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Note: Jaimie Shipping, Inc., Puffin Marine Investments SA, and Bank Mandiri (Europe), Ltd., UK (Insured) as the owners and mortgage-holders of two vessels, purchased marine hull insurance from Oman Insurance Co. (Insurer) in the amount of US$2,250,000. While being towed from Cuba to India, both vessels were severely damaged and sank after colliding with one another in inclement weather. Insured made claims on Insurer for the loss of the vessels. When Insurer failed to pay, Insured sued Insurer in the Southern District of New York pursuant to Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (the so-called Supplemental Rules).

On the same day as the filing of Insured's complaint, the court issued an order of maritime attachment against Insurer's assets for $3,558,738.50, the amount sought by Insured. Insurer then offered Insured (Beneficiary) an irrevocable LC from Mashreq Bank of the United Arab Emirates (Issuer) as substitute security. When Insured refused to accept the LC, Insurer sought an order from the court to compel Insured (Beneficiary) to release its claim on the attached funds. Keenan, J., denied Insurer's motion.

Insurer contended that because the letter of credit was from a reliable bank with US$23 billion in assets, Insured should be compelled to accept it. However, the Judge stated that even if the surety was reliable, "[Insured] are entitled to 'insist upon the giving of security in strict conformity'" with Local Civil Rule 65.1.1(b) (Local Rule) which provides the "kinds of undertakings, guarantees, or deposits that constitute adequate security when security is required." Accordingly, he found that Issuer was not an approved surety within the meaning of the Local Rule. Insured argued that this strict application of the Local Rule contradicted applicable rules for maritime claims, violating Insurer's "'unfettered'" right to post any "adequate" substitute security under the court's discretion. The Judge disagreed, finding that Insurer's mere "conclusory" arguments did not show any inconsistency between the Local Rule and the relevant maritime rules. Further, the Judge noted that the Local Rule and not the court's discretion was controlling on the types of security that Insured may be compelled to accept.

[JEB/as]

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