Opinion
No. 161219/13.
07-24-2014
ADMIRAL INDEMNITY COMPANY a/s/o Kefi LLC, Plaintiff, v. 505 COLUMBUS LLC, Defendant.
Alan Wenig, Esq., Wenig & Wenig, PLLC, New York, for plaintiff. Brian J. Bolan, Esq., Gennet, Kallmann et al., New York, NY, for defendant.
Alan Wenig, Esq., Wenig & Wenig, PLLC, New York, for plaintiff.
Brian J. Bolan, Esq., Gennet, Kallmann et al., New York, NY, for defendant.
Opinion
BARBARA JAFFE, J.
By notice of motion, defendant moves pursuant to CPLR 3211(a)(1) and (7) and 3212(c) for an order dismissing plaintiff's complaint. Plaintiff opposes.
I. BACKGROUND
Plaintiff's subrogor, Kefi LLC, was a commercial tenant in a building owned by defendant, having been assigned the lease from the previous tenant. The lease provides that defendant or its agents shall not be liable for any damage to Kefi's property resulting from any cause unless caused by or due to defendant's negligence or that of its agents, servants, or employees. It also provides that:
[E]ach party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible, and to the extent permitted by law, Owner and Tenant each hereby releases and waives all right of recovery [with respect to damage], against the other, or any one claiming through or under each of them by way of subrogation or otherwise. The release and waiver herein referred to shall be deemed to include any loss or damage to the demised premises ... The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance.
(N.Y.SCEF 6).
By policy issued on November 3, 2012, plaintiff provided Kefi with commercial insurance, including property and general liability coverage. Pursuant to the Commercial Property Conditions section of the policy:
I. Transfer of Rights of Recover Against Others to Us.
If a person or organization to or for whom we make payment under this Coverage Part has rights to recover damages from another, those rights are transferred to us to the extent of our payment ... But you may waive your rights against another party in writing:
(1) Prior to a loss to your Covered Property ...
(N.Y.SCEF 8).
Between January 2012 and January 2013, defendant was insured by Starr Indemnity & Liability Company for commercial coverage of the premises, and its policy contains a provision waiving subrogation that is identical to the provision in the Admiral policy. (N.Y.SCEF 9).
On or about January 26, 2013, a pipe at the premises allegedly discharged water and damaged Kefi's property and/or leased premises. After Kefi filed an insurance claim with plaintiff, plaintiff paid Kefi approximately $767,000 pursuant to Kefi's insurance policy. Plaintiff now brings an action to recover that sum from defendant, alleging that Kefi's damages were caused by defendant's negligent and/or wrongful acts or omissions. (N.Y.SCEF 7).
II. CONTENTIONS
Defendant argues that the complaint must be dismissed given Kefi's waiver of its right to subrogation pursuant to the lease and assignment, and that the waiver is valid as Kefi and defendant each procured an insurance policy permitting the waiver of subrogation. (N.Y.SCEF 12).
Plaintiff denies that the waiver of subrogation clause is enforceable absent a mutual covenant in the lease requiring both the tenant and defendant to procure insurance pursuant to General Obligations Law (GOL) § 5–321. (N.Y.SCEF 14).
In reply, defendant observes that absent any requirement that the tenant or any other party obtain property insurance, the waiver of subrogation provision should be enforced, and that given the mutuality of the waiver of subrogation, there is no violation of GOL § 5–321. (N.Y.SCEF 20).
III. ANALYSIS
Parties to an agreement may waive their respective insurer's right of subrogation, and such a waiver will be enforced as long as it applies to the specific damage or claim at issue. (Kaf–Kaf, Inc. v. Rodless Decorations, Inc., 90 N.Y.2d 654 [1997] ). Where a party has waived its right to subrogation, its insurer has no cause of action. (Id. ).
In Kaf–Kaf, the Court found that the waiver of subrogation clause in the parties' lease was enforceable, given the parties' procurement of insurance policies recognizing the waiver. There, the parties agreed, as here, to waive their subrogation rights if both of their insurance policies contained clauses providing that the waiver would not invalidate the insurance. (Id. ). Thus, as each party waived its right to subrogation and obtained insurance that permitted them to do so, plaintiff is barred from recovering in this action. (See eg State Farm Ins. Co. v. J.P. Spano Constr., Inc., 55 AD3d 824 [2d Dept 2008] [parties waived subrogation in agreement and insurance policy acknowledged right of insured to waive subrogation] ).
The parties agreed that the waiver of subrogation is enforceable only if both the tenant and landlord obtain insurance policies recognizing the waiver. Thus, while the provision does not require, on its face, either party to obtain insurance, it presumes that both parties will obtain insurance. (See eg Footlocker, Inc. v. KK & J, LLC, 69 AD3d 481 [1st Dept 2010] [mutual waiver of subrogation clause necessarily premised on procurement of insurance by parties]; Reade v. Reva Holding Corp., 30 AD3d 229 [1st Dept 2006] [waiver of subrogation clause implies parties are insured, because if not, there would be no need for waiver] ).
That the waiver of subrogation clause becomes valid only if both parties actually obtain the requisite insurance renders the waiver enforceable and constitutes no violation of GOL § 5–321. (Compare Reade, 30 AD3d at 234 [if waiver of subrogation clause applied to all losses or claims even if not insured or subject to insurance requirement, it would “apparently” violate GOL § 5–321, but otherwise would not]; Onebeacon v. Axelrod, 2007 WL 2176696 [Sup Ct, New York County 2007] [although lease contained no specific provision requiring landlord to obtain insurance, waiver of subrogation only applied when both parties obtained insurance, and thus waiver valid], with A to Z Applique Die Cutting, Inc. v. 319 McKibbin St. Corp., 232 A.D.2d 512 [2d Dept 1996] [finding unenforceable lease containing mutual waiver of subrogation clause that applied even if no insurance was obtained or required]; Metro. Art Assocs., Div. of Metro Art Sales, Inc. v. Wexler, 118 A.D.2d 548 [2d Dept 1986] [finding unenforceable waiver provision that applied even if no insurance was obtained] ). Thus, A to Z, on which plaintiff relies, is inapplicable as there, the lease required the parties to waive subrogation even if they did not procure insurance and, in any event, the court did not address the enforceability of a waiver of subrogation provision.
In general, waiver of subrogation provisions do not violate GOL § 5–321 because “[r]ather than exempting the parties from liability in violation of [GOL 5–321 ] ... [they] merely reflect their allocation of the risk of liability, as between themselves, to third parties through the device of insurance.” (Viacom Intern., Inc. v. Midtown Realty Co., 193 A.D.2d 45 [1st Dept 1993] ; see 747 Third Ave. Corp. v. Killarney, 225 A.D.2d 375 [1st Dept 1996] [waiver of subrogation clause did not violate GOL 5–321 ]; Periphery Loungewear, Inc., v. Kantron Roofing Corp., 190 A.D.2d 457 [1st Dept 1993] [same]; Cidis v. Net Realty Holding Trust, 143 A.D.2d 720 [2d Dept 1988] [same]; see also Bd. of Ed., Union Free School Dist. No. 3, Town of Brookhaven v. Valden Assocs., Inc., 46 N.Y.2d 653 [holding that analogous section 5–323 of GOL did not render unenforceable waiver of subrogation agreement; “(i)nsofar as damages for injuries are in fact compensable under an insurance policy mandated by contract, a provision waiving all rights to recover for those same injuries other than from the proceeds of the insurance policy does not constitute a violation of (GOL 5–323 )”] ).As waiver of subrogation clauses do not generally implicate GOL § 5–321, a waiver may be valid even if only one party is required to obtain insurance. (See Hartford Steam Boiler Inspection and Ins. Co. v. Woodstock 99 LLC, 6 AD3d 1085 [4th Dept 2004] [finding waiver of subrogation clause precluded subrogation action where agreement required one party to obtain insurance and to waive subrogation against other party] ). In an analogous case, the Court of Appeals determined that an indemnification provision in a lease, coupled with a provision that required only the tenant to maintain insurance, did not violate GOL § 5–321. The lease also directed the landlord and tenant to obtain mutual waivers of subrogation in their insurance policies, with both of them procuring such policies. The Court held that “[w]here, as here, a lessor and lessee freely enter into an indemnification agreement whereby they use insurance to allocate the risk of liability to third parties between themselves, [GOL] § 5–321 does not prohibit indemnity.” (Great Northern Ins. Co. v. Interior Constr. Corp., 7 NY3d 412 [2006] ).
Finally, even if the lease here required only the tenant to obtain insurance, once the landlord actually obtained its own insurance, the waiver of subrogation provision became enforceable. (See Footlocker, Inc., 69 AD3d at 481 [although lease did not require any party other than tenant to procure fire insurance, landlord submitted policy showing that it obtained fire insurance and, and thus policy satisfied landlord's obligation to procure type of insurance necessary to enforcement of waiver of subrogation clause]; Genl. Acc. Ins. Co. v. 80 Maiden Lane Assocs., 252 A.D.2d 391 [1st Dept 1998] [enforcing waiver of subrogation clause that depended on both parties obtaining insurance; even though tenant not obligated under lease to obtain certain insurance, it did so, and thus clause was valid] ).
IV. CONCLUSION
Accordingly, it is hereby
ORDERED, that defendant's motion to dismiss is granted, and the complaint is dismissed with costs and disbursements to defendant as taxed by the Clerk upon the submission of an appropriate bill of costs, and the Clerk is directed to enter judgment accordingly.