Corcoran v. Ardra Ins. Co., Ltd.

• Decision Date: 16 April 1987
• Docket Number: No. 85 Civ. 6304 (PKL).,85 Civ. 6304 (PKL).
• Citation: 657 F. Supp. 1223
• Parties: James P. CORCORAN, Superintendent of Insurance of the State of New York, and his successors in office as Superintendents of Insurance of the State of New York, as Liquidator of Nassau Insurance Company, in Liquidation, Plaintiff, v. ARDRA INSURANCE COMPANY, LTD., Richard S. Diloreto and Jeanne S. Diloreto, Defendants.
• Court: U.S. District Court — Southern District of New York

657 F. Supp. 1223

James P. CORCORAN, Superintendent of Insurance of the State of New York, and his successors in office as Superintendents of Insurance of the State of New York, as Liquidator of Nassau Insurance Company, in Liquidation, Plaintiff, v. ARDRA INSURANCE COMPANY, LTD., Richard S. Diloreto and Jeanne S. Diloreto, Defendants.

No. 85 Civ. 6304 (PKL).

United States District Court, S.D. New York.

April 16, 1987.

COPYRIGHT MATERIAL OMITTED

Alberti & Epstein for the Liquidation Bureau of the Ins. Dept. of the State of N.Y., Andrew A. Alberti, LeBoeuf, Lamb, Leiby & MacRae, New York City, for plaintiff; Cecelia Kempler, Ronald J. Gizzi, Barbara W. Vermuelen, of counsel.

Rein, Mound & Cotton, New York City, for defendants; James D. Veach, Adam B. Rowland, of counsel.

OPINION & ORDER

LEISURE, District Judge:

Plaintiff, James P. Corcoran, Superintendent of Insurance of the State of New York ("the Superintendent"), as Liquidator of Nassau Insurance Company ("Nassau"), has brought this action against the Ardra Insurance Company Ltd. ("Ardra"), a Bermuda reinsurance company, and two officers of Ardra, Richard S. Diloreto and Jeanne S. Diloreto (the "DiLoretos") seeking the recovery of reinsurance proceeds under three reinsurance agreements (the "Reinsurance Agreements") between Nassau and Ardra. The Superintendent commenced this action in New York State Supreme Court, New York County. Subsequently, Ardra demanded arbitration under each of the Reinsurance Agreements. Pursuant to Ardra's arbitration demands, defendants also moved to dismiss or stay the state action and for relief prior to answer pursuant to N.Y.C.P.L.R. § 3211(a). The Superintendent responded by cross-moving for summary judgment. Instead of replying to the Superintendent's motion in the state court, defendants removed this action to this Court, seeking an order compelling arbitration, dismissing the complaint against Ardra, and dismissing or staying all proceedings with respect to the DiLoretos. In response, the Superintendent seeks remand of this action to the state court. For the reasons set forth below, the Superintendent's motion for remand is granted.

FACTUAL BACKGROUND

In this action, the Superintendent, as Liquidator of Nassau, seeks recovery of reinsurance¹ proceeds allegedly owed by Ardra to Nassau for payment of claims arising under certain policies issued by Nassau. See Complaint at ¶ 1. Specifically, this dispute involves three Reinsurance Agreements entered into by Nassau and Ardra. The Reinsurance Agreements covered (a) commercial automobile liability, general liability, lawyers professional package liability, excess commercial automobile liability and excess general liability policies written by Nassau, (b) personal injury protection benefits written under New York Automobile Statutory No-Fault coverage, and (c) excess automobile bodily injury medallion taxicab policies. See Affidavit of Ronald J. Gizzi, Esq., sworn to on August 29, 1985 ("Gizzi Aff."), Exhibits B, C and D, annexed thereto. Ardra assumed a substantial portion of risks on those policies written by Nassau which were covered pursuant to the Reinsurance Agreements. In consideration for Ardra reinsuring such a substantial portion of Nassau's liabilities, Nassau paid $10,682,924.84 in premiums to Ardra.

Nassau was placed in liquidation on June 22, 1984, after having been in rehabilitation for three months. The Order of Liquidation (the "Order") was issued pursuant to Article 74 of the New York Insurance Code, N.Y. Ins. Law § 7401 et seq. (McKinney 1985), which governs the manner of rehabilitation and liquidation of insolvent insurers domiciled in New York, Nassau's state of domicile. The Order authorizes the Superintendent, in his capacity as Liquidator of Nassau, to take various actions, including taking possession of the property of Nassau, liquidating the business of Nassau, paying claims arising under policies issued by Nassau, collecting reinsurance on such claims, and collecting other debts owed to Nassau. The Order also terminates all outstanding policy and other insurance obligations of Nassau, as well as other subsisting contracts, tax sharing agreements and other obligations of Nassau. Finally, the Order prohibits all persons, "including but not limited to claimants", from:

Bringing ... any action at law, suit in equity, special or other proceeding against Nassau or its estate, or the Superintendent ... or from in any way interfering with the Superintendent ..., in his or their possession, control or management of the property of said corporation, or in the discharge of his or their duties as Liquidator thereof, or in the liquidation of the business of said corporation....

Order of Liquidation at 8 (emphasis added).

On February 19, 1985, Ardra's Board of Directors authorized the sending of a disclaimer letter to the Superintendent. The letter stated that Ardra was repudiating the Reinsurance Agreements because the Superintendent failed to cooperate with Ardra by allowing Ardra's representatives to participate directly in court proceedings involving third party claims against Nassau's insureds as allegedly required under the Reinsurance Agreements. Subsequently the Superintendent commenced this action.

LEGAL DISCUSSION

Defendants argue that this dispute is "basically a contract action brought by plaintiff as liquidator of Nassau ... against Ardra, a Bermuda reinsurance company." D. Memo. at 1. Defendants allege that because the dispute between Ardra and the Superintendent purportedly "falls clearly within mandatory arbitration clauses in each of the reinsurance agreements ..." the instant matter should be referred to arbitration. Id. More specifically, according to defendants, the Court has the power and obligation to refer this dispute to arbitration under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N. T.S. 38 (Dec. 29, 1970), implemented by 9 U.S.C. § 201 et seq. (the "Convention"). The Superintendent, however, contends that this action should be remanded to the State Supreme Court on the grounds that (1) the State Supreme Court has exclusive jurisdiction over all matters relating to the liquidation of Nassau pursuant to Article 74 of the New York Insurance Code and in accordance with the delegation of powers to the states by the McCarran-Ferguson Act ("McCarran-Ferguson"), 15 U.S.C. § 1011 et seq.; (2) the Convention does not apply to the instant dispute; and (3) abstention is appropriate to allow the State Supreme Court to decide issues of first impression raised by the Superintendent. P. Memo. at 1-2.

This Court has confronted previously the issue of whether the McCarran-Ferguson Act precludes the application of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1976) (the "Arbitration Act") to Article 74. See Washburn v. Corcoran, 643 F.Supp. 554 (S.D.N.Y.1986) (Leval, J.); Bernstein v. Centaur Ins. Co., 606 F.Supp. 98 (S.D.N.Y. 1984). However, the question now possibly before the Court, regarding the relationship between the Convention and McCarran-Ferguson, is one of first impression.² Although this question is undoubtedly significant and interesting, before reaching it the Court must be satisfied first that the Convention applies to this dispute.

A. THE CONVENTION

As the Second Circuit explained in Bergesen v. Joseph Muller Corp., 710 F.2d 928 (2d Cir.1983), "international merchants often prefer arbitration over litigation because it is faster, less expensive and more flexible." Id. at 929. In 1958, the Convention was called in an attempt to improve upon previous international agreements and private mechanisms designed to facilitate international arbitration. Id. See, Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1051 (1961); McMahon, Implementation of the United Nations Convention on Foreign Arbitral Awards in the United States, 2 J.Mar.L.Com. 735, 737 (1971). Although the United States attended and participated in the conference, it did not sign the Convention. "Ten years later, however, in 1968, the Senate gave its consent, but accession was delayed until 1970 in order for Congress to enact the necessary implementing legislation." Bergesen, supra, 710 F.2d at 929 (citation omitted). As the Supreme Court stated:

The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.

Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15, 94 S.Ct. 2449, 2457 n. 15, 41 L.Ed.2d 270 (1974) (citations omitted).

In furtherance of this policy, the Convention provides for the recognition of both arbitral agreements and arbitral awards. Article II of the Convention states:

1. Each signatory country shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

. . . . .

3. The court of a signatory country, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

See 9 U.S.C.A. § 201 note (1985) (Supp.) (reprinting Convention).

"A court presented with a request to refer a dispute to arbitration pursuant to the Convention performs a very limited inquiry." Ledee v. Ceramiche...