Key Points

  • The First Department unanimously granted summary judgment to ACP Re, AmTrust, National General, Karfunkel family trusts and Tower Group directors and officers, leaving only the uncontested claims against the four issuers.
  • An unrebutted expert report that each issuer remained the surviving corporation defeated contractual successor liability under Section 11.1 of the indentures, despite proxy and balance-sheet evidence that Tower Group International and ACP Re may have believed they had assumed the debt.
  • Applying Eccles, the court used Bermuda law for Tower Group International Ltd. but New York law for ACP Re, whose Bermuda contacts were only ministerial and regulatory, and dismissed the common-law successor claims against both.
  • Alter ego and tortious interference claims failed for lack of evidence of asset stripping or but-for causation.
  • The proxy statement was materially misleading and a Wolf River manager relied on it, but the fraud claims failed because the statement was aimed at shareholders and sophisticated investors could not justifiably rely on it.

A New York appeals court has thrown out claims by investors seeking to collect on $228 million in principal amount of securities issued by defunct Tower Group subsidiaries from the insurance group's 2014 acquirer, ACP Re Ltd., and from companies and trusts tied to the late Michael Karfunkel, including AmTrust Financial Services Inc. and National General Holdings Corp.

A five-justice panel of the Appellate Division, First Department, ruled unanimously on Oct. 20 in an unsigned decision. The panel modified an August 2025 order by Justice Andrew Borrok of State Supreme Court in New York County and granted summary judgment on defense motions that Borrok had denied.

The decision leaves the investors, hedge funds and collateralized debt obligations, with judgments only against the four Tower entities that issued the securities, which the court described as "now defunct entities." Applying the Court of Appeals' 2024 ruling in Eccles v. Shamrock Capital Advisors, the panel also chose different law for two Bermuda companies.

The investors hold trust preferred securities, or TruPS, which their own expert called "riskier than other debt securities" and "deeply subordinated." A 2013 reverse merger made a Bermuda company, Tower Group International Ltd., the issuers' parent, and by late 2013 the group was "effectively insolvent and on the brink of collapse," the court wrote. ACP Re, a Bermuda-based reinsurer owned through a Karfunkel family trust, acquired Tower Group International in September 2014, and the debt came due in full in July 2016.

The investors' central theory relied on Section 11.1 of the indentures, the contracts governing the debt, which requires a successor to assume the debt when the issuer is not the "surviving corporation" of a merger or sale. The defendants' expert concluded that each issuer survived each transaction, and the investors "failed to rebut" those opinions, the panel said.

The court acknowledged contrary evidence, including a proxy statement to shareholders describing the securities as Tower Group International's debt and a 2015 ACP Re balance sheet listing them as a liability. That evidence shows the companies "may have believed that they assumed the debt," the panel wrote, but "does not speak to whether these defendants were in fact successors under the indentures." The court held, "The unrebutted expert report establishes that defendants were not contractual successors."

A common-law successor claim turned on choice of law, because Bermuda does not recognize successor liability apart from a contract or statute. Under Eccles, the place of incorporation governs disputes over a corporation's internal affairs with "rare exception," the panel wrote. Tower Group International kept an executive office in Bermuda and was regulated there, so Bermuda law applied and the claim against it failed.

ACP Re came out differently. The panel found "nothing other than ministerial and regulatory contacts" tying ACP Re to Bermuda, noting that its parent was a Delaware LLC owned by Michael Karfunkel and his New York-based family trust. A "mechanical rule" favoring the place of incorporation would disregard New York's greater interest, the court wrote. But because Tower Group International bore no successor liability, ACP Re "could not possibly have succeeded to the obligation for the TruPS" through the merger.

The panel rejected the investors' bid to pierce ACP Re's corporate veil and hold AmTrust, National General and the Karfunkel estate and trusts liable as its alter egos. The record supported the view that ACP Re was "essentially a shell company being controlled by the Karfunkel defendants," the court said. But domination "standing alone" is insufficient, and the investors "have not provided evidence that they stripped them of their assets such that they were left without the ability to pay."

The court said it had considered that Michael Karfunkel's emails were deleted after his death despite a litigation hold in another matter. It credited unrebutted defense expert testimony attributing the default to "extensive unforeseen adverse development" on policies Tower's insurers issued in 2013 and earlier, and it called the acquisition "an arm's-length deal" approved by eight regulatory bodies. Tortious interference claims failed because the investors could not show the default would not have occurred "but for" the defendants' conduct.

On fraud, the panel agreed with Justice Borrok that the proxy statement contained a material misstatement, finding that its description of the securities as Tower Group International's debt was "materially misleading, if not false," given the defendants' position that the debt never belonged to that company. It also found that Doug Duncan, managing director of Wolf River Capital Management, relied on it when he emailed an excerpt to his broker, writing "[s]o, yes, we would love to own AmTrust debt[.]" "It is difficult to imagine a stronger piece of evidence to establish actual reliance," the court wrote.

The fraud claims failed anyway. The proxy statement sought shareholder approval of the merger, the court held, and was not "made for the purpose of inducing" the Wolf River plaintiffs to buy or keep the securities. As sophisticated investors, the plaintiffs also could not justifiably rely on it. Remarks by William Hitselberger, Tower Group International's chief financial officer, in a July 2015 call with Duncan were "mostly puffery or opinions of future expectation," the panel said.

Derivative claims that Tower Group International's directors and officers approved the 2014 deal without due regard for creditors also failed. Most investors bought afterward, and under Bermuda law, a defense expert stated, "company directors do not owe fiduciary duties to the creditors of a subsidiary of the company."

The panel said the only remaining claims are against the issuers, "defendants who do not contest their liability." It dismissed as abandoned the defendants' appeals from November 2025 judgments entered for the investors against those issuers. It also granted two motions for leave to file amicus briefs.

Lawyers for ACP Re and the Tower entities included John Bash of Quinn Emanuel Urquhart & Sullivan LLP. The investors were represented by Timothy A. DeLange of Wollmuth Maher & Deutsch LLP. Martin J. Murray of Murray & Di Bella LLP represented amicus James P. Corcoran, a former New York superintendent of insurance.