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UNIVERSAL BONDING INS. CO. v. ESKO & YOUNG

September 28, 1990

UNIVERSAL BONDING INSURANCE COMPANY, a New Jersey corporation, Plaintiff,
v.
ESKO & YOUNG, INC., an Illinois corporation, IRA ROSENBERG and THERESA A. ROSENBERG, Defendants


Marvin E. Aspen, United States District Judge.


The opinion of the court was delivered by: ASPEN

MARVIN E. ASPEN, UNITED STATES DISTRICT JUDGE

 The plaintiff, Universal Bonding Insurance Company, a New Jersey Corporation brought this contractual indemnity action against the corporate defendant, Esko & Young, Inc. ("Esko"), and the individual defendants Albert Ira Rosenberg and Theresa A. Rosenberg. Jurisdiction is based on diversity of citizenship, 28 U.S.C. ยง 1332. The Rosenbergs have moved to dismiss the action under 12(h) for lack of subject matter jurisdiction. *fn1" For the following reasons we deny the motion to dismiss.

 BACKGROUND *fn2"

 On December 17, 1987, Esko and the Rosenbergs executed a General Indemnity Agreement ("Agreement") with Universal. Under the Agreement, Esko and the Rosenbergs agreed to indemnify Universal for losses and expenses Universal might incur in executing or procuring the execution of certain performance and payment bonds. See Agreement, attached as Exhibit A to Complaint. Universal had agreed to execute or procure those bonds in favor of Esko on construction projects in which Esko was involved. Relevant to this case are two bonds, the execution of which Universal procured through the North River Insurance Company ("North River"), a company authorized to transact insurance business in the State of Illinois. North River acted as surety on the two bonds. Nicosia Aff. at 2. Universal procured the execution of the bonds by entering into a reinsurance treaty with North River. That treaty authorized Universal to issue bonds in the name of North River conditioned upon an agreement that Universal assume reinsurance of liability on any such bonds so issued. Id. at 7. Universal never issued, executed or signed as a surety, or in any other capacity, a contract of suretyship or guaranty in the State of Illinois. Universal claims that it has sustained a loss in excess of $ 800,000, for which the Rosenbergs have refused to indemnify in accordance with the terms of the Agreement.

 DISCUSSION

 A litigant who is barred from bringing an action in a particular state court may be similarly barred from bringing that action in federal court based solely on diversity. Woods v. Interstate Realty Co., 337 U.S. 535, 538, 93 L. Ed. 1524, 69 S. Ct. 1235 (1948). The Rosenbergs have moved to dismiss contending that the Illinois Insurance Code prohibits Universal from suing to enforce the agreement without first obtaining a Certificate of Authority from the Illinois Department of Insurance. Ill.Stat.Ann. , ch. 73, para. 733 et seq. The Rosenbergs rely specifically on Paragraph 733 of the Code, which provides in relevant part:

 
(1) It shall be unlawful for any company to enter into a contract of insurance as an insurer or to transact insurance business in this State, without a certificate of Authority from the Director. . . .
 
* * * *
 
(4) . . . no company transacting insurance business in this State without a certificate of authority shall be permitted to maintain an action in any court of this State to enforce any right, claim or demand arising out of the transaction of such business until such company shall have obtained a certificate of authority.

 The Rosenbergs maintain that Universal's suit on the contract of indemnity arises out of Universal's transaction of insurance business in Illinois, as defined in Paragraph 733-3:

 
Any of the following acts in this State, effected by mail or otherwise by or on behalf of an unauthorized insurer, constitutes the transaction of an insurance business in this State.
 
* * * *
 
(b) The making of or proposing to make, as guaranty or surety, any contract of guarantee or suretyship as a vocation and not merely incidental to any other legitimate ...

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