Matter of Midland Ins. Co.
Annotate this CaseDecided on July 30, 2010
Supreme Court, New York County
In the Matter of the Liquidation of Midland Insurance Company
41294/1986
Michael D. Stallman, J.
It is ordered that this motion by Everest Reinsurance Company for a stay of orders dated May 31, 2009, January 14, 2008, and January 30, 1997 and all claim allowance proceedings pending appeal is denied.
By order of liquidation dated April 3, 1986, Justice Thomas Hughes placed Midland Insurance Company in liquidation and appointed the Superintendent of Insurance as Liquidator. As the Liquidator reported in October 2005, reinsurance is Midland's most significant, non-invested asset.
By order dated January 30, 1997, Justice Beverly Cohen approved a procedure for court approval of claims that the Liquidator has allowed. In August 2006, Everest Reinsurance Company (Everest) moved to lift the permanent injunction barring actions against Midland in order to bring an action seeking a judgment declaring that the Liquidator breached Everest's reinsurance contracts with Midland, and for injunctive relief. By decision and order dated January 14, 2008, this Court denied Everest's motion. Everest contended that the Liquidator's claims handling protocols violated reinsurance contracts between Midland and its reinsurers. Although this Court denied Everest's motion, the Court directed that the claims allowance procedures be revised to take into account formally the contractual rights, if any, that reinsurers could assert in a liquidation proceeding, and the circumstances in which those rights are exercised. The Court directed the Liquidator to settle on notice (as indicated in the decision and order) an order modifying Justice Cohen's order dated January 30, 1997 on the claims allowance procedures.
On May 31, 2009, after a lengthy negotiation and consultation with counsel for those concerned, this Court signed an order modifying the original claims allowances procedures. Pursuant to this order, the Liquidator must notify a reinsurer of any claims that are either partially or wholly reinsured, known as a "Pre-Allowance Notice." In addition, a reinsurer is also entitled to receive a copy of a "Notice of Determination" that is sent to a claimant informing the claimant that the claim has been allowed. Pursuant to this order, a reinsurer that wishes to exercise any contractual right to interposes defenses to the allowed claim must elect to exercise the right within 90 days of the date of the Notice of Determination. By contrast, Justice Beverly Cohen's January 30, 1997 order did not provide for any notice to the reinsurers, and did not provide a mechanism for the reinsurers to assert any defenses to allowance of claims. [*2]
The Liquidator has served five "Pre-Allowance Notices" on Everest in March 2010, and on June 11, 2010, the Liquidator served "Notices of Determination" to five major policyholders allowing claims totaling $68.3 million. Kim Opp. Affirm. ¶ 18; Proto Reply Affirm. ¶ 5.
According to Everest, it has appealed the Court's decision dated January 14, 2008 and the
May 31, 2009 order, along with the Liquidator, various guaranty associations, and reinsurers,
which have taken cross-appeals. Proto Affirm., Ex D-H. Pursuant to CPLR 5519 (c), Everest
now moves for a stay of the January 14, 2008 and May 31, 2009 orders, pending the appeal and
cross appeals. Everest also seeks a stay of all "claim allowance proceedings" pending appeal.
"CPLR 5519(c) permits this court, inter alia, to grant a discretionary stay of
proceedings to enforce the order or judgment appealed from, or to vacate, limit or modify any
automatic stay obtained pursuant to CPLR 5519(a) or (b). The scope of the stay authorized by
subdivision (c) is thus coextensive with the stay authorized by subdivision (a), namely, a stay of
enforcement proceedings only, not a stay of acts or proceedings other than those commanded by
the order or judgment appealed from."
Schwartz v New York City
Hous. Auth., 219 AD2d 47, 48 (2d Dept 1996). "[T]he court considering the stay application
may consider the merits of the appeal." Da Silva v Musso, 76 NY2d 436, 443 n 4 (1990).
"[T]he court entertaining the application is duty-bound to consider the relative hardships that
would result from granting (or denying) a stay." Id.
To the extent that Everest seeks a stay of the processing and handling of claims submitted to the Liquidator, such a stay is beyond the scope of a stay under CPLR 5519 (c). The processing and handling of claims submitted to the Liquidator are not considered proceedings to enforce the January 14, 2008 and May 31, 2009 orders. The procedure of claims allowances was set in place by Justice Beverly Cohen's order dated January 30, 1997, and have been in place for more than a decade. Everest is not seeking an appeal of Justice Beverly Cohen's order. See Proto Affirm., Ex D. Thus, CPLR 5519 (c) does not permit a stay of the processing and handling of claims by the Liquidator.
Everest claims that its appeal has "presumptive merit." Mem. at 11. Everest has identified
issues for appeal in its notice of appeal, but Everest does not give any indication of the arguments
that would be raised on the appeal. It was incumbent upon Everest to "show sufficient merit to
that appeal" for a discretionary stay.
64 B Venture v American Realty Co., 179 AD2d 374, 376 (1st Dept 1992).
As the Liquidator and the counsel to policyholders indicate, Everest does not articulate any prejudice that it would suffer from denying a stay. Rather, Everest argues that a stay would "preserve the status quo pending resolution of the appeals." Mem. at 16. This argument actually undermines Everest's position. [*3]
Were the January 14, 2008 and May 31, 2009 orders to
be stayed, then the claims allowances procedures would be governed by Justice Beverly Cohen's
order dated January 30, 1997, which did not grant any rights to reinsurers at all, and did not take
into account a reinsurer's contractual right, if any, to assert any defenses to the allowance of a
claim. Thus, under Justice Cohen's order, a reinsurer has no participation in the handling and
processing of claims. This procedure, in place for more than a decade, runs contrary to Everest's
position that reinsurers should be allowed an opportunity to participate in the handling and
processing of claims submitted to the Liquidator.
Dated:7/30/10/s/,
J.S.C.
New York, New York
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