OPINION OF THE COURT
Appellant’s appeal brings two orders of the Appellate Division before this Court for review. The first Appellate Division order, entered March 23, 1993, affirmed an order of the Supreme Court directing that appellant’s answer be stricken unless it posted preanswer security in the amount of $10,351,877.38 pursuant to Insurance Law § 1213 (c) (
Appellant Ardra Insurance Company, Limited is a Bermuda reinsurance company,
1
owned and controlled by Richard DiLoreto and Jeanne DiLoreto through their holding company, Tiber Holding Corporation. The DiLoretos also owned and controlled the Nassau Insurance Company (Nassau) (
In 1976, Richard DiLoreto decided to create an offshore reinsurance company for the "express purpose of providing reinsurance to Nassau” because Nassau was encountering difficulty obtaining coverage for its medallion taxicab policies from domestic reinsurers. Pursuant to this goal, appellant was incorporated in 1976 and thereafter entered into reinsurance treaties with Nassau. 2
In 1984, Nassau was adjudged insolvent and the Superintendent of Insurance of the State of New York was appointed to take possession of Nassau’s assets and liquidate the business (Matter of Corcoran [Nassau Ins. Co.], Sup Ct, NY County, June 22, 1984, Cohen, J., index No. 42173/84). Acting as the liquidator of Nassau, the Superintendent of Insurance (Liquidator) commenced an action in April 1985 to recover, inter alla, the reinsurance proceeds under three reinsurance treaties between Nassau and appellant. 3
One reinsurance treaty, effective as of July 1, 1978 (Agreement I), provided Nassau with coverage for various liability policies, and specifically excluded coverage for policies concerning taxicabs. A second treaty (Agreement II), effective as of January 1, 1980, provided Nassau with excess coverage for policies providing personal injury protection benefits pursuant to New York’s automobile no-fault coverage statute. The third treaty (Agreement III), effective as of December 31, 1979, provided, in relevant part,
"This contract is to indemnify [Nassau] in respectof the net excess liability * * * which may accrue to [Nassau] as a result of any loss or losses which may occur during the currency of this contract under any and all binders, policies and contracts of reinsurance (hereinafter referred to as 'policies’) heretofore or hereafter issued or entered into by or on behalf of [Nassau] and classified by [Nassau] as excess limits automobile bodily injury business in respect of medallion taxicabs.”
After approximately six years of extensive litigation over the arbitrability of this action and various discovery disputes, appellant served an answer to the complaint in January 1991. The Liquidator responded to the answer by informing appellant’s counsel that the answer would be ineffective unless appellant, an unlicensed alien reinsurer, first provided security, pursuant to Insurance Law § 1213, sufficient to cover the payment of any final judgment which may .be rendered. The Liquidator subsequently made a motion to strike appellant’s answer and to enter a default judgment against appellant.
After hearing oral argument on the Liquidator’s motion, Supreme Court determined that appellant was required to post security before filing its answer. The proceedings were adjourned so that the parties could negotiate the amount of security required. Alternatively, the court informed appellant that it could seek a license to do the business of insurance in New York since licensed insurers were not required to post preanswer security. On May 2, 1991, appellant informed Supreme Court that it had not sought and would not be seeking a license to do the business of insurance in New York State, and that appellant could only post $1 million security. Supreme Court found $1 million inadequate to secure payment of any future final judgment and ordered appellant to post security in the amount of $10,351,877.38 within 45 days (Curiale v Ardra Ins. Co., Sup Ct, NY County, May 2, 1991, Moskowitz, J., index No. 9794/85). The court further ordered appellant’s answer struck if appellant failed to post security (id.).
Appellant took an interlocutory appeal to the Appellate Division from the May 2, 1991 order, arguing,
inter alla,
that Insurance Law § 1213 was unconstitutional as applied. Appellant claimed deprivation of due process because its inability to post the security required by Supreme Court caused a default and thereby allegedly depriving it of property without a hearing. In an order entered March 23, 1993, the Appellate Division affirmed the Supreme Court, reasoning that appellant had vol
Appellant failed to post security and its answer was stricken. Supreme Court subsequently ordered the entry of a default judgment on liability against appellant and referred the case to a Special Referee to determine the amount of paid losses, loss adjustment expenses and statutory interest under Agreements I and III.
During the inquest, appellant did not contest the amount of damages sought under Agreement I but argued that certain claims designated by a P prefix brought by the Liquidator under Agreement III were also covered by reinsurance treaties outside of the complaint. Although appellant conceded that its liability under Agreement III could not be contested, appellant argued that the same claim could not be covered by different reinsurance treaties and that certain P-claims should be excluded as damages. 4 The Special Referee ruled that evidence regarding reinsurance treaties outside of the complaint was irrelevant absent a showing that the Liquidator’s claims did not fall under the agreements on which appellant had been adjudged liable. Supreme Court confirmed the Referee’s report, and a final judgment of $16,351,398.11 was entered against appellant on May 17, 1994.
Appellant appealed the final judgment and argued that it had been erroneously foreclosed from presenting relevant evidence on the issue of damages. The Appellate Division concluded that the evidence had been properly excluded from the inquest because appellant’s default had conclusively established all elements of liability, and the Liquidator had presented evidence that the disputed P-claims fell within Agreement III. The final judgment was affirmed by order dated January 12, 1995 (
Appellant appealed, on constitutional grounds, from the January 12, 1995 order of the Appellate Division, seeking review of the final judgment as well as the March 23, 1993 order (which upheld striking appellant’s answer for failure to post preanswer security pursuant to the Insurance Law). On July 6, 1995, we dismissed that portion of the appeal seeking review of the order affirming the final judgment on the ground
Constitutionality of Insurance Law § 1213 (c)
Appellant argues that the entry of a default judgment against a litigant who is financially unable to post the preanswer security in the amount set by a trial court unconstitutionally deprives that litigant of due process of law. Appellant contends that its answer should have been accepted and the merits of the Liquidator’s claims litigated, notwithstanding its failure to post the required security, because its private interest and the risk of an erroneous deprivation of its property outweigh the State interest here. We disagree.
"Procedural due process imposes constraints on governmental decisions which deprive individuals of 'liberty’ or 'property’ interests within the meaning of the Due Process Clause of the Fifth or Fourteenth Amendment”
(Mathews v Eldridge,
Several factors must be considered in determining the level of procedural protection required.
"[[Identification of the specific dictates of due process generally requires consideration of three distinct factors: First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government’s interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail” (Eldridge,424 US, at 335 ).
"Due process does not, of course, require that the defendant in every civil case actually have a hearing on the merits”
(Boddie v Connecticut,
Insurance Law § 1213 (c) provides, in relevant part,
"(1) Before any unauthorized foreign or alien insurer files any pleading in any proceeding against it, it shall either:
"(A) deposit with the clerk of the court in which the proceeding is pending, cash or securities or file with such clerk a bond with good and sufficient sureties, to be approved by the court, in an amount to be fixed by the court sufficient to secure payment of any final judgment which may be rendered in the proceeding, but the court may in its discretion make an order dispensing with such deposit or bond if the superintendent certifies to it that such insurer maintains within this state funds or securities in trust or otherwise sufficient and available to satisfy any final judgment which may be entered in the proceeding, or
"(B) procure a license to do an insurance business in this state.”
The purpose of the preanswer security requirement is evident from the statute itself. Alien insurers must maintain sufficient funds in the State to satisfy any potential judgment arising from the policies of insurance (including reinsurance treaties) they issue. Thus, preanswer security may not be required if the Superintendent of Insurance certifies that the alien insurer maintains funds in New York sufficient to satisfy a potential judgment and no security is required if the alien insurer is licensed to do business in New York State. Since insurers, licensed and unlicensed alike, capitalize on the legitimate expectations of the public that funds to satisfy judgments on insurance policies are readily available within the State, the Legislature enacted section 1213 (c) to ensure that those expectations would be met.
"In view of the regulation of financial affairs of insurers, the act of a foreign or alien insurer in issuing and delivering policies, soliciting applicationsfor insurance, collecting premiums on (and thus keeping in force) existing insurance, or transacting business in such a way that it appears to the public view as a lawful and authorized insurer, is, in a practical sense a holding out or representation [sic] to the insured that it conducts its affairs in such a way that funds will be accessible for satisfaction of any judgment based on a claim connected with the contract. The attitude of the public toward insurance has been conditioned by the common acceptance of those standards by insurers who submit to licensing requirements in the several states. In a sense, a foreign or alien insurer who carries on its business in such a way as to evade governmental supervision and the requirements for maintaining funds, while profiting from a common public reliance on the effectiveness of such supervision and requirements, may be said to be estopped to complaim [sic] if they are forced upon it” (Mem of NY Law Rev Commn, at 25-26, Bill Jacket, L 1949, ch 826).
The regulation of the insurance industry is closely related to the public interest and a legitimate exercise of a State’s police powers
(Health Ins. Assn. v Harnett,
The Insurance Law clearly provides notice that preanswer security will be required if an alien insurer chooses to conduct business in New York State without a license. Indeed, section 1101 of the Insurance Law, which defines alien reinsurers as a group which need not obtain a license to conduct the business of insurance in New York State, specifically provides, "but section one thousand two hundred thirteen of this chapter shall nevertheless be applicable to such insurers” (Insurance Law § 1101 [b] [2]).
Under these circumstances, appellant’s claim of poverty is disingenuous, as is appellant’s comparison of preanswer security to court fees which may prove prohibitive for indigent litigants. While the amount of court fees cannot be manipulated
Appellant’s claim that it has retroceded a portion of Nassau’s premiums to a group of retrocessionaires and is financially unable to post security for losses under its reinsurance treaties merely indicates the true nature of the "property” interest appellant claims is at stake in this appeal. Appellant’s interest can be identified as the ability of an alien insurer (here, a Bermuda corporation) to contest its liability on the insurance policies issued in New York State without ensuring that funds for the risks it has agreed to cover are available in New York State. Thus, appellant would encourage alien insurers, with little or no assets in New York, to conduct a large volume of insurance business in this State at the expense of licensed insurers who must limit their risk to a percentage of their surplus, and maintain certain reserves and deposits (see, e.g., Insurance Law §§ 1115 [limitation of risk], 1303 [maintenance of reserves], 1314-1320 [deposit of securities]). Taken to its logical conclusion, appellant’s position would eviscerate the Legislature’s policy, as embodied in the Insurance Law, of ensuring the availability of funds within the State to pay losses on insurance policies issued here. Such a result is not required by notions of procedural due process, especially since the ability to conduct insurance business free from legitimate government regulation is not a constitutionally protected property or liberty interest.
We conclude that the State’s interest in ensuring the availability of funds from which a judgment against a foreign or alien unlicensed insurer may be promptly paid, instead of requiring claimants to resort to far-flung forums for satisfaction of their judgments, justifies striking the answer of a foreign or alien insurer if that insurer fails to provide adequate preanswer security. Appellant contends that the risk of an erroneous judgment is high when a defendant is defaulted. Nonetheless, the importance of the State interest here outweighs appellant’s interest in litigating the merits of the
Appellant’s attempt to equate section 1213 (c) with the prejudgment replevin statutes held violative of procedural due process in
Fuentes v Shevin
(
Appellant has received all of the due process protections required by the circumstances. As required by statute, the court heard argument on the appropriate amount of preanswer security to be posted by appellant. Within the context of these proceedings, appellant not only vigorously contested the applicability of section 1213 (c) and the amount of security sought by the Liquidator, but was also provided with the opportunity to obtain a license to do business in New York and 45 days to raise the funds to post security. Although appellant contends that the merits of the Liquidator’s claims were never
Appellant’s reliance on
Bell v Burson
(
The State’s interest in Bell was far more attenuated than the State interest here. The basis for the uninsured motorist’s liability, the ability to drive, is not closely connected with that motorist’s ability to pay damages, the reason for the security requirement. Bad driving is not a function of a person’s ability to pay damages. However, an insurer’s ability to pay for the losses incurred under its policies, its liability, is directly linked with the insurer’s ability to post security for the risks it has insured. Finally, unlike the uninsured motorist in Bell, who could not foresee the extent of his liability in the event of an accident, appellant was fully aware that its exposure on the reinsurance treaties with Nassau could exceed $10 million. Appellant was not deprived of procedural due process by the application of Insurance Law § 1213 (c) to this case.
Damages
When an answer is stricken and a default entered, the defendant "admits all traversable allegations in the complaint, including the basic allegation of liability, but does not admit the plaintiff’s conclusion as to damages [citation omitted]”
(Rokina Opt. Co. v Camera King,
The Liquidator presented evidence at the inquest that all of the claims designated with a P prefix were covered under Agreement III. Since appellant’s liability for claims under Agreement III was conceded, appellant’s attempt to introduce
Accordingly, the order of the Appellate Division should be affirmed, with costs.
Chief Judge Kaye and Judges Simons, Titone, Bellacosa, Levine and Ciparick concur.
Order affirmed, with costs.
Notes
. A reinsurer is in the business of indemnifying a primary insurer for losses paid to the primary insurer’s policyholders
(see, Matter of Midland Ins. Co.,
. As a reinsurer, appellant was not required to obtain a license in order to conduct insurance business in New York and appellant did not obtain such a license (see, Insurance Law § 1101 [b] [2] [G]).
. The Liquidator also named the DiLoretos as defendants. The DiLoretos commenced a third-patty action against John Tafuro, a former treasurer and assistant treasurer at Nassau. The only defendant involved in this appeal is appellant reinsurer, the Ardra Insurance Company, Limited.
. Appellant’s counsel argued at the inquest, “I’m trying to show that some other groups of P claims for other years also were covered by treaties other than the two that are in this case.”
. Consequently,
Boddie v Connecticut
(