New York Court Upholds Rejection of Indemnity for Corporate Crimes
Insurance Law Update
HSBC USA Inc. (f/k/a Republic New York Corporation) and Republic New York Securities Corporation v. Gulf Ins. Co.
New York Supreme Court
The New York Supreme Court reaffirmed the legal principle that corporate criminality is uninsurable. HSBC USA Inc. (f/k/a Republic New York Corporation) and Republic New York Securities Corporation v. Gulf Ins. Co. (Index No. 603413/04), was an action under a fidelity bond where the plaintiff financial institution sought to recoup a portion of $569 million that it paid to the victims of a fraud as part of a corporate guilty plea for felony violations of federal securities and commodities laws. The insurers moved for summary judgment, arguing that the underlying criminal conduct barred recovery as a matter of public policy and under the bond terms. The court dismissed the complaint, finding that public policy barred a convicted corporate felon from seeking indemnity for the financial consequences of its criminal conduct. The court further found public policy will bar the corporate felon from seeking indemnity even if the bond contained no provisions for the insureds' intentional, unlawful conduct. Indemnity pursuant to a fidelity bond was previously denied under similar circumstances in Drexel Burnham Lambert Group, Inc. v Vigilant Ins. Co., 157 Misc.2d 198, 595 N.Y.S.2d 999 (S.Ct. NY Cnty 1993), a case where Sedgwick represented one of the insurers on the bond.