In Jurupa Valley Spectrum, LLC v. National Indem. Co., et al., 06 Civ. 4023 (S.D.N.Y., June 29, 2007), the Southern District of New York examined whether a beneficiary of surety bonds had standing to bring a cause of action for bond payments against the reinsurer of a bond issuer. Jurupa held certain surety bonds issued by Frontier, which were reinsured by National Indemnity. After the contractor’s default on the contract covered by the bonds, Jurupa obtained a 2002 California state court default judgment, which had not been paid because Frontier was in rehabilitation. Therefore, Jurupa brought suit directly against National Indemnity to essentially enforce the judgment, and National Indemnity moved to dismiss Jurupa’s complaint on the grounds, among others, that Jurupa lacked standing to bring a cause of action for breach of the reinsurance agreement. Jurupa argued that there was a “cut-through” clause in the reinsurance agreement that allowed it to proceed directly against National Indemnity, and that even if there had been no such clause, Jurupa had a statutory basis to assert a direct action because the reinsurance agreement was required to contain a “cut through” clause under New York law. The Court granted National Indemnity’s motion to dismiss, finding that there was no express cut-through language in the reinsurance contract or other evidence of a direct relationship, and holding that, absent such language or evidence, National Indemnity had no privity with and was not liable to Jurupa.
Click here to review a copy of the decision.
