Court rules on reasonable amount of collateral that contractor must provide to insurer of construction project

Safeco Ins. Co. v. M.E.S., Inc., No. 09-cv-3312, 2010 WL 4828103 (E.D.N.Y. Nov. 22, 2010)

In Safeco Ins. Co. v. M.E.S., Inc., the court decided which parameters should be considered when determining the amount of collateral to which an insurer of construction projects is entitled.  In this case, defendant construction companies executed indemnity agreements with plaintiff insurer.   Plaintiff sued to secure collateral under the indemnity agreements, arguing that it was entitled to several million dollars from each defendant as collateral security.  Defendants argued that the amounts should be reduced for several reasons, including (i) the fact that the insurer failed to revise its costs estimate to reflect the actual amounts of the subcontract awarded, and (ii) the insurer had several accounts receivable whose proceeds should be used to cover insurer’s costs.  The court agreed with the defendants on the first argument but not the second; the court determined the appropriate amount of collateral not by seeking mathematical certainty, but by applying New York’s reasonableness standard to construe the facts and the documentation submitted by the parties.

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