In re Lexington Sur. & Indem. Co.

• Decision Date: 01 December 1936
• Citation: 272 N.Y. 210,5 N.E.2d 204
• Parties: In re LEXINGTON SURETY & INDEMNITY CO.
• Court: New York Court of Appeals Court of Appeals

272 N.Y. 210

5 N.E.2d 204

In re LEXINGTON SURETY & INDEMNITY CO.

Court of Appeals of New York.

Dec. 1, 1936.

Proceeding in the matter of the application of the People of the State of New York, by George S. Van Schaick, Superintendent of Insurance of the State of New York, for an order to take possession of the property and liquidate the business and affairs of the Lexington Surety & Indemnity Company. From an order of the Appellate Division (248 App.Div. 706, 290 N.Y.S. 117), which affirmed an order of Special Term disallowing the claim filed by the People of the State of New York against the Superintendent of Insurance, the People by permission of the Court of Appeal appeal.

Reversed, and matter remitted to Special Term. Appeal from Supreme Court, Appellate Division, First Department.

William Copeland Dodge, Dist. Atty., of New York City (Abraham J. Gellinoff and Joseph F. McLoughlin, both of New York City, of counsel), for appellant.

Irvin Waldman and Alfred C. Bennett, both of New York City, for respondent.

HUBBS, Judge.

The Lexington Surety Company on September 24, 1932, executed a recognizance or bail bond in the sum of $100 for the appearance of Clarence Smith in the Court of Special Sessions to answer a charge of unlawfully possessing policy slips. On January 5, 1933, the surety company was adjudged insolvent and an order for the liquidation of the company was made. The order directed that claims be filed not later than June 5, 1933.

On January 16, 1933, Clarence Smith failed to appear to answer the charge against him and the recognizance was ordered forfeited. The necessary proceedings were taken by the district attorney to cause the order of forfeiture to be filed and recorded in the county clerk's office. On March 22, 1933, the district attorney filed a claim with the Superintendent of Insurance, as liquidator. The claim was subsequently disallowed by the referee appointed to hear it and the report was to that extent confirmed by the Special Term and affirmed by the Appellate Division. The People have appealed to this court by permission.

Section 404, subd. 2, of the Insurance Law (Consol.Laws, c. 28), provides: ‘The rights and liabilities of any such insurer and of its creditors * * * shall, unless otherwise directed by the court, be fixed as of the date of the entry of the order directing the liquidation of such insurer. * * * Provided, however, that the right of claimants holdingcontingent claims on said date to share in an insolvent estate shall be determined by section four hundred and twenty-five of this chapter.'

Section 425, subd. 3, provides that a contingent claim ‘may be allowed to share where (a) such claim becomes absolute against the insurer on or before the last day fixed for the filing of proofs of claim against the assets of such insurer.'

We are required to determine whether, at the date of the order of liquidation, there was in existence a claim or liability, although contingent. While the statute refers to ‘contingent claims,’ in effect a claim is merely a legally binding expression of an intention to assert liability and consequently the question is whether or not there then existed a liability, although contingent.

The respondent contends that the alleged claim or liability came into existence only after default of the principal, which occurred after the surety company was placed in liquidation. The appellant, on the other hand, contends that immediately upon execution, delivery, and approval of the bond, a liability came into existence which was a contingent liability until default of the principal and thereafter a fixed or absolute liability.

Under a bail bond or recognizance the principal is, upon filing of the bond, released in the custody of his bondsman. He is still, constructively, in the custody of the law. The dominion of the surety is a continuance of the original imprisonment. Netograph Mfg. Co. v. Scrugham, 197 N.Y. 377, 90 N.E. 962, 27 L.R.A.(N.S.) 333, 134 Am.St.Rep. 886; Taylor v. Taintor, 16 Wall.(83 U.S.) 366, 21 L.Ed. 287.

By the bond the surety engages to produce the principal...