N.H. Ins. Co. v. MF Global Fin. USA Inc.
Decision Date | 17 March 2022 |
Docket Number | Appeal No. 14812,Index No. 601621/09,Case No. 2021-01994 |
Citation | 204 A.D.3d 141,165 N.Y.S.3d 510 |
Parties | NEW HAMPSHIRE INSURANCE COMPANY et al., Plaintiffs-Appellants-Respondents, Vigilant Insurance Company et al., Plaintiffs, v. MF GLOBAL FINANCE USA INC., Defendant-Respondent-Appellant. |
Court | New York Supreme Court — Appellate Division |
Selendy & Gay PLLC, New York (Caitlin J. Hallighan and Ester Murdukhayeva of counsel), and Mansukhani, LLP, New York (Joseph Salvo and Gordon Rees Scully of counsel), for New Hampshire Insurance., Company, appellant-respondent.
Kaufman Borgeest & Ryan LLP, Valhalla (Kevin M. Mattessich and Paul C. Fonseca of counsel), for Liberty Mutual Insurance Company, appellant-respondent.
Clyde & Co US LLP, New York (Nicholas Magali of counsel), for Axis Reinsurance Company, appellant-respondent.
Mintz Levin Cohn Ferris Glovsky and Popeo P.C., New York (Therese M. Doherty and LisaMarie F. Collins of counsel), and Covington & Burling LLP, New York (P. Benjamin Duke and Russell M. Squire of counsel), for respondent-appellant.
Barbara R. Kapnick, J.P., Peter H. Moulton, Lizbeth González, Julio Rodriguez III, Bahaati E. Pitt, JJ.
KAPNICK, J.P.
This 2009 declaratory judgment action involves a $141 million insurance coverage dispute between plaintiffs New Hampshire Insurance Company, Liberty Mutual Insurance Company, and Axis Reinsurance Company (Insurers) and defendant, commodity futures broker MF Global Finance USA, Inc. (MF Global). New Hampshire issued the primary bond insurance policy to MF Global's predecessor1 and Liberty Mutual and Axis Reinsurance each issued excess financial institution bonds, covering the same policy period and incorporating the provisions and terms of the primary bond.2 Defendant MF Global seeks coverage under those bonds for a trading loss incurred in February 2008 by Evan Brent Dooley, a broker for MF Global, who in 2012 pleaded guilty to exceeding speculative position limits in violation of 7 USC §§ 6a and 13(a)(5). Dooley was sentenced to five years’ imprisonment and one year of supervised release and was ordered to pay restitution of over $141 million to MF Global upon release from prison.
For the reasons set forth below, we hold that defendant is covered under the fidelity bonds for its loss and is entitled to summary judgment in its favor.
This is the second time that an appeal in this action has been before us. In the first appeal ( New Hampshire Ins. Co. v. MF Global, Inc. , 108 A.D.3d 463, 970 N.Y.S.2d 16 [1st Dept. 2013] ) plaintiffs appealed from an order which denied their motion for summary judgment declaring that they are not obligated under their fidelity bonds to cover defendant's loss and, upon a search of the record, granted summary judgment to defendant. We modified, on the law, to vacate the grant of summary judgment to defendant and to grant defendant partial summary judgment to the extent of declaring that defendant sustained a direct financial loss under the fidelity bonds, and otherwise affirmed.
On this appeal, plaintiffs appeal from an order of the Supreme Court, New York County (Marcy S. Friedman, J.) to the extent it denied their motion for summary judgment to declare there is no coverage under the fidelity bonds they issued to defendant MF Global and granted defendant's motion for summary judgment to the extent of dismissing certain of the Insurers’ affirmative defenses to defendant's counterclaim for breach of contract, and partially dismissed another affirmative defense. Defendant cross-appeals from the order to the extent it denied defendant's motion for summary judgment on its counterclaim for breach of contract in which it seeks the full amount of its claimed loss under the bonds with prejudgment interest.
As we explained in our order determining the first appeal:
The "Insurance Cover" clause of the bonds requires the Insurers to indemnify MF Global for its loss sustained for:
Loss means "the direct financial loss sustained by the insured as a result of any single act, single omission or single event, or a series of related or continuous acts, omissions or events" (Section 2.38).
The bonds define wrongful act with respect to trading as "any theft, dishonest or fraudulent act committed with the intent to obtain improper financial gain for: (i) an employee ; or (ii) any person or organization in collusion with such employee who committed the wrongful act " (Section 2.53). The definition of employee is broad with eleven subparts of categories of individuals, including, for example, a natural person under "a contract of employment written or implied" or "working under the direct control and supervision of the insured " (Section 2.25). The bonds provide that the term "employee does not mean any independent broker, independent financial adviser, or any similar agent or independent representative remunerated on a sales or commission basis unless specifically agreed by the insurer and endorsed to this bond" (id. ). Alternatively, the bonds define any other person as "any natural person who: (i) is not an employee or any insured ; or (ii) does not hold any contract for services, written or implied, with any insured " (Section 2.2).
Thus, the bonds cover defendant for any direct loss it sustained as the result of either any wrongful act by an "employee ," or any theft, fraudulent act or malicious act committed by "any other person. " The bonds include several exclusions, two of which were invoked by the Insurers to deny coverage. Plaintiffs asserted that the loss was not a direct financial loss, but rather an indirect loss, and that defendant had suffered a contractual liability loss, both of which are excluded from coverage. They reasoned:
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