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Non-Party Insurance Carrier Not Liable for Lost Income Interest

The Appellate Court of New York, First Department, affirmed the trial court’s order which required plaintiff to post an undertaking of five hundred thousand dollars until the arbitration dispute is resolved. By way of background, in 2007, Founders was required to post an undertaking in the amount of more than one million dollars as part of a preliminary injunction motion. Great American Insurance Company was the surety on the undertaking and received the one million dollars in cash collateral. Several months later, the Appellate Division reversed the decision and the preliminary injunction. Eventually, the undertaking was reduced to approximately five hundred thousand dollars.

Everest Insurance Company requested that Great American Insurance Company issue a surety bond, the amount of damages for lost income that they incurred as a result of the prior preliminary injunction. The Appellate Court rejected that argument stating that “Great American was not a party to the action between Founders and Everest [as such] … it lacked the knowledge of the nuances of the case; and it was not represented in court when the court directed the undertaking to be vacated.”

IMPACT (REINSURANCE): This is not a surprising decision by the First Department. Courts rarely alter their position especially when dealing with discretionary issues such as an undertaking. Furthermore, absent specific facts regarding the third-party, a third-party is usually not liable for lost income involving an undertaking.

STATE OF NEW YORK
FOUNDERS V. EVEREST NATIONAL INSURANCE CO
.
(INDEX NO. 08-2721 MAY 4, 2010)

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About this Author

Thomas F. Segalla, Insurance Attorney, Goldberg Segalla Law Firm

Thomas F. Segalla, is the co-author of the renowned insurance law treatise Couch on Insurance 3d and is one of the founding partners of the firm.  Mr. Segalla is a nationally recognized reinsurance and insurance expert who has been retained by numerous insurance carriers and policyholders.  His active practice focuses on the defense and insurance coverage aspects of matters involving bad faith; construction site personal injury accidents (Labor Law §§ 200, 240(1) and 241(6)); and toxic tort and environmental issues. As a member of the Defense Research Institute (DRI),...

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Jeffrey L. Kingsley, Goldberg Segalla, Insurance attorney
Partner

Jeffrey Kingsley maintains an international practice that focuses on matters involving insurance and reinsurance coverage, commercial and regulatory issues, and extra-contractual liability arbitration and litigation. As a leader in Goldberg Segalla’s reinsurance practice he has extensive experience handling and consulting clients on complex reinsurance allocation issues, regulatory issues, arbitrations, transactional issues, and disputes involving the follow-the-fortunes doctrine.

Jeff provides comprehensive legal representation for Fortune 500 companies, insurers, reinsurers, and other businesses to help them manage risk at every stage of business and protect their interests when disputes may arise. He works with clients during the developmental phase of business relationships to analyze agreements and potential strategies in order to reduce liability exposure and identify issues that may impede growth, including threats to a company’s reputation or intellectual property rights.

Jeff currently serves as national litigation and regulatory counsel for one of the largest companies that provides vehicle service contracts and extended insurance warranties for both commercial and personal vehicles. In that role he handles the resolution of coverage claims and disputes with dealers, producers, and competitors, including representing the company in litigation and arbitration; drafts reinsurance agreements to create captive reinsurance companies; assists with the drafting of vehicle service contracts and warranties; and counsels on a range of regulatory matters, including advertising regulations. Jeff’s recent experience also includes consulting with one of the world’s top auto manufacturers in the development of a national program.

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