The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.
Plaintiff, a New York corporation with principal place of
business in New Jersey, brings this diversity action to recover
losses allegedly caused by the rejection of its bid for
construction contracts with the City of New York because bid
bonds issued by defendant South American Insurance Company
(SAIC) "did not comply with the IFB [Information for Bidders
prepared by the City of New York] and were a nullity as a
matter of law." Am.Comp. at 4, ¶ 14 (May 9, 1990). This is a
motion by plaintiff to require SAIC to deposit security in
conformance with New York State Insurance Law § 1213(c)(1).
Section 1213(c)(1) states:
(1) Before any unauthorized foreign or alien
insurer files any pleading in any proceeding
against it, it shall either:
(A) deposit with the clerk of the court in which
the proceeding is pending, cash or securities or
file with such clerk a bond with good and
sufficient sureties, to be approved by the
court, in an amount to be fixed by the court
sufficient to secure payment of any final
judgment which may be rendered in the
proceeding, but the court may in its discretion
make an order dispensing with such deposit or
bond if the superintendent certifies to it that
such insurer maintains within this state funds
or securities in trust or otherwise sufficient
and available to satisfy any final judgment
which may be entered in the proceeding, or
(B) procure a license to do an insurance
business in this state.
Plaintiff first made this motion by letter dated April 23,
1990. SAIC responded by letter dated May 1, 1990, with three
defenses: (1) the statute only requires that a security be
filed before the filing of any "pleading"; (2) the statute does
not apply when the plaintiff has obtained personal jurisdiction
over defendant by means other than service through the
Superintendent of Insurance pursuant to New York Insurance Law
§ 1213(b)(2); and (3) a security cannot be required before the
filing of an answer because a court cannot determine the nature
and extent of plaintiff's injuries at such an early juncture.
By letter dated June 11, 1990, plaintiff renewed its motion
with respect to Section 1213(c)(1). SAIC opposed the motion by
letter dated June 19, 1990. At this time, SAIC's motion to
dismiss has been withdrawn, plaintiff has filed an amended
complaint and SAIC has filed an answer. SAIC concedes that it
has filed a pleading and therefore relies only on the second
defense asserted in its letter of May 1, 1990. The Court finds
that defense inadequate in light of the plain language of
Section 1213(c)(1) and related New York caselaw.
The language of Section 1213(c)(1) mandates that a security
"shall" be deposited whenever an unauthorized foreign insurer
files a pleading. SAIC admits in its pleadings that it is an
unauthorized foreign insurer and on this motion has not
disputed that it falls within that categorization. The statute
only provides for two exceptions from the security requirement:
(1) when the superintendent certifies that the unauthorized
insurer maintains within New York State sufficient funds to
satisfy any final judgment, and (2) when the unauthorized
insurer procures a license to do an insurance business in New
York State. Neither of those conditions have been satisfied.
Thus, the plain language of Section 1213(c)(1) dictates that
plaintiff's motion should be granted.
SAIC contends that despite the language of Section
1213(c)(1), the statute only requires a security deposit when
personal jurisdiction has been obtained through substituted
service of process on the Superintendent of Insurance as
attorney for the unauthorized insurers. The procedure for
obtaining personal jurisdiction over unauthorized foreign
insurers through service on the Superintendent is provided for
in Section 1213(b). In the instant case, plaintiff served SAIC
pursuant to New York's long arm statute, which provides for
service upon foreign companies doing business in New York. SAIC
readily concedes in its letters on this motion that service of
process was conducted properly under the CPLR and that this
Court has jurisdiction. SAIC argues, however, that when process
has been served pursuant to the CPLR, rather than through the
Superintendent under Section 1213(b), then 1213(c)(1) does not
apply.
There is no language in the statute to support such a
distinction between the two forms of service. Under New York
case-law the two forms of service have been deemed equivalent,
see Comprehensive Foot Care Group v. Lincoln National Life,
135 Misc.2d 862, 517 N.Y.S.2d 652, 655-56 (N.Y.City Civ.Ct. 1987),
and Section 1213(b)(5) provides, "Nothing contained in this
section shall limit or abridge the right to serve any process,
notice or demand upon any insurer in any other manner permitted
by law."
The only support offered by SAIC is a New York Supreme Court
decision under a similar insurance statute in effect before the
enactment of Section 1213. In Arnold Chait, Ltd. v. La
Metropolitana, Compania Nacional de Seguros, S.A., 26 Misc.2d 751,
207 N.Y.S.2d 22 (N.Y. Sup. Ct. 1960), the court determined
that an unauthorized alien insurer did not have to deposit a
security. Process had been served by means other than through
the Superintendent in Arnold Chait and the court, in part,
relied upon that circumstance in its decision not to require a
security. The basis for the court's attributing significance to
the type of service of process utilized was its addition of
emphasis to the following sentence from Richards, Law of
Insurance, Fifth Edition: "`Section 3 of the model act
describes specifically the necessary procedural steps for an
unauthorized insurer in order to defend a suit in which service
has been made under this act.' (Emphasis supplied.)." 207
N YS.2d at 23 (quoting Richards, supra, at 265). The New York
court stated that this sentence indicated that the security
requirement only applied
when process was served through the Superintendent. SAIC has
not provided the Court with a similar commentary on the current
insurance statute and the Court finds the Richards quote less
than persuasive.
More importantly, the ultimate basis for the holding in
Arnold Chait was that there was already a warrant of attachment
and levy by the sheriff on a New York bank account of the
unauthorized insurer. According to the Arnold Chait decision,
the purpose of the security deposit requirement is to ensure
that the defendant insurer, if it "defends and is unsuccessful,
. . . will be able to satisfy the judgment." 207 N.Y.S.2d at
24. Thus, the Arnold Chait court concluded, "Under the
circumstances of this case presently before us, the relief
afforded the plaintiff by this law is unnecessary, jurisdiction
has been acquired and the Warrant of Attachment and ...