[1]     

UNITED STATES COURT OF APPEALS

, [5]     

Argued: July 14, 1997

, [6]      IN RE: FINLEY, KUMBLE, WAGNER, HEINE, UNDERBERG, MANLEY, MYERSON & CASEY, DEBTOR. " />

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In Re Finley, 130 F.3D 52 (2d Cir. 11/26/1997)

UNITED STATES COURT OF APPEALS

No. 1596--August Term, 1996

Docket No. 96-5125

130 F.3d 52, 1997.C02.0000530 <http://www.versuslaw.com>

Argued: July 14, 1997

IN RE: FINLEY, KUMBLE, WAGNER, HEINE, UNDERBERG, MANLEY, MYERSON & CASEY, DEBTOR.

Before: WINTER, Chief Judge, JACOBS, and LEVAL, Circuit Judges.

[8]    

FOR THE SECOND CIRCUIT

[9]    

Decided: November 26, 1997

ARTHUR H. CHRISTY, as Trustee of the Finley Kumble, et al Malpractice Insurance Trust, Plaintiff-Appellant, v.

ALEXANDER & ALEXANDER OF NEW YORK INC.; ALEXANDER INTERNATIONAL INSURANCE SERVICES, LTD.; ALEXANDER HOWDEN INSURANCE BROKERS, LTD., Defendants-Appellees.

Appeal from a final judgment of the United States District Court for the Southern District of New York (Sprizzo, J.), holding on summary judgment that an insurance broker was not an "initial transferee" within the meaning of 11 U.S.C. Section(s) 550(a) in respect of a fraudulent transfer under 11 U.S.C. Section(s) 548(a)(2), when the broker transferred a premium payment from the policyholder to an insurance company to purchase coverage that the broker recommended but that is alleged to have furnished no useful incremental coverage.

Affirmed.

JOHN F. CAMBRIA, New York, NY (Salvatore A. Santoro, Frank E. Derby, Daniel R. Milstein, Christy & Viener, on the brief), for Plaintiff-Appellant.

WAYNE R. GLAUBINGER, New York, NY (Lawrence S. Greengrass, Mound, Cotton & Wollan, on the brief), New York, NY, for Defendants-Appellees.

JACOBS, Circuit Judge:

The question presented on this appeal is whether an insurance broker, having recommended the purchase of insurance (assumed to have afforded no useful coverage) to a firm that was then insolvent and soon after bankrupt, was an "initial transferee" within the meaning of 11 U.S.C. Section(s) 550(a) in respect of an allegedly fraudulent transfer under 11 U.S.C. Section(s) 548(a)(2) when the broker transferred the premium payment from the policyholder to the insurance company.

Prior to its decision to dissolve in December of 1987, the law firm of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey ("Finley Kumble") consulted with its insurance broker, Alexander & Alexander of New York, Inc. ("A&A") *fn1 to decide what to do about the firm's coverage for professional liability. On A&A's recommendation, Finley Kumble allocated its limited resources to buy a three-year extension of the claims reporting period on its existing primary coverage, which was a $15 million claims-made policy issued by American Home Assurance Co. ("American Home"). This "discovery tail" did not increase the coverage limits.

In 1988, Finley Kumble's creditors filed an involuntary petition under Chapter 7 of the Bankruptcy Code, a proceeding that the Bankruptcy Court for the Southern District of New York later converted to a proceeding under Chapter 11. The Plan of Reorganization, confirmed in December of 1991 (Abram, B.J.), made provision for payment of legal malpractice claims (i) by creating a Malpractice Insurance Trust to sort out and fund the claims, (ii) by assigning to the Insurance Trust the estate's rights and claims against (inter alia) Finley Kumble's malpractice insurers and A&A, and (iii) by naming Arthur H. Christy ("Christy") as trustee.

In June of 1990, Christy sued A&A in an adversary proceeding in the Bankruptcy Court, asserting common law claims (malpractice, negligence, breach of contract, and breach of fiduciary duty) as well as a claim to recover from A&A, as an avoidable transfer under 11 U.S.C. Section(s) 548(a)(2), the premium that Finley Kumble paid for the discovery tail, on the theory that (i) the premium was paid within one year of the filing, while Finley Kumble was insolvent, (ii) the discovery tail did not afford coverage reasonably commensurate with the $4.375 million premium, and (iii) A&A was the "initial transferee" of the premium within the meaning of 11 U.S.C. Section(s) 550(a).

After the Bankruptcy Court transferred that proceeding to the district court (Sprizzo, J.), the parties stipulated to the voluntary dismissal with prejudice of all the common law claims. A&A then moved for summary judgment dismissing the avoidable transfer claim on the grounds that (i) having exercised no dominion over the premium amount, A&A acted as a "mere conduit" of the premium for the discovery tail, and therefore was not an initial transferee under principles articulated in Bonded Financial Servs. v. European Am. Bank


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