District Court Refused to Enforce a Default Judgment Against Romanian Bank

In this action, General Star and Administratia, a previously state-owned insurance company, were parties to a series of reinsurance contracts from 1974 to 1981. In 1991, the communist government in Romania fell and a new capitalistic regime assumed power. In the process, the state-owned insurance company was dissolved and was succeeded, in part, by various entities. After the money owed to General Star was not paid, General Star sued the entities that assumed the operations of the state run insurance company. When the parties did not respond to the lawsuit, General Star applied for and received a default judgment against the entities.

Administratia moved to vacate the default judgment on the grounds of lack of subject matter jurisdiction together with insufficient service of process. The court in that action vacated the judgment against two of the entities but not Administratia. Soon thereafter, General Star began post-judgment collection efforts that included seizing assets from various entities including the Romanian Government and Administratia. Despite these efforts, General Star was still unable to collect the proceeds.

In one of its final attempts, General Star submitted a writ of execution and successor-liability claims in New York against a Romanian bank on the basis it was an alter ego of the Romanian government at the time the contracts were issued. The District Court refused to allow a judgment against the Romanian Bank on the grounds that General Star failed to produce sufficient facts to demonstrate an alter-ego relationship at the time the contracts were executed.

IMPACT (REINSURANCE): This is a unique set of circumstances arising from the fall of the communist regime in that the case addressed the issue of determining an insurance carrier’s obligations when it was dissolved because of political reasons. Voluntarily dissolving an reinsurer posed several interesting legal issues. Traditionally, a reinsurer usually becomes insolvent through normal business practices and underlying insurers and cedents generally have the necessary safeguards to address such a situation within the arbitration agreement.

SOUTHERN DISTRICT OF NEW YORK   GENERAL STAR V. ADMINISTRATIA ASIGURARILOR  (CIVIL ACTION NO. 18-MS 302 MAY 12, 2010)