S.A., Defendant-Appellant. Argued:
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 138

212 F.3d 138 (2nd Cir. 2000)

BRITISH INTERNATIONAL INSURANCE COMPANY LIMITED, Plaintiff-Appellee, v. SEGUROS LA REPUBLICA, S.A., Defendant-Appellant.

No. 99-7721

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued: January 26, 2000,

Decided: May 4, 2000,

CARY B. SAMOWITZ, Lord, Bissell & Brook, New York, NY (Michael R. Hassan, R.R. McMahan, Albert E. Fowerbaugh, Jr., Chicago, IL, of counsel), for Defendant-Appellant.

MICHAEL R. O'DONNELL, Riker, Danzig, Scherer, Hyland & Perretti LLP, Morristown, NJ (Shawn L. Kelley, Thomas J. Perry, Debra D. Tedesco, Riker, Danzig, Scherer, Hyland & Perretti LLP, Morristown, NJ, Peter N. Hillman, Chadbourne & Parke LLP, New York, NY, of counsel), for Plaintiff-Appellee.

Before: VAN GRAAFEILAND, STRAUB, AND POOLER, Circuit Judges.

PER CURIAM:

Seguros La Republica ("Seguros") appeals from a default judgment of the United States District Court for the Southern District of New York (John F. Keenan, Judge ). By a summary order filed concurrently with this opinion, we reject most of Seguros's claims on appeal. In this separate opinion, we address its argument that the security requirement of New York Insurance Law 1213 violates the defendant's right to due process. For the reasons that follow, we affirm the District Court's order deciding that there was no due process violation. See American Centennial Ins. Co. v. Seguros La Republica, S.A., No. 90 Civ. 2370, 1992 WL 147626 (S.D.N.Y. June 16, 1992) (adopting Magistrate Judge's Report and Recommendation, dated March 23, 1992, and rejecting the defendant's due process challenge to 1213(c)).

BACKGROUND

This case arises out of Seguros's alleged failure to pay a predecessor-in-interest of British International Insurance Co. ("BIIC"), American Centennial Insurance Company ("ACIC"), pursuant to twenty-six reinsurance certificates. During the course of the litigation, ACIC moved for an order compelling Seguros to post pre-answer security in accordance with New York Insurance Law 1213(c)(1)(A), which requires unauthorized foreign or alien insurers, such as Seguros, to post bonds or other security before they are permitted to defend a case on the merits in the New York courts.¹ Because Seguros notified the District Court that it would not post a bond or other security, ACIC filed a motion to strike Seguros's answer, which the District Court granted after a hearing on personal jurisdiction.

After a two-day hearing on damages, the District Court entered a default judgment against Seguros in the amount of $ 11,801,024.98. On appeal, Seguros argues, as it did before the District Court, that the security requirement of New York Insurance Law 1213 violates its right to due process.

DISCUSSION

Section 1213 of the New York Insurance Law states that its intended purpose is to

subject certain insurers to the jurisdiction of the courts of this state in suits by or on behalf of insureds or beneficiaries under certain insurance contracts. The legislature declares that it is a subject of concern that many residents of this state hold policies of insurance issued or delivered in this state by insurers while not authorized to do business in this state, thus presenting to such residents the often insuperable obstacle of resorting to distant forums for the purpose of asserting legal rights under such polices.

N.Y. Ins. Law 1213(a) (McKinney 1985). The statute accomplishes this purpose in two ways: first, by declaring that certain activities on the part of the foreign unauthorized insurer constitute appointment of the New York Superintendent of Insurance as its attorney for service of process, see N.Y. Ins. Law 1213(b)(1), and second, by mandating that out-of-state insurers post security or obtain a license in order to be allowed to participate in court proceedings in New York, see N.Y. Ins. Law 1213(c)(1). Seguros challenges this second requirement here.

I. Applicability of Section 1213 to Reinsurers

Initially, we address 1213's applicability to the circumstances of this case. Seguros argued in the District Court that 1213 does not apply to reinsurers because "reinsurance contracts . . . are merely contracts of indemnity, not policies of insurance." The District Court rejected Seguros's claim, relying on Morgan v. American Risk Mgmt., Inc., No. 89 Civ. 2999, 1990 WL 106837 (S.D.N.Y. July 20, 1990), which in turn relied on the language of another provision of the New York Insurance Law expressly providing that 1213 applies to those engaged in reinsurance transactions. See N.Y. Ins. Law 1101(b)(2).² Although Seguros does not press this claim on appeal, we find it necessary to address the point, as this status resolution underpins the statute's applicability.

We agree with the court in Morgan, and those courts adopting its reasoning, that the argument that a reinsurance contract is not a "policy of insurance" or a "contract of insurance" is not sufficient to contravene the express language of 1101(b)(2). See Morgan, 1990 WL 106837, at *6; accord, e.g., John Hancock Property and Cas. Ins. Co. v. Universale Reinsuranace Co. Ltd., 147 F.R.D. 40, 50 (1993) (adopting the reasoning of Morgan). Rather, the express language of 1101(b)(2) demonstrates that "although the legislature recognized that the business of reinsurance was to be distinguished for some purposes from the business of insurance, . . . it did not intend that unauthorized reinsurers be exempted from New York's long-arm statute and security requirement." Morgan, 1990 WL 106837, at *6.

Finally, Seguros's argument, advanced in the District Court, that this express language is relevant only to the service of process provisions of subsection 1213(b), is without merit. As the District Court concluded, "it makes little sense for the legislature to protect residents by subjecting alien reinsurers to the jurisdiction of the New York courts, but not to the security requirements." American Centennial Ins. Co. v. Seguros La Republica, S.A., Nos. 90 Civ. 2370, 91 Civ. 1235, Report and Recommendation of Magistrate Judge Leonard Bernikow, at 6 (S.D.N.Y. Mar. 23, 1992).

II. Due Process Challenge

Seguros contends that the security requirement at issue is equivalent to a prejudgment attachment of its property and, under the test set forth by the Supreme Court in Connecticut v. Doehr, 501 U.S. 1, 115 L. Ed. 2d 1, 111 S. Ct. 2105 (1991), violates its right to due process. BIIC counters that the security requirement does not constitute an attachment and, in any event, complies with the due process requirements set forth by the Supreme Court for such procedures. We hold that the security requirement of 1213 is the functional equivalent of an attachment, but that it satisfies the due process requirements of Doehr.

The plaintiff's argument that the security requirement is not an attachment is based largely on the New York Court of Appeals's determination that "section 1213(c) does not effect a seizure of property. The foreign or alien insurer is merely required to post security as a precondition of filing an answer in litigation over policies which the insurer has issued." Curiale v. Ardra Ins. Co., Ltd., 88 N.Y.2d 268, 278, 644 N.Y.S.2d 663, 667 N.E.2d 313 (1996). We respectfully disagree with Curiale's characterization of the security requirement.

First, the Supreme Court has never held that only "complete, physical, or permanent deprivations of real property . . . trigger[] due process concern." Doehr, 501 U.S. at 12. Rather, its "cases show that even the temporary or partial impairments to property rights that attachments, liens, and similar encumbrances entail are sufficient to merit due process protection." Id. Moreover, we have previously characterized 1213's security requirement as being equivalent to an attachment because "it would force foreign [insurers] to place some of their assets in the hands of the United States courts for an indefinite period. During that time, the [insurers] would have no access to those assets. All this is precisely the same result that would obtain if the foreign [insurer's] assets were formally attached." Stephens v. National Distillers and Chem. Corp., 69 F.3d 1226, 1229 (2d Cir. 1996). The issue in Stephens was whether the provision in the Foreign Sovereign Immunities Act, prohibiting "attachment arrest and execution" of a foreign state's property, 28 U.S.C. 1609, exempts foreign insurance companies that claim coverage under the FSIA from 1213's security requirement. While the FSIA is not at issue in the case before us, we believe we are bound by Stephens's characterization of 1213's security requirement as a prejudgment attachment, especially given the Supreme Court's broad definition in Doehr of situations that implicate due process concerns, see Doehr, 501 U.S. at 12. Accordingly, analysis of whether 1213's security requirement comports with due process--an issue not addressed in Stephens--must proceed in light of the conclusion in Stephens that this requirement constitutes an "attachment" of the foreign insurance companies' property.

Mathews v. Eldridge, 424 U.S. 319, 335, 47 L. Ed. 2d 18, 96 S. Ct. 893 (1976), articulates the traditional balancing test employed by courts to determine whether a government deprivation of an individual's property violates due process. See Doehr, 501 U.S. at 10. The Mathews calculus instructs courts to determine the constitutional adequacy of prejudgment attachment procedures by balancing (1) the private interest involved, (2) the risk of an erroneous deprivation of that interest through the procedures utilized, as well as the probable value of additional procedural safeguards, and (3) the government's interest, including the burden that additional procedural requirements would impose. See Mathews, 424 U.S. at 325; United States v. All Assets of Statewide Auto Parts, Inc., 971 F.2d 896, 902 (2d Cir. 1992).

However, as the Supreme Court pointed out in Doehr, the balancing test set forth in Mathews...