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Dukes Bridge LLC v. Security Life of Denver Insurance Company

July 20, 2011


The opinion of the court was delivered by: Levy, United States Magistrate Judge:


Plaintiff Dukes Bridge LLC ("plaintiff" or "Dukes Bridge") moves to compel defendant Security Life of Denver Insurance Co. ("defendant" or "Security Life") to deposit with the Clerk of the Court sufficient sureties to secure payment of any final judgment, in accordance with N.Y. Ins. Law § 1213(c)(1), and to strike defendant's pleadings for its failure to comply with the pre-pleading payment security provisions of § 1213(c)(1). For the reasons stated below, plaintiff's motion is denied.


Plaintiff commenced this diversity action on November 29, 2010, seeking payment of the $10 million death benefit of a life insurance policy issued by defendant. (See Complaint, dated Nov. 29, 2010 ("Compl.").) The basic facts, as alleged by plaintiff, are as follows:

On September 17, 2007, defendant issued Flexible Premium Adjustable Life Policy No. 1628906 ("the Policy"), insuring Eugene Mermelstein's life in the amount of $10 million. (Id. ¶ 16, Ex. A at 1.) On or about October 23, 2007, Mermelstein, a New York resident, established the E. Mermelstein IRR Trust A (the "Trust") in New York State. (Id. ¶ 12.) The Trust was subsequently named the sole beneficiary of the Policy. (Id. ¶ 16.)

The Trust then entered into a Specialty Finance Loan Agreement with Aqua Blue Wealth Management, LLC ("Aqua Blue"), effective January 22, 2008. (Id. ¶ 25.) Under the Finance Agreement, Aqua Blue lent money to the Trust to fund the premiums due on the Policy for twenty-seven months. (Id.) To secure the loan, the Trust provided Aqua Blue with "a collateral assignment of all of the Trust's right, title and interest under the Policy, including the Trust's right to the Policy's death benefit." (Id.) Aqua Blue made the loan to the Trust with funds that it had itself borrowed from another entity, Ridgewood Finance ("Ridgewood"), pursuant to a Line of Credit and Security Agreement. (Id. ¶ 26.) The loan was intended to aid Aqua Blue in providing premium finance loans to trusts that owned life insurance polices; pursuant to the Line of Credit and Security Agreement, Aqua Blue assigned to Ridgewood its right, title and interest in the subject policies, including those assigned by the various trusts that owned the policies. (Id.)

Mermelstein died on February 20, 2009 of natural causes (id. ¶ 28), and on February 27, 2009, Esther Fried, as Co-Trustee of the Trust, submitted an application for death proceeds under the Policy (id. ¶ 29). Although defendant acknowledged receipt of the application and requested additional documentation, it did not pay the death claim. (Id. ¶¶ 30, 31.)

Meanwhile, both Aqua Blue and the Trust defaulted on their respective loans. Following Aqua Blue's November 2009 default of its agreement with Ridgewood, in lieu of a foreclosure, the two parties agreed to a voluntary settlement; as part of this agreement, Ridgewood assigned all of its rights under the Finance Agreement with the Trust to plaintiff. *fn1

(Id. ¶ 32.) Next, on or about January 5, 2010, plaintiff notified the Trust that it had defaulted under the Finance Agreement and demanded repayment of the loan Aqua Blue had provided it, as well as interest and costs. (Id. ¶ 33.) On June 23, 2010, a public auction was held, and plaintiff acquired the Policy outright. (Id. ¶ 35.) Since that time, plaintiff has been attempting to secure the death benefit from defendant. (Id. ¶ 40.)

In this action, plaintiff seeks the full amount of the Policy, plus interest, as well as a declaratory judgment that the Policy is a valid, enforceable contract and that plaintiff is entitled to receive the death benefit. However, defendant claims that it has not paid plaintiff the death benefit because it believes that information in and documents submitted along with the application for the Policy were fraudulent. *fn2 Along with its answer, defendant interposed counterclaims of fraud, material misrepresentation, and lack of insurance interest. (Answer and Counterclaim, dated Jan. 21, 2011 ("Answer"), ¶¶ 132--146.) Defendant seeks rescission of the Policy, an order declaring the Policy void ab initio , all premiums paid on the policy, as well as damages and costs. (Id. at 17.)

Plaintiff now moves to compel defendant, as a purportedly unauthorized foreign insurer, to deposit with the Clerk of the Court cash, securities, or a bond with sufficient sureties to secure payment of any final judgment and immediately strike the pleadings filed by defendant.


N.Y. Ins. Law § 1213(c)(1) states that 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 ...

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