United States District Court, D. Connecticut
SELECT INSURANCE CO.
EXCALIBUR REINSURANCE CORP.
RULING ON PLAINTIFF'S MOTION FOR PRE-PLEADING SECURITY AND ON PLAINTIFF'S MOTION TO STRIKE ANSWER
JOAN GLAZER MARGOLIS, UNITED STATES MAGISTRATE JUDGE.
On May 12, 2015, plaintiff Select Insurance Co. ["plaintiff" or "Select"] commenced this diversity action against defendant Excalibur Reinsurance Corporation ["defendant" or "Excalibur"] for breach of a reinsurance contract. (Dkt. #1). Two weeks later, on May 26, 2015, plaintiff filed a Motion for Pre-Pleading Security with brief and affidavit in support. (Dkts. ##11-13; see also Dkt. #14). On June 16, 2015, defendant filed its brief in opposition to the Motion for Pre-Pleading Security (Dkt. #33), along with affidavits in support. (Dkts. ##31-32). Two weeks later, on June 30, 2015, plaintiff filed its reply brief in further support of its Motion for Pre-Pleading Security (Dkt. #36).
On June 4, 2015, defendant filed its Answer and Affirmative Defenses (Dkt. #25; see Dkts. ##16-19, 21-24), and the next day, plaintiff filed a Motion to Strike Answer, with brief in support. (Dkt. #26). Three weeks later, on June 26, 2015, defendant filed its brief in opposition to plaintiff's Motion to Strike. (Dkt. #35). Two weeks thereafter, on July 10, 2015, plaintiff filed its reply brief in further support of its Motion to Strike. (Dkt. #41).
On January 12, 2016, United States District Judge Jeffrey A. Meyer referred the pending motions to this Magistrate Judge. (Dkt. #45). For the reasons stated below, plaintiff's Motion for Pre-Pleading Security (Dkt. #11) is granted such that a hearing date shall be set to determine the amount of pre-pleading security, and plaintiff's Motion to Strike Answer (Dkt. #26) is denied without prejudice to renew at a future time, if appropriate.
In its Motion for Pre-Pleading Security, plaintiff requests that the Court order defendant "to post security in the amount of $1, 105, 945.47 - or to obtain a license to conduct an insurance business in the State of Connecticut[.]" (Dkt. #11, at 1). In response, defendant contends that plaintiff is "simply not entitled to invoke the Connecticut pre-pleading security statute" because Select is not an authorized reinsurer in the State of Connecticut and Excalibur was authorized in Connecticut at the time; the E & O Treaty contains a choice of law provision requiring the application of New York law to this dispute; the pre-pleading statutory provisions are substantive, not procedural, and therefore New York statutory law governs; defendant is licensed in and authorized to do business in New York, and therefore is in full compliance with the New York pre-pleading statute; plaintiff cannot obtain pre-pleading security by forum shopping, or without a hearing; and the Pennsylvania Insurance Commissioner regulates the requests for Excalibur to post such security. (Dkt. #33, at 1-3; see id. at 9-27).
A. CONNECTICUT'S PRE-PLEADING SECURITY STATUTE
Connecticut's pre-pleading security statute, Conn. Gen. Stat. § 38-27(a), provides:
Before any unauthorized person or insurer files or causes to be filed any pleading in any court action or proceeding . . . instituted against the person or insurer . . ., the person or insurer shall either (1) Deposit with the clerk of the court in which the action or proceeding in pending . . . cash or securities . . . in an amount to be fixed by the court . . . sufficient to secure the payment of any final judgment which may be rendered in the action or proceeding . . .; or (2) procure proper authorization to do an insurance business in this state.
Pre-pleading security is a mandatory statutory requirement,  see Hartford Acc. & Indem. Co. v. ACE Am. Reins. Co., 279 Conn. 220, 233, n.11 (2006), the purpose of which is to "ensure that any insurer, domestic or foreign, selling insurance or reinsurance to a person in [Connecticut] . . . will have sufficient assets in this state to satisfy any judgment." Hartford Acc. & Indem. Co. v. ACE Am. Reins. Co., Nos. X02 CV 030178122S, X02 CV 030179514S, 2008 WL 4635451, at *2 (Conn. Super. Ct. Sept. 19, 2008)["Hartford Acc.]. This requirement "target[s]a specific subset of insurance companies that do not maintain adequate reserves and surplus in this state to satisfy licensure requirements and are alleged by a policyholder to have defaulted on their obligations under the terms of the policy." Id. Thus, "[u]nder Connecticut law, before an 'unauthorized insurer' can file a pleading in a case against it, it must either post a pre-pleading security, procure the proper authorization to do business in Connecticut, or seek an order from the court dispensing with the pre-pleading security requirement." Arrowood Surplus Lines Ins. Co. v. Gettysburg Nat'l Indem. Co., No. 3:09 CV 972 (JCH), 2010 WL 1416747, at *1 (D. Conn. Apr. 6, 2010)(suit on a policy of reinsurance), approved over objection, 2010 WL 1882314 (D. Conn. May 10, 2010).
There are two issues before the Court, the first of which is to determine whether the Connecticut pre-pleading security statute, Conn. Gen. Stat. § 38a-27(a), applies in this case. If the statute applies, the second issue is to determine the amount of pre-pleading security to be posted pursuant to this statute.
B. APPLICABILITY OF THE STATUTE TO PARTIES IN THIS CASE
1. APPLICABILITY TO REINSURERS
It is well settled that the terms of the statute apply not only to insurers, but also "to reinsurers such as Excalibur." Travelers Indem. Co. v. Excalibur Reins. Corp., No. 3:11 CV 1209(CSH), 2014 WL 941444, at *3 (D. Conn. Mar. 11, 2014)["Excalibur I"]; citing Arrowood Surplus Lines, 2010 WL 1416747, at *1 (suit on a policy of reinsurance). See also Travelers Indem. Co. v. Excalibur Reins. Corp., 12 CV 1793 (RNC)(DFM), 2014 WL 1032838, at *1 (D. Conn. Mar. 17, 2014) ["Excalibur II"]; Hartford Accident & Indem. Co. v. ACE Am. Reins. Co., 103 Conn.App. 319, 327, n.6 ...