Anderson Kill attorneys secured a New York federal court ruling in what may be the first comprehensive decision involving surety bonds, since the J.P. Morgan Chase surety bond case involving Enron settled earlier this year.

Judge Victor Marrero granted Valley National Bank summary judgment on its claims against Greenwich Insurance Company and XL Reinsurance America, Inc., who were co-sureties under a bond they issued to Valley. Valley's claims were in excess of $7 million plus attorneys' fees. Valley was provided with a surety bond by the borrower to guarantee the payment obligation of the borrower under an insurance premium financing transaction. When the borrower defaulted, Valley sought to collect from the sureties under the bond. The bond is often referred to as a "hell or high water" bond because of its waiver of defenses clauses and its "unconditional and irrevocable" promise to pay. The sureties claimed that the bond was procured by fraud, that they did not have an opportunity to adequately investigate the claim, and that the bond was meant to cover a finance arrangement, but that the underlying transaction actually was a loan. The sureties alleged that they would not have agreed to bond a loan had they known the true facts and refused to make payment.The court applied New York law and held that the sureties waived their defenses to payment. Although the judge in the J.P. Morgan Chase case had called into question the enforceability of a surety's waiver of defenses when fraud is alleged, Judge Marrero reaffirmed the enforceability of such a waiver in the facts presented. The court distinguished the JP Morgan case as an example of "fraud in the extreme," where a simple loan to Enron was disguised as a sale of assets. The transaction involving Valley, on the other hand, always had been represented to the sureties as a financing transaction. Significantly, the court refused to permit discovery by the sureties, who sought to develop facts in support of their fraud defense against Valley.