MF Global resolves dispute with holdout E&O insurers
Clients MF Global Holdings Ltd.
In a collaboration among its Business Restructuring & Reorganization, Insurance Recovery and Issues & Appeals practices, Jones Day represented MF Global Holdings Ltd. and its affiliates ("MF Global") in litigation against certain dissenting insurance companies that refused to contribute to a 2016 global settlement of multi-district litigation brought by MF Global’s former commodities futures customers.
MF Global became the first big American casualty of the European debt crisis when it filed the eighth-largest U.S. bankruptcy case of all time in 2011. After more than four years of multi-district litigation involving allegations of fiduciary improprieties and the loss of $1.6 billion in customer funds, the parties finally reached a global settlement in 2016, funded principally by recoveries under MF Global's various insurance policies.
Three errors and omissions ("E&O") liability insurance companies, however, refused to contribute to the settlement. Instead, two of these insurance companies attempted to end run the bankruptcy case, and the U.S. Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), by filing litigation in Bermuda and by seeking to have the coverage dispute arbitrated in Bermuda.
Addressing novel issues at the intersection of New York insurance law, bankruptcy law, and procedure and jurisdiction, Jones Day's efforts on MF Global's behalf included successful litigation in the Bankruptcy Court and United Stated District Court for the Southern District of New York to: (i) enjoin the insurance companies from seeking to enforce so-called "anti-suit" injunctive orders issued by the Bermuda Supreme Court; (ii) hold the insurance companies in contempt for violating the Bankruptcy Court's own injunctions; (iii) obtain a determination that the insurance companies violated the "Barton Doctrine" by suing representatives of the bankruptcy estate in Bermuda without Bankruptcy Court permission, as well as an award of nearly $2 million in related contempt fees and sanctions; (iv) require the sole remaining dissenting insurance company to post a $15 million bond under a provision of New York insurance law as a condition to prosecuting its motion to compel arbitration; and (v) defeating the dissenting insurance companies' related motions for leave to appeal.
During the bankruptcy court proceedings, Jones Day negotiated confidential settlements with two of the three dissenting insurance companies. After the dispute with the lone E&O insurance company was referred to arbitration in 2017, Jones Day negotiated a confidential settlement of the dispute with the remaining insurance company on MF Global’s behalf.
The adversary proceeding in the Bankruptcy Court is In MF Glob. Holdings Ltd. v. Allied World Assurance Co. (In re MF Glob. Holdings Ltd.), Adv. Proc. No. 16–01251 (MG) (Bankr. S.D.N.Y.).