Article by: Cavan S. Boyle

A recent decision by the New York State Supreme Court, New York County, rejected a surety’s argument that it would sustain irreparable harm from its indemnitors’ default on their obligations to deposit collateral security, finding that the surety’s contractual right to specific performance did not satisfy entitlement to preliminary injunctions without a further showing of irreparable harm.¹ The court thus denied the surety’s requests for preliminary injunctions because the surety failed to meet that burden despite the likelihood of success on its specific performance claims and agreement that the remedy at law was inadequate.²

Following obligee claims of over $13 million on commercial surety bonds, surety US Fire Insurance Company (“US Fire”) sought specific performance by the bonds’ indemnitors (“Indemnitors”) to post collateral security under the General Agreement of Indemnity (“GAI”). US Fire then filed two motions for preliminary injunctions for the security deposits and enjoining Indemnitors from dissipating assets. 

In arguing a strong probability of success on the merits of its specific performance action, US Fire pointed to GAI Paragraph 3, where Indemnitors agreed inter alia:

that Surety may, in its sole discretion, demand that Indemnitors deposit collateral security equaling any undischarged liability under the bonds, that the surety will have no adequate remedy at law should Indemnitors fail to deposit collateral, that the surety is entitled to specific performance of the obligation to post collateral, and that Indemnitors waive all defenses to provision of collateral. 

US Fire maintained that the Indemnitors’ failure to deposit collateral security constitutes irreparable harm, warranting injunctive relief under the New York Appellate Division case Landmark Unlimited.³ It argued that the equities were in its favor because, absent such an injunction, US Fire would be deprived of the collateral security it bargained for under the GAI, while the Indemnitors would receive a windfall. 

The court disagreed. Recognizing that preliminary injunctions are “drastic” remedies that should be used “sparingly,” the court’s analysis “start[ed] and end[ed] with irreparable harm.” Irreparable harm must be imminent, not remote or speculative, said the court, and though US Fire identified adverse claims and potential exposure that may arise, it failed to show it “incurred, or will ultimately incur” costs related to the claims. US Fire’s failure to set reserves or demonstrate that it expended funds or will soon expend funds to satisfy its claim obligations supported this lack of imminency, the court reasoned. Indeed, the court viewed US Fire’s motions for the bonds’ full penal sum to be merely “easily quantifiable monetary awards” further supporting US Fire’s failure to establish “extreme” or “very serious” and irreparable harm.

The court specifically addressed US Fire’s reliance on Landmark Unlimited for the proposition that an indemnitor’s default on its collateral security obligation necessarily results in irreparable harm to the surety, observing that “nothing in Landmark stands for such a sweeping proposition.” Instead, explained the court, adhering to such a rule would remove the requirement that sureties make any showing of irreparable harm to warrant the drastic remedy of preliminary injunction. 

The court further noted significant factual distinctions with Landmark. Unlike US Fire, the surety in Landmark had already established a reserve in the amount of the bond’s full penal sum. Perhaps more importantly, the parties in Landmark expressly agreed in their general agreement of indemnity that failure to deposit collateral “shall cause irreparable harm” and that the surety “shall be entitled to injunctive relief for specific performance of such obligation.” Here, the GAI provided only that the “Surety will have no adequate remedy at law should [Indemnitors] fail to post any collateral…and that Surety is entitled to specific performance of the obligation to post collateral.” The difference, the court stated, is that while the lack of an adequate remedy may suffice for purposes of establishing a claim for specific performance, “it does not follow that any such harm is, a fortiori, irreparable.” 

Critical to this outcome, the court concluded, is that although there are circumstances that could exist to warrant a different result, US Fire failed to carry its burden of establishing the element of irreparable harm because it was based solely on the Indemnitors’ failure to deposit collateral as required under the parties’ GAI. 

While this case underscores the difference between proving specific performance claims versus obtaining preliminary injunctive relief, we are also reminded that the express terms of the parties’ indemnification agreement is an important factor. The GAI here showed agreement only as to specific performance relief and lack of an adequate remedy at law. Had the parties also expressly agreed that Indemnitors’ default regarding collateral security expressly constitutes irreparable harm and a right to injunctive relief as did the parties in Landmark, perhaps things would have gone better for US Fire. The surety’s strongest case for injunctive relief for indemnitor collateral security will likely involve a combination of factors: the broadest possible language in favor of the surety in the indemnity agreement, the establishment of reserves for the bond claims and/or the imminent payment or obligation for payment of the claims among them.

1. MLCJR, LLC v. PDP Grp., Inc., 229 N.Y.S.3d 909 (Sup Ct New York County March 21, 2025).
2. Entitlement to preliminary injunctive relief in New York requires demonstrating: (i) probability of success on the merits; (ii) danger of irreparable injury in the absence of the injunction; and (iii) a balancing of the equities in its favor.
3. Atlantic Specialty Ins. Co. v Landmark Unlimited, Inc., 214 A.D.3d 472 (1st Dept. 2013).