US Fire’s attempt to compel $13.5M in collateral for three decommissioning bonds failed—New York court says no imminent loss or asset risk justifies injunction
A New York Supreme Court judge has rejected efforts by Crum & Forster owned US Fire Insurance Company to compel affiliates of MLCJR, LLC to post $13.5 million in collateral tied to surety bonds issued for offshore oil and gas operations, ruling the insurer failed to demonstrate the kind of immediate harm required to obtain preliminary injunctive relief.
Justice Margaret A. Chan denied two motions from US Fire, finding that the company had not met the “irreparable harm” standard necessary to justify forcing the plaintiffs to post security under a General Agreement of Indemnity (GAI).
The dispute arises from three surety bonds issued by US Fire in favour of the Bureau of Ocean Energy Management (BOEM) and Union Oil Company of California (UNOCAL). The bonds, totalling $13.5 million, were issued to guarantee decommissioning obligations of three offshore operators—Energy XXI, EPL Oil & Gas, and Cox Oil Offshore—all of which filed for bankruptcy in 2023. Their cases were subsequently converted to Chapter 7 liquidation proceedings.
Following those filings, both BOEM and UNOCAL issued claims under the bonds, prompting US Fire to demand collateral from the indemnitors, as permitted under Paragraph 3 of the indemnity agreement. That provision allows the insurer to demand irrevocable letters of credit or other forms of security, at its sole discretion, upon receipt of claims—even before paying out any losses.
US Fire argued that the plaintiffs’ failure to post collateral risked undermining the contractual framework of the surety relationship. The GAI explicitly waives the indemnitors’ defences and states that specific performance is an appropriate remedy.
But Justice Chan concluded that US Fire had not shown it was facing immediate financial exposure. The insurer acknowledged it had not yet paid any claims or established reserves related to the bonds, and offered no evidence that losses were imminent.
“There has been no showing made on US Fire’s application that, beyond the existence of the BOEM, UNOCAL, and BOEM II claims and US Fire’s collateral demands, there is any risk of imminent—rather than remote or speculative—harm,” Justice Chan wrote.
The court also distinguished the case from Atlantic Specialty Ins. Co. v. Landmark Unlimited, Inc., where injunctive relief was granted in part because the surety had set aside reserves and the indemnity agreement expressly stated that non-payment of collateral would constitute irreparable harm. US Fire’s GAI contained no such clause.
While Justice Chan acknowledged that the insurer might ultimately be entitled to specific performance if it prevails on the merits, she emphasized that “the requirements for the grant of a preliminary injunction are more stringent” and demand a present, concrete threat of harm.
With the motions denied, the underlying litigation – including US Fire’s counterclaims and demands for collateral – will proceed to a full hearing.
