Judge Cahn's order freezes the relationship between AIG and C.V. Starr while the two firms undergo arbitration to decide terms of the separation of the once tightly intertwined business entities.

Mr. Greenberg's attorney, David Boies, immediately announced plans to appeal on behalf of Starr Technical, saying the ruling “effectively ends our business.” But Michael Carlinsky, who represented AIG, said, “we are very happy with the judge's ruling.”

Meanwhile, the first arbitration meetings have already been set up between the two parties. Starr Technical is one of four brokerage agencies run under the umbrella of C.V. Starr–the concern that previously placed business with AIG and acted as a long-term compensation vehicle for past and present AIG employees, and which still holds substantial stock in AIG.

Mr. Greenberg, who was a founder of AIG 38 years ago, was forced out last spring as chief executive officer and chairman after he invoked his Fifth Amendment right against self-incrimination when questioned by federal and state investigators.

In his new role as outsider, Mr. Greenberg attempted to sell Starr back to AIG, but could not come to terms. He then attempted to reach an agreement with AIG to continue marketing its policies, but that was not successful.

Late last month, AIG sued Starr in an attempt to stop its agents from entering into agreements with other underwriters–particularly the National Indemnity Company, a unit of Berkshire Hathaway.

In its suit, AIG accused Starr Technical of acting as a “rogue agent” engaged in a campaign of “flagrant misconduct and self-dealing contrary to the best interests of AIG.” AIG said Starr Technical's efforts to divert AIG traditional reinsurance partners to NICO were unlawful under the terms of the agreement binding their operations, as well as injurious to its reputation.

Starr Technical argued there was never any exclusivity in its relationship with AIG.

In his order, Judge Cahn agreed that allowing the Starr Technical-NICO arrangement to continue would “continue to erode AIG's reputation with its reinsurers, by continuing to siphon away reinsurance premiums from them to NICO.”

Even a favorable arbitration outcome for AIG would be too late, since the company “may no longer be capable of doing business with the reinsurers to whom it made promises during the negotiation of the Quota Share Treaty,” the judge added.

The two sides will continue their dispute in arbitration, which Judge Cahn said was the point of his ruling. “This is an order in aid of arbitration,” he noted.