Vigilant Ins. Co. v. MF Glob.

• Decision Date: 12 July 2022
• Docket Number: Index No. 601621/2009,Motion Seq. No. 025
• Citation: 2022 NY Slip Op 32275 (U)
• Parties: VIGILANT INSURANCE COMPANY, UNDERWRITERS LLOYDS OF LONDON, ST PAUL FIRE & MARINE INS CO, FIDELITY & DEPOSIT CO MARYLAND, CONTINENTAL CASUALTY COMPANY, GREAT AMERICAN INSURANCE CO, AXIS REINSURANCE COMPANY, LIBERTY MUTUAL INSURANCE CO., NEW HAMPSHIRE INSURANCE COMPANY, Plaintiff, v. MF GLOBAL INC, JAMES W. GIDDENS (TRUSTEE), Defendant.
• Court: New York Supreme Court

2022 NY Slip Op 32275(U)

VIGILANT INSURANCE COMPANY, UNDERWRITERS LLOYDS OF LONDON, ST PAUL FIRE & MARINE INS CO, FIDELITY & DEPOSIT CO MARYLAND, CONTINENTAL CASUALTY COMPANY, GREAT AMERICAN INSURANCE CO, AXIS REINSURANCE COMPANY, LIBERTY MUTUAL INSURANCE CO., NEW HAMPSHIRE INSURANCE COMPANY, Plaintiff, v. MF GLOBAL INC, JAMES W. GIDDENS (TRUSTEE), Defendant.

Index No. 601621/2009, Motion Seq. No. 025

Supreme Court, New York County

July 12, 2022

Unpublished Opinion

DECISION+ ORDER ON MOTION

HON MELISSA CRANE, Justice

The following e-filed documents, listed by NYSCEF document number (Motion 025) 637, 638, 639, 640, 641, 642, 643, 644, 645 646, 647, 648, 649, 650, 651, 652, 653, 654, 655, 656, 657 658, 659, 660, 661, 662, 663, 664, 665, 666, 667, 668, 669 674, 675, 679, 681, 682, 683, 684, 685, 686, 687, 688, 689, 690, 691,692,697,700,701,702,703,704,705,706 were read on this motion to/for MISCELLANEOUS.

Defendant MF Global Finance USA Inc. (MF Global) moves pursuant to CPLR §§3212, 5001 and 5011, for an Order granting summary judgment in its favor against Plaintiffs New Hampshire Insurance Company (New Hampshire), Axis Reinsurance Company (Axis) and Liberty Mutual Insurance Company ([Liberty] but collectively "Insurers") on Defendant's counterclaim and directing the Clerk of the Court to enter a final judgment against each of the Insurers together with prejudgment interest. The court presumes familiarity with all prior decisions delineating the facts

Earlier this year, the Appellate Division, First Department, reversed a prior order of this court (Friedman J.) and essentially awarded judgment to MF Global, the insured here, holding that the insurance policies at issue on this motion covered fraudulent trading activity for which MF Global suffered a loss (204 A.D.3d 141 [March 17, 2022]). Because this case is so old, there is a potential for heavy prejudgment interest. This circumstance has led to the current motion that involves several issues, all of which touch on the calculation of prejudgment interest. Under CPLR 5001(b) prejudgment interest runs from the date the insured becomes obligated to indemnify the insured (see Warehouse Wines v Travelers, 711 Fed.Appx. 654, 658 [2nd Cir 2017]).

1. Accrual Date For Prejudgment Interest

The first issue is the accrual date for the prejudgment interest for at least New Hampshire's primary policy. The insurance companies claim that the time period for prejudgment interest did not begin to accrue, at the earliest, until the insurance companies declined coverage on May 1, 2009. However, MF Global requested coverage initially in February 2008, again in April 2008, and filed proof of loss on June 6, 2008. The reason the insurers did not decline coverage until May 1, 2009 is because they took nearly a year for their "investigation."

Contrary to the insurers' position, coverage does not run from denial when they take a year to investigate. What the law says is that the insurance companies must pay within a REASONABLE time period (see Ins. law 3420[d][2]; Bowers v. Grier, 185 A.D.3d 998, 1000 (2dDep't2020).

Under the circumstances, a year is not reasonable. As MF Global so aptly states: "the accrual date does not deny the insurers the ability to conduct an investigation, it is just that they cannot do it at the insured's expense." (Reply Br. EDOC. 706, pg 9).

Warehouse Wines, 711 Fed.Appx. 652 (2d Cir 2017), is directly on point. In that case, the Court of Appeals for the Second Circuit held the insurance company "[could not] circumvent CPLR 5001(b) by denying coverage while conducting a nearly year-long investigation into [the insured's] claims and then, once it is adjudicated liable, avoid paying prejudgment interest from the earliest ascertainable date the cause of action existed. To adopt [the insurer's] position would be to undermine CPLR' 5001(b)'s purpose to make the aggrieved party whole [internal citations omitted]"

Accordingly, the accrual date for prejudgment interest is July 6, 2008. This is 30 days from the time MF Global filed its proof of loss and over four months from the date MF Global filed its initial claim on February 28, 2008. This four-month period is sufficient time for the insurer's investigation to be on MF Global's dime.

The insurance companies try to distinguish Warehouse Wines by arguing that the policy in that case required payment within 30 days of a proof of claim. This is a distinction without a difference. To rule that prejudgment interest runs from the denial of a claim incentivizes insurance companies to hold off denying coverage for as long as possible. Moreover, the insurance companies have not cited a single case holding that to decline coverage over a year from the notice of claim is reasonable (see Fireman's Fund v One Beacon 2020 WL 7028906 [SDNY November 30, 2020] [holding 90 days was too long]). Again, to hold otherwise would incentivize insurers to drag their feet during an investigation.

2. Effect Of The Settlements From The Settling Insurers That Exceed The Limits Of Those Policies

The next issue is what effect the monies from settlements with the settling insurers have on the total amount upon which prejudgment interest should run. It is undisputed that those insurance companies who have settled with MF Global paid above their policy limits to settle. MF Global contends that this extra amount above limits was to pay for attorney's fees and interest and therefore the non-settling insurers should not receive the benefit of those amounts. The insurance companies ask for a reduction of liability by way of a credit for amounts above limits the settling insurers paid to settle MF Global's claims.

The operative language in the insurance policies is at § 6.7 of the primary policy (See EDOC 642) There is no dispute that the excess policies follow form to the primary policy and therefore incorporate the terms of the primary policy. Section 6.7 states:

"In determining the amount collectable under this bond for any loss, deductions shall be made in respect of any property. . . received from any source whatsoever, including payments and receipts of principal, interest, dividends, commissions and the like, whenever received, in connection with any matter from which an indemnifiable loss has arisen." (emphasis added)

Here, we have clear policy language that allows for a set off "from any source whatsoever" and includes receipt of payments for "any property" including "interest." Accordingly, application of the plain terms of § 6.7 of the Primary Bond requires subtraction of all sums above limits recovered from the settling insurers as they qualify as "any source whatsoever" regardless of whether these payments are for interest. Thus, any amount MF Global would recover must be reduced by $17,020,287.00 even if that amount was from the settling insurers payment of interest or attorney's fees.

MF Global cannot circumvent this policy language. MF Global claims § 6.7 was meant to apply to third parties, like the active wrongdoer Dooly, and does not apply to insurance companies. This interpretation flies in the face of the clear policy language stating that the set off can derive from "from any source whatsoever."

MF Global cites E.R. Squibb & Sons, Inc. v. Lloyd's & Companies, 241 F.3d 154, 172 (2d Cir. 2001), but that case is not relevant. In that case, the parties agreed that the appropriate starting point for the analysis was a pro rata allocation method. It has nothing to do with policy language requiring a set off "from any source whatsoever." Again, MF Global's arguments cannot circumvent the clear policy language that allows for a set off from any source whatsoever and includes payments for "any property," including interest.

3. Liberty's Excess Policy

There is a separate issue about when the prejudgment interest runs with respect to Liberty because of unique language the Liberty policy contains (see EDOC 647). Liberty's Policy states "this Policy only provides coverage when the Underlying Limit of Liability is exhausted by reason of the insurers of the Underlying Policies paying or being held liable to pay." Thus, the Liberty policy is not triggered until the underlying insurers pay or are held liable to pay.

MF Global claims that Liberty failed to raise exhaustion to disclaim coverage and therefore has waived an exhaustion argument. This is plainly incorrect. First, Liberty sent a broad reservation of rights letter when it declined coverage (EDOC 36, 654). Then, it asserted exhaustion in its 8th affirmative defense that states:

"MF Global cannot recover under the Liberty Mutual Bond to the extent MF Global has not incurred an otherwise recoverable loss in the amount of any and all Bonds and/or insurance policies underlying Liberty Mutual's Bond and such other Bonds have been exhausted by the actual payment of covered loss." (EDOC 36 pg. 10).

This affirmative defense is sufficient to contemplate the situation here where the insurers have been held liable to pay or have settled.

More important, the Appellate Division, First Department carved out Liberty when it dismissed all affirmative defenses in the case EXCEPT FOR LIBERTY'S 8TH AFFIRMATIVE DEFENSE and remanded issues with respect to that defense back to the trial court (See 204 A.D.3d 141, 157 [March 17, 2022]). Why would the Appellate Division have carved out Liberty's eighth affirmative defense, if Liberty had already waived exhaustion?

Thus by its plain language the Liberty policy only attaches when one of two circumstances occur: (1) the underlying insurers pay or (2) are held liable to pay. It is important to note that MF Global has not argued for the purpose of this motion that the settlements with the other insurers constitute payment of the underlying...