When an unlicensed or unauthorized insurer refuses to satisfy a claim, New York law supplies a powerful but little-known remedy. Specifically, §1213 of the New York Insurance Law imposes a bonding requirement as a condition for filing a responsive pleading or a dispositive motion. Importantly, §1213 requires that the bond be sufficient to satisfy a potential judgment.

Pre-answer bonds in the context of insurance disputes address concerns arising from catastrophic events, such as the Triangle Shirtwaist Factory Fire of 1911, for which victims received little or no compensation from undercapitalized out-of-state insurers. These risks remain prevalent today. New York regulators have concluded that “Shadow Insurance,” the process by which New York risks are transferred to out-of-state insurers—including undercapitalized captive insurers and reinsurers—without notice to insureds or regulators, place New York insureds at risk. This article discusses how New York insureds have recently used §1213’s pre-answer bond procedure to ensure access to New York courts and recoverable assets.