Defendant Federal Insurance Company (Federal) moved to stay this courts opinion and judgment which held that Federal was obligated to pay the defense costs of certain claims brought against Tower Automotive, Inc. (Tower) under the Employee Retirement Income Security Act of 1974 (ERISA). The motion was granted.

On February 2, 2005, Tower filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code. Over the next two months, six actions were filed in this district against Tower and certain of its officers, directors and employees, alleging violations of ERISA related to Towers employee benefit plans.

Over the same time period, five actions were filed in this district alleging that certain Towers officers violated the Securities Exchange Act. Both types of actions alleged in part that Towers officers made false or misleading statements about the companys liquidity position.

Federal refused to pay Towers ERISA litigation costs under the fiduciary liability policy Federal had issued to Tower, asserting that the policys securities-based claims exclusion relieved Federal of its liability with regard to the ERISA actions.

On December 19, 2005, the bankruptcy court issued an order to the district court recommending the granting of Towers summary judgment motion on the issue of Federals obligation to pay the defense costs of the ERISA actions.

On April 17, 2007, the district court granted Towers motion for summary judgment.

Federal moved for the court to stay its decision, or, alternatively, Federal stated that it was willing to post a bond of the full amount Tower identifies as due.

The court held that Under F. R. Civ. P. 62(d), a party taking an appeal from the district court is entitled to a stay of a money judgment as a matter of right if he posts a bond in accordance with the rule (Am. Mfrs. Mut. Ins. Co. v. Am. Broadcasting-Paramount Theatres, Inc., 87 S. Ct. 1, 3 (1966)). Federal has asserted that the courts opinion of April 17, 2007 is effectively a money judgment, since it requires Federal to pay the defense costs incurred by Tower and its officers in the ERISA actions.

However, the courts opinion was not a money judgment, but rather a declaratory judgment which determined the scope of Federals obligation....

At its discretion, a court may grant a stay under Rule 62(c) upon such terms as to bond or otherwise as it considers proper for the security of the rights of the adverse party.

In deciding whether to grant such a stay, a court should consider the following four factors, which state whether the movant has demonstrated a substantial possibility, although less than a likelihood, of success on appeal, the risk of irreparable injury to the movant absent a stay, the lack of substantial harm to the non-movant if the stay is granted, the public interests that may be affected.

Though each court to consider Federals arguments has found that the policy exclusion does not preclude coverage of the ERISA actions, there is a substantial possibility that Federals appeal will succeed. As both this courts April 17 opinion and the bankruptcy courts September 19 opinion noted, Federals interpretation of the exclusion is reasonable. Furthermore, while ultimately finding that Towers interpretation much more closely adheres to the policy as a whole, the court noted that it was a perhaps inartful reading of the policys language....

The second factor " the likelihood of irreparable injury to Federal should the stay be denied " also weighs in favor of granting the motion. Because Tower is currently in bankruptcy, there is the distinct possibility that Federal, if it prevails upon appeal, will be unable to recover some or all of the amounts expended....

Provided that Federal posts an adequate bond, the harm to Tower should the court grant the stay is minimal. Tower has raised the prospect of a stay resulting in delaying of payments to its creditors in the event that Towers future payment of defense costs adversely impacts its planned emergence from chapter 11. However, the ERISA litigation is nearly complete and the court has been advised that the parties are near settlement. Accordingly, future defense costs are likely to be modest. The harm Tower will suffer under the stay is not substantial.

Finally, public policy does not weigh heavily on either side. While the public interest favors the expedient administration of the bankruptcy proceedings, there is no indication that granting a stay will actually delay the bankruptcy proceedings.

For the reasons stated above, Federals motion will be granted under Fed. R. Civ. P. 62(c).

Comment: In declaratory judgment actions, it often happens that the insurer loses the first round and is ordered to assume the defense of the insured. While the insurer appeals the DJ decision, the question arises: how will the insurer get its defense costs back if it wins the DJ action on appeal? In the case reported here, the insurer was relieved of the duty to assume defense costs, but had to post a bond guaranteeing the payment of those costs in case the insurer lost the appeal. Thats one solution. Another solution would be for the insurer to pick up the defense, but the insured posts a bond guaranteeing the refund of defense costs in case the insurer wins the DJ action on appeal (this may not be practical if the insured is an individual).

In re: Tower Automotive Inc., NYLJ 17 July 2007 (USDC - SDNY) (06 Civ. 2105) (Sweet, d.j.)