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Allied World Successfully Enforces Arbitration Clause in Bankruptcy Adversary Proceeding

On August 24, 2017, Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York granted Cravath client Allied World Assurance Company, Ltd’s (“Allied World”) motion to compel arbitration of an adversary proceeding for recovery on an insurance contract issued to the collapsed commodities trading firm, MF Global.

MF Global and its subsidiaries filed for bankruptcy protection in 2011. The bankruptcy plan administrator and an affiliate (“MF Global”) commenced an adversary proceeding against Allied World in October 2016, claiming coverage under an excess errors and omissions (“E&O”) liability policy issued prior to the bankruptcy filing. Allied World moved to compel arbitration of the dispute in Bermuda.

In a set of August and September 2017 opinions, Judge Glenn granted Allied World’s motion to compel arbitration and rejected each of MF Global’s arguments attempting to avoid arbitration. Judge Glenn held that the E&O policy contained a mandatory arbitration clause and that arbitrating a dispute over a pre‑petition insurance contract did not conflict with federal bankruptcy policy. Judge Glenn also rejected MF Global’s argument that a clause in the confirmed plan of liquidation, which retained jurisdiction to “adjudicate” any adversary proceedings, overrode Allied World’s contractual right to arbitrate.

On October 31, 2017, Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York denied MF Global’s motion for leave to appeal these rulings.

The Cravath team included partners Daniel Slifkin and Omid H. Nasab and associates Daniel P. Margolskee, Alexander V. Maugeri and Brendan C. Benedict.