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Adam Leitman Bailey, P.C. Makes New Law and Secures Yellowstone Injunction Victory Saving Ground Lease Tenancy

In a stunning upset victory, Adam Leitman Bailey, P.C. attorneys recently made new law, thereby securing a Yellowstone Injunction on behalf of a tenant facing the imminent loss of its valuable ground lease tenancy after being accused by its landlord, a housing cooperative, of failing to carry the requisite property insurance, as required under the lease. The co-op landlord claimed it discovered the insurance default after it was denied coverage by the tenant’s insurance carrier. A personal injury action had been brought by an employee of one of the client’s retail tenants naming the co-op landlord and its managing agent as defendants.

Under well-settled New York law, Yellowstone injunctive relief is not typically available to commercial tenants accused of insurance-related defaults. The rationale being, that such defaults are impossible to cure because of the “universe of possible claims” that could arise during the time for which there is a gap of coverage. Nonetheless, Adam Leitman Bailey, P.C. attorneys understood from the outset that the slim but only chance of saving the tenant’s lease was by (i) skillfully distinguishing existing precedent, and (ii) demonstrating that the equities favored the tenant over the co-op landlord.

Never a firm to shy away from a challenging case and only days away from the notice to cure deadline, Adam Leitman Bailey, P.C. attorneys quickly got to work. They delved into the lease and insurance policy provisions, relevant case law, and the long litigation history between the parties.

After examining the file, Adam Leitman Bailey, P.C. attorneys learned of two crucial facts: the tenant did maintain proper insurance coverage only that the policy failed to name the co-op and its managing agent as additional insureds. In addition, Adam Leitman Bailey, P.C. attorneys discovered a Schedule of Supplementary Names, which was delivered by the insurance carrier along with the policy that listed the co-op as an additional insured, but which the co-op claimed was not part of the policy.

Armed with this information, Adam Leitman Bailey, P.C. attorneys, through expert testimony, established that the schedule of supplementary names is tantamount to an endorsement to the policy affording the co-op with the status of an actual insured. “Actual insured” is a higher and greater status that includes all the rights one has as a mere additional insured. Consequently, Adam Leitman Bailey, P.C. argued that under the terms of the insurance policy, the co-op’s managing agent was covered and agents of a named insured are automatically covered.

Adam Leitman Bailey, P.C. further argued in the alternative that the tenant was entitled to a Yellowstone Injunction because both the co-op and its agent were de facto additional insureds under the policy. Adam Leitman Bailey, P.C. explained that under the terms of the insurance policy, the carrier must cover the tenant of any liability assumed by the insured under an “insured contract” even to parties not specifically named under the policy. The lease qualifies as such an insured contract as it contains a broad indemnification clause requiring the tenant to indemnify the co-op for any and all claims arising out of its negligence in connection with the premises. As such, no harm or loss could befall the co-op or its agent for the mere technical error of not specifically being named as additional insureds.

Beyond the legal justifications warranting injunctive relief, Adam Leitman Bailey, P.C. also argued that equitable considerations disfavored termination of the tenant’s lease. Adam Leitman Bailey, P.C. underscored to the Court the co-op’s bad faith in asserting a lease default for failure to comply with the insurance requirements as a pure money play designed to rid itself of a lower-than-market tenancy. Adam Leitman Bailey, P.C. pointed out an email from the tenant’s insurance carrier, dated just two weeks after the co-op served the tenant with the notice of default, on which the co-op attorneys were copied, reversing the insurance carrier’s decision and agreeing to provide coverage to the co-op for the personal injury claim. Adam Leitman Bailey, P.C. demonstrated to the Court that in bad faith, the co-op and its attorneys attempted to conceal this important fact at oral argument and in their court filings and even falsified the record to do so. Adam Leitman Bailey, P.C. further pointed out that the co-op conceded that it already had another tenant waiting in the wings, although nine years remained on the ground lease.

In a well-reasoned decision and a resounding victory for the tenant, the Court agreed with the arguments advanced by Adam Leitman Bailey, P.C., granting the tenant a Yellowstone injunction enjoining the co-op-landlord from taking any further action to terminate the tenant’s valuable ground lease tenancy. The Court explained that the Yellowstone injunctive relief was warranted because the tenant had demonstrated coverage under the lease and that the most likely scenario is that the tenant’s carrier will cover any loss to the co-op or its managing agent arising from the personal injury action.

Very few law firms would have attempted a Yellowstone Injunction involving an insurance default, far fewer would have succeeded. By proactively pushing the envelope, persuasively writing and orally advocating, and diligently distinguishing existing precedent, Adam Leitman Bailey, P.C. not only secured an important victory for the client, but also created new law in New York. Adam Leitman Bailey, P.C. had carved-out an important exception to New York’s Yellowstone injunction jurisprudence involving insurance-related defaults.

Adam Leitman Bailey, P.C. attorneys Jeffrey Metz and Dov Treiman represented the tenant in this matter.

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