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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: September 27, 2019

Yellowstone Injunction Denied Because Failure to Have Insurance Was Not Curable

On September 12, 2019. Justice Borrok of the New York County Commercial Division issued a decision in Booston LLC v. 35 W. Realty Co., LLC, 2019 NY Slip Op. 32716(U), denying a Yellowstone injunction because a failure to have insurance coverage was not curable, explaining:

In addition, putting aside the No Waiver clause that dictates the result herein, a necessary lynchpin of a Yellowstone injunction is that the claimed default is capable of cure. If the claimed default is not capable of cure, there is no basis for a Yellowstone injunction. The First Department has held that failure to procure insurance cannot be cured where the proposed cure does not involve any retroactive change in coverage, which means that the alleged defaults raised by the landlord are not susceptible to cure and, therefore, there is no basis for a Yellowstone injunction. The rationale for the First Department’s decisions is simple: a deficiency in past insurance coverage does not protect the landlord against the unknown universe of any claims arising during the period of no insurance coverage. This rationale squarely applies here and as there is no means for the Tenant to obtain retroactive insurance coverage, the Yellowstone injunction must be denied.

To the extent that the Tenant argues that the Landlord’s concerns are addressed by the Tenant’s posting of a $1 million indemnity bond and that such bond “cures” any alleged insurance coverage shortfall, the Tenant is incorrect. First, the Lease does not provide for alternatives to providing the requested insurance coverage set forth in the Lease. To wit, the Lease does not indicate that in lieu of the provided for insurance, the Tenant can substitute a bond. Second, even if it did, the Landlord maintains that $2,000,000 of coverage in a “single limit” means $2,000,000 “per occurrence.” A $1,000,000 bond (on top of Tenant’s $1,000,000 coverage for each occurrence) would not provide the coverage that Landlord claims is required, i.e., “in the amount of $2,000,000 in a single limit”. For the avoidance of doubt, inasmuch as the Tenant also argues that it never breached the Lease because it has always had a $2,000,000 policy in the aggregate, this is simply not a basis for a Yellowstone injunction, which requires a default capable of a cure.

(Internal quotations and citations omitted).

We litigate Yellowstone injunctions–a motion to prevent a landlord from evicting a commercial tenant for defaults under the lease–for both landlords and tenants. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you are involved in a dispute regarding the termination of a commercial lease because of a default under the lease.

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