Opinion ID: 758543
Heading Depth: 3
Heading Rank: 2

Heading: Applying New York Law

Text: 38 As Liman notes, the test in New York is whether the assured has actually in good faith sustained the loss for which reimbursement is sought. 299 F.Supp. at 109. The only detriment assumed by Prudential vis-a-vis each Claimant is a wholly non-recourse debt, which in financial terms is--and is intended to be--nothing. 39 The Fifth Circuit has concluded that Liman does not stand for the proposition that 'payment' can be made by the use of a promissory note worthless from the day it is executed. Conoco, Inc. v. Republic Ins. Co., 819 F.2d 120, 122 (5th Cir.1987). Conoco had paid the salvage cost of raising a vessel that sank while on charter from the shipowner, Bonanza. Conoco was unable to recover the salvage cost directly from an insurer that had issued a policy protecting the ship and naming both Bonanza and Conoco as assureds because (as the Fifth Circuit held sitting in banc in a prior case) Conoco had no obligation to perform the salvage operation. Trying again, Conoco arranged for Bonanza (which presumably was obliged to pay the salvage costs of its vessel) to execute a demand promissory note in Conoco's favor for the salvage costs, secured by an assignment of any policy proceeds recovered from the insurer. Bonanza sought indemnification from the insurer on the theory that the note was payment under the policy. Id. at 121. However, [a]t the time [the loan] documents were signed, [Conoco] assured Bonanza's president that it would not attempt to collect the promissory note. Id. The court held that the bankrupt's satisfaction of the claim with a non-recourse note did not amount to payment under the indemnification policy:Since the bankrupt assured in Liman was not completely bereft of assets, the Liman court was not faced with the situation we face in this case, where Bonanza is literally incapable of sustaining a loss.... Bonanza not only had no intention of paying the promissory note, but offered no hope of eventually providing any value at all in exchange for the note. The company was dormant. Bonanza was gone, and it was not coming back. 40 Id. at 122-23. 41 Prudential is blocked by the same obstacle in this suit. The underlying claims were satisfied with non-recourse notes that entail for Prudential no actual loss incurred in good faith. The only difference between the present case and Conoco is that here Prudential issues boomerang payments from the $300,000 account. But as these funds immediately came home, the Asbestosis Claimants received nothing of value from Prudential, and Prudential sustained no true loss. We do not think that this sham transaction triggered an indemnification obligation under New York law. 42