G. C. Murphy Co. v. Reserve Insurance

Silverman, J. (dissenting).

I would modify the order appealed from to the extent of striking the provision with *245respect to property heretofore received by American Reserve Insurance Company of New York ("American Reserve”) from defendant Reserve Insurance Company ("Reserve”) to secure the undertaking of American Reserve (the second decretal paragraph), and otherwise affirm the order appealed from.

Critical to my thinking is the fact that pursuant to section 59-a (subd 3, par [a]) of the Insurance Law, a bond has been furnished by American Reserve to secure the payment of any final judgment which may be rendered in the New York action brought by plaintiff G. C. Murphy Company. By virtue of that undertaking, plaintiff ceased to be merely an unsecured general creditor of Reserve but became a creditor whose claim was guaranteed by a third person, American Reserve. That guarantee is a property right of which plaintiff cannot be deprived for procedural convenience. (See Pierre Assoc. v Citizens Cas. Co. of N. Y., 32 AD2d 495, 496-497.)

1. To relegate plaintiff to its remedy in the Illinois liquidation proceeding would endanger that property right for these reasons: (a) The undertaking, bearing the caption of the New York action, states as a condition of the obligation of American Reserve on the bond "that in the event the plaintiff recovers judgment against defendant, Reserve Insurance Company, in this action” (italics mine), i.e., in the New York action. Literally, the bond does not appear to cover any judgment that may be rendered in Illinois, (b) It is not clear on this record whether the Illinois court even has jurisdiction over American Reserve. Thus, there is a substantial risk that in the Illinois proceeding plaintiff would be just an unsecured general creditor of an insolvent insurance company rather than, as plaintiff now is, a creditor whose claim has been guaranteed by a bond issued by another insurance company.

2. The Uniform Insurers Liquidation Act (Insurance Law, §§ 517-524) recognizes the right of the owner of a secured claim to "resort to the security” (§ 522, subd 4), and it appears to recognize, at least some proceedings with respect to the security, i.e., adjudication of the amount of the deficiency that may be made "by a court of competent jurisdiction in proceedings in which the domiciliary receiver has had notice and opportunity to be heard,” id., which would seem to cover the New York Supreme Court in this action. The statutory definition of "secured claim” (Insurance Law, § 517, subd 11) does not explicitly include a claim secured by a surety company bond, but it does state that it includes "any claim secured by *246mortgage [etc.], or otherwise.” I think that particularly in view of the importance of protecting vested property rights, plaintiffs claim secured by American Reserve’s bond should be considered a secured claim. To enforce that secured claim requires that Reserve shall continue as a defendant in the action in New York, at least for the purpose of permitting plaintiff to obtain a judgment against Reserve (if entitled thereto), which would then be covered by the American Reserve bond. This is really essentially no different from continuing to name a mortgagor as a defendant in an action to enforce a mortgage or any other kind of lien or security.

3. I do not think that the New York action should be stayed by us. An important test for staying an action in a domestic forum because of the pendency of a judicial proceeding in a foreign forum is whether the proceeding in the foreign forum will probably dispose of the issues in the domestic forum. (Cf. Pierre Assoc. v Citizens Cas. Co. of N. Y., 32 AD2d, supra, at p 497; Kaufman v Baker 11 AD2d 1013, affd 9 NY2d 771.) The present case does not meet that test for the reasons stated in 1. (a) and (b) above. And in addition, because Reserve is probably insolvent, when plaintiff gets all through with the liquidation proceeding in Illinois, it will presumably still have to sue American Reserve on the bond. This would be particularly onerous as the present action in New York has already been pending for six years. The precise object of the statute requiring the bond to be furnished was so that New York creditors should not have to proceed in some foreign jurisdiction against a possibly insolvent insurer but should be able to collect their judgment in New York promptly on a bond issued by a solvent insurer.

4. However, I do not think that Special Term should have directed that property received by American Reserve from Reserve to secure the undertaking from American Reserve should be deemed the equivalent of reinsurance and available as part of the security provided to plaintiff herein. Such a provision increases plaintiff’s substantive property rights and we should no more do that than we should take away plaintiff’s property rights. As Special Term recognized, such funds have "presumably, been deposited to secure, not the plaintiff, but American Reserve (New York) on its bond.” This would seem to be clear under sections 47 and 315 of the Insurance Law, pursuant to which the deposit was made. Section 47 of the Insurance Law forbids an "insurer” from exposing "itself’ to loss on any one risk to an amount exceeding 10% of its *247surplus. And subdivision 1 of section 315 of the Insurance Law provides that the net amount of such exposure shall be deemed within the limit of 10% "if such company” is protected by a deposit of property in trust "for its protection.” (Id. subd 1, par [c].) Thus the security deposited with American Reserve is for the security of American Reserve and not plaintiff. Vis-á-vis American Reserve, plaintiff has an unsecured in personam claim on American Reserve’s bond. Special Term should not have transformed it into a secured claim as against American Reserve.

5. The result I urge is not inconsistent with the uniform act. That act is primarily concerned with the liquidation of the insolvent company and claims against it, i.e., claims against Reserve. But here we are concerned with claims not against Reserve but against American Reserve. So far as the assets of Reserve are concerned, that can still be administered in Illinois. To the extent that American Reserve has to pay anything to plaintiff, it will presumably be subrogated to plaintiff’s claim against Reserve and may pursue that claim in the Illinois proceeding. And by the same token, any dispute between Reserve and American Reserve as to the security furnished by Reserve to American Reserve can also be determined in the Illinois proceeding (if jurisdiction against American Reserve exists in Illinois). But we should keep here the claim by plaintiff against American Reserve, with only such nominal retention of the proceeding against Reserve as is necessary to enforce plaintiff’s right on the bond and not to destroy plaintiff’s property right on the bond issued by American Reserve.

Consistently with the views stated in this opinion, the Illinois injunction should be interpreted not to restrain the present action to the extent I have suggested.

Ross and Carro, JJ., concur with Murphy, P. J.; Lupiano, J., dissents in part in an opinion; Silverman, J., dissents in an opinion.

Order, Supreme Court, New York County, entered on November 20, 1979, modified, on the law, without costs and without disbursements, and Reserve’s motion is granted to the extent of staying the action as against it with leave given to Murphy to file its claim against the Illinois Liquidator and Murphy’s motions are denied as academic.