Arthur Bogoraz is a bad dude. For more than three years, he ran a multi-million dollar no-fault insurance fraud scheme by convincing radiologists to review MRIs and submit fake insurance claims for payment. He paid the radiologists kickbacks and then not only pocketed the cash, but used the radiologists’ information to set up fake medical companies to perpetuate the scheme on his own. After he was caught, he fled to the Ukraine two days before he was supposed to surrender to the authorities. Bogoraz then flew across the globe on his private plane before he was eventually apprehended in Puerto Rico trying to get back into the U.S.
To ensure he wouldn’t flee again, the trial court set his bail at $2 million. His wife and other family friends obtained a bail bond from Ira Judelson, who was a licensed bail bond agent affiliated with the International Fidelity Insurance Company, a bail bond surety, in exchange for a premium of $120,560. Judelson posted the bond with the trial court, which then held a hearing, pursuant to Criminal Procedure Law 520.30, to decide whether it would accept the bond. The trial court, however, upon review of the bond offered, declined to accept it because Bogoraz failed to establish that the premium paid for the bond was not the fruit of criminal conduct. The Appellate Division affirmed the denial of the bond, and the Court of Appeals denied leave to appeal. Bogoraz was therefore never released from custody.
Because Bogoraz was never released, his wife asked that Judelson return the bond premium because Judelson was never exposed to the risk that Bogoraz would not appear in court when required. Judelson, however, refused, arguing that he had earned it upon presentation of the bond to the state court in accordance with the Criminal Procedure Law.
This case, Gevorkyan v Judelson, ensued in federal court. Finding no controlling law, the District Court applied normal contractual principles and held that the parties’ indemnity agreement allowed for Judelson to retain the premium even though the bond was not accepted by the state court and Bogoraz was never released. The Second Circuit held that New York law was muddled in the area, and so it certified a question to the Court of Appeals:
Whether an entity engaged in the ‘bail business,’ as defined in [Insurance Law] § 6801 (a) (1), may retain its ‘premium or compensation,’ as described in [Insurance Law] § 6804 (a), where a bond posted pursuant to [CPL] § 520.20 is denied at a bail sufficiency hearing conducted pursuant to [CPL] § 520.30, and the criminal defendant that is the subject of the bond is never admitted to bail.
On the appeal, previewed here, the Court of Appeals held that under the Insurance Law, the bail bondsman may only retain a premium for giving a bail bond where the bond is accepted by the Court and the defendant is released. This interpretation, the Court held, comports with the purpose of the Insurance Law article governing bail bond premiums, which was to ameliorate the many abuses of the bail bond industry, including that criminal defendants were often taken advantage of and charged exorbitant premiums in exchange for the bond. The Court thus rejected Judelson’s interpretation of the Insurance Law, which would have allowed him to keep the premium merely because he posted the bond regardless of whether it was ultimately accepted by the trial court, as inconsistent with the statute’s purpose.
The Court also held that “[t]he insurance law principle that premium follows risk further supports this result” (Opn, at 10). The Court noted that in the insurance context, a premium is generally understood as “consideration paid to an insurer for assuming a risk” (id. at 11). Because there is no risk to the bail bondsman unless the trial court actually accepts the bond and the criminal defendant is released, the bondsman then can’t have earned the premium unless that happens.
A copy of the Court of Appeals’ opinion can be found here.