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CURIALE v. AMBERCO BROKERS LTD.

June 17, 1991

SALVATORE CURIALE, SUPERINTENDENT OF INSURANCE OF THE STATE OF NEW YORK, AS LIQUIDATOR OF UNION INDEMNITY INSURANCE COMPANY, IN LIQUIDATION, PLAINTIFF,
v.
AMBERCO BROKERS LTD., BENEFICIAL AMERICAN INSURANCE COMPANY LTD., BISON INSURANCE COMPANY LTD., ST. JOHN'S INSURANCE COMPANY LTD., CAMBRIDGE REINSURANCE COMPANY LTD., COMMONWEALTH INSURANCE COMPANY LTD., HORIZON INSURANCE COMPANY LTD., MENTOR INSURANCE LTD., AND UNIVERSAL MARINE INSURANCE COMPANY, LTD., DEFENDANTS.



The opinion of the court was delivered by: Leisure, District Judge,

OPINION AND ORDER

Union Indemnity Insurance Company ("Union") commenced this diversity action on February 8, 1985. Since July 1985, Union has been in liquidation proceedings in state court; for much of that time, this action has been on this Court's suspense docket. This matter having become active in September 1990, defendants now move the Court to dismiss this case on abstention grounds.

BACKGROUND

This action arises out of a quota share reinsurance agreement effective January 1, 1981, between Union and a group of reinsurers. Union brought this action against the reinsurers and Amberco Brokers Ltd. ("Amberco"), allegedly the intermediary that negotiated the agreement, alleging, inter alia, breach of the reinsurers' obligation to reimburse and indemnify Union for certain losses, and negligence, misrepresentation and breach of contract and fiduciary duty by Amberco. Defendants maintain that Union breached the agreement by failing to keep accurate books and records or accurate accounts of losses paid or payable. Defendants also contend that Union was fraudulently mismanaged by its parent corporation.

On July 16, 1985, Union was placed into liquidation by order of the New York State Supreme Court. The liquidator, the Superintendent of Insurance of the State of New York, Salvatore Curiale (the "Superintendent" or the "Liquidator"), was substituted as plaintiff in the action before this Court. On June 30, 1986, this action was placed on this Court's suspense calendar by Judge John M. Walker, to allow time for the Liquidator to review Union's books and records and to determine the amounts allegedly owed by each of the reinsurers. The case was restored to the Court's active calendar on June 3, 1988, but was later closed for lack of activity by order of Chief Judge Charles L. Brieant on June 27, 1989.

Liquidation proceedings have continued before Justice Ira Gammerman of the New York Supreme Court. Also before Justice Gammerman is an interpleader action to determine the distribution of reinsurance proceeds under another reinsurance agreement.*fn1 The Superintendent has also brought an action in the liquidation court against Union's corporate parent, Frank B. Hall & Co., Inc. ("Hall"), alleging mismanagement and fraud by Hall.*fn2 The parties to the Hall action have apparently submitted a settlement agreement to Justice Gammerman for approval.

The reinsurers in Michigan National argued that the allegations and evidence of mismanagement by Union's parent submitted by the Superintendent in the Hall action constituted judicial admissions under New York law, and that their reinsurance agreements should be rescinded for Union's failure to disclose these material facts. The reinsurers' motion for summary judgment on this ground was granted by Justice Gammerman in a decision dated October 16, 1989. Characterizing the issue as one of first impression in New York, with important policy ramifications for all New York liquidations, the Superintendent moved to reargue this decision. The motion to reargue was heard on July 13, 1990, and remains sub judice.

This action was reopened on May 30, 1990, and was reassigned to this Court on June 12, 1990. At a conference before this Court on September 13, 1990, the case was restored to the active docket. Defendants Beneficial American Insurance Company Ltd., Bison Insurance Company Ltd., Commonwealth Insurance Company Ltd., St. John's Insurance Company Ltd., Horizon Insurance Company Ltd., and Amberco now move this Court to dismiss this action under Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), and Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).*fn3 Defendants cite the following considerations in support of their argument that abstention is appropriate in this case:

  1. the Superintendent has conceded that issues
  common to this case and the [Michigan National
  action] are complex and unsettled;
  2. New York state has a substantial interest in
  the resolution of any dispute involving an
  insolvent insurer;
  3. the Superintendent has conceded that the
  outcome of the Reinsurers' Hall defense will have a
  broad impact on the liquidation of Union Indemnity;
  4. deference to the unified New York State
  liquidation proceeding is favored because of the
  experience of federal courts in the bankruptcy
  arena and the McCarran-Ferguson Act;
  5. the parties here will be permitted to
  effectively raise their claims and defenses in the
  New York ...

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