Kaf-Kaf, Inc. v. Rodless Decorations, Inc. — 90 N.Y.2d 654

Majority

p. 654

[687 NE2d 1330, 665 NYS2d 47]

Kaf-Kaf, Inc., Appellant, v Rodless Decorations, Inc., Respondent. (And a Related Action.) Rodless Decorations, Inc., Appellant, v Kaf-Kaf, Inc., et al., Respondents, et al., Defendants. (And Related Actions.)

Argued September 11, 1997;

decided October 16, 1997

p. 655

POINTS OF COUNSEL

Gwertzman, Lefkowitz, Greenwald & Burman, New York City (Morton Greenwald and Roberta Burman of counsel), for appellant in the first above-entitled action.

I. Paragraph 9 (e) of the lease herein does not waive the tenant’s insurer’s right to pursue subrogation against the landlord for damage sustained to the tenant’s property. (Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153 ; S.S.D. W. Co. v Brisk Waterproofing Co., 76 NY2d 228 ; Alexandra Rest. v New Hampshire Ins. Co., 272 App Div 346 , 297 NY 858 ; Commerce & Indus. Ins. Co. v

p. 656

Admon Realty, 168 AD2d 321 ; Federal Ins. Co. v Commerce & Indus. Ins. Co., 187 AD2d 278 ; Continental Ins. Co. v Faron Engraving Co., 179 AD2d 360 ; Empire Bias Binding Co. v Andros Realty Corp., 210 AD2d 198 ; Popkin v Security Mut. Ins. Co., 48 AD2d 46 ; Board of Educ. v Barni, 66 AD2d 340 ; Matter of Falvey, 15 AD2d 415 .) II. Plaintiff-appellant’s interpretation of this lease accords with General Obligations Law § 5-321. (Kirshenbaum v General Outdoor Adv. Co., 258 NY 489 ; Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153 ; Goetz v Duffy, 215 NY 53 ; Payless Discount Ctrs. v 25-29 N. Broadway Corp., 83 AD2d 960 ; Interested Underwriters at Lloyds v Ducor’s, Inc., 103 AD2d 76 , 65 NY2d 647 .)

O’Brien & Mayr, Rockville Centre (Nicholas P. Calabria, James M. O’Brien and William F. Gormley of counsel), for respondent in the first above-entitled action.

I. The waiver of subrogation clause contained in paragraph 9 (e) of the lease bars Kaf-Kafs insurance carrier’s subrogation action. (Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153 ; Brown v Two Exch. Plaza Partners, 76 NY2d 172 ; Kinney v Lisk Co., 76 NY2d 215 ; Extaza of 34th St. v City Stores Co., 62 NY2d 919 ; Empire Bias Binding Co. v Andros Realty Corp., 210 AD2d 198 ; Morlee Sales Corp. v Manufacturers Trust Co., 9 NY2d 16 ; City of New York v New York Tel. Co., 108 AD2d 372 ; Rodolitz v Neptune Paper Prods., 22 NY2d 383 ; Cobrin v DeLuna, 143 AD2d 723 .) II. Kaf-Kaf s action is barred by the antisubrogation doctrine. (Parochial Bus Sys. v Board of Educ., 60 NY2d 539 ; Pennsylvania Gen. Ins. Co. v Austin Powder Co., 68 NY2d 465 .)

Gennet, Kallmann, Antin & Robinson, P. C., New York City (Michael J. Mernin of counsel), for appellant in the second above-entitled action.

The waiver of subrogation clause applies only to damage to the demised premises. (Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153 ; Brentano’s Inc. v Charter Mgt. Corp., 46 AD2d 861 ; S.S.D.W. Co. v Brisk Waterproofing Co., 76 NY2d 228 ; Continental Ins. Co. v Faron Engraving Co., 179 AD2d 360 ; Viacom Intl. v Midtown Realty Co., 193 AD2d 45 ; Empire Bias Binding Co. v Andros Realty Corp., 210 AD2d 198 ; Nichols v Nichols, 306 NY 490 ; Sutton v East Riv. Sav. Bank, 55 NY2d 550 ; Laba v Carey, 29 NY2d 302 ; Aloi v Board of Educ., 81 AD2d 874 .)

Gwertzman, Lefkowitz, Greenwald & Burman, New York City (Morton Greenwald and Roberta Burman of counsel), for respondents in the second above-entitled action.

I. Plaintiff-

p. 657

appellant, having failed to raise the issue of the applicability of paragraph 9 (e) of the lease to a landlord’s insurer’s subrogation claim, for loss of rents and personal property in opposition to the original motion, may not raise said issue on appeal. (Machinery Funding Corp. v Loman Enters., 91 AD2d 528 ; Sony Corp. v American Express Co., 115 Misc 2d 1060 ; Laye v Shepard, 48 Misc 2d 478 , 25 AD2d 498 ; Massie v Crawford, 78 NY2d 516 ; Snyder v Wetzler, 84 NY2d 941 ; 141 E. 47th St. Assocs. v ABR Mgt., 225 AD2d 341 ; Ulrich v Oneida Horizon Redevelopment Corp., 213 AD2d 988 ; Aguirre v City of New York, 214 AD2d 692 ; B.T.R. E. Greenbush v General Acc. Co., 206 AD2d 791 ; Avid Equities v Commerce & Indus. Ins. Co., 225 AD2d 446 .) II. The damages alleged by plaintiff-appellant are subject to paragraph 9 (e) of the lease. (Continental Ins. Co. v Faron Engraving Co., 179 AD2d 360 ; Empire Bias Binding Co. v Andros Realty Corp., 210 AD2d 198 ; Cohen v Herbal Concepts, 100 AD2d 175 , 63 NY2d 379 .)

OPINION OF THE COURT

The central issue in these two actions is whether the waiver of subrogation clause contained in the parties’ lease precludes the negligence claims of their subrogated insurance carriers. Concluding that it does, we affirm the orders of the Appellate Division.

Pursuant to a Standard Form Loft Lease, commonly used throughout the State, Kaf-Kaf, Inc. rented two floors of a building located in Hollis, New York, from the owner, Rodless Decorators, Inc. Paragraph 9 of the lease set forth a waiver of subrogation provision, while paragraph 8 permitted the tenant to seek reimbursement for property losses caused by the negligence of the landlord.

In May 1983, a fire of unknown origin damaged both the leased premises and Kaf-Kaf’s personal property. Kaf-Kaf’s insurer, National Union Fire Insurance Company, paid Kaf-Kaf’s claims for, among other things, personal property and business interruption losses. Rodless’s claims for its own losses, including building damage and lost rents, were paid by its property insurer, Industrial Risk Insurers (IRI).

Each insurer then commenced a subrogation action. In its action against Rodless, National Union, as subrogor of Kaf-Kaf, alleged that Rodless was negligent in failing to maintain the sprinkler system, thereby greatly increasing the fire and

p. 658

water damage suffered by Kaf-Kaf. After ruling on a number of procedural issues, Supreme Court granted Rodless’s motion for summary judgment and dismissed the complaint, holding that the waiver language of paragraph 9 (e) applied to all subrogation actions, including the subrogation action of a tenant’s insurer for damage to the personal property of the tenant. The Appellate Division affirmed.

In the second subrogation action, IRI, as subrogor of Rodless, brought a negligence claim against Kaf-Kaf. Procedural entanglements ensued, but ultimately Supreme Court granted Kaf-Kaf s motion for summary judgment and dismissed Rod-less’s complaint on the basis of the waiver of subrogation clause. The Appellate Division affirmed.

The Lease

Paragraph 9 of the Standard Form Loft Lease entered into by Kaf-Kaf and Rodless, entitled "Destruction, Fire and Other Casualty,” states:

"9. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery of 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, Landlord and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. 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 and also, provided that such a policy can be obtained without additional premiums. Tenant acknowledges that Landlord will not carry insurance on Tenant’s furniture and! or furnishings or any fixtures or equipment, improvements or appurtenances removable by Tenant and agrees that Landlord will not be obligated to repair any damage thereto or replace the same” (emphasis added).

Paragraph 8 of the lease, entitled "Property — Loss, Damage, Reimbursement, Indemnity,” provides:

p. 659

"8. Landlord or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damage to any property of Tenant by theft or otherwise, nor for any injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence of Landlord, its agents, servants or employees” (emphasis added).

The Insurance Policies

Pursuant to the lease, Kaf-Kaf purchased an insurance policy with National Union, effective July 15, 1982 to July 15, 1983, providing first-party property damage insurance as well as general liability coverage. The policy, which included an additional insured endorsement naming Rodless as an insured for general liability coverage, contained the following language:

"6. Subrogation

"(a) In the event of any payment under this policy, the Company shall be subrogated to all the insured’s rights of recovery against any person or organization and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The insured shall do nothing after loss to prejudice such rights.

"(b) The Company shall not be bound to pay any loss if the insured has impaired any right of recovery for loss; however, it is agreed that the insured may:

"(1) as respects property while on the premises of the insured, release others in writing from liability for loss prior to loss, and such release shall not affect the right of the insured to recover hereunder.”

Rodless, in turn, procured a property insurance policy issued by IRI, effective November 3, 1981 to November 3, 1984, which included the following clause:

"D. subrogation — This insurance shall not be invalidated should the Insured waive in writing prior to a loss any or all right of recovery against any party for loss occurring to the property described herein.”

p. 660

Analysis

Subrogation, an equitable doctrine, allows an insurer to stand in the shoes of its insured and seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse (see, Pennsylvania Gen. Ins. Co. v Austin Powder Co., 68 NY2d 465 ). While parties to an agreement may waive their insurer’s right of subrogation, a waiver of subrogation clause cannot be enforced beyond the scope of the specific context in which it appears (see, S.S.D.W. Co. v Brisk Waterproofing Co., 76 NY2d 228 ).

Here, the controversy centers on two points: first, whether the waiver of subrogation contained in paragraph 9 (e) is limited to the demised premises or includes all losses and second, whether paragraph 8 preserves the right to seek subrogation for losses caused by the landlord’s negligénce.

Paragraph 9 (e) of the lease sets forth a waiver of subrogation provision applicable to "any claim against the other party for recovery for loss or damage resulting from fire or other casualty.” We conclude that this broad, plainly stated provision encompasses not only Rodless’s claims for damage to the "demised premises” and loss of rent but also Kaf-Kafs claims for personal property damages and business interruption losses. Although subsections (a) through (d) in this same paragraph specify the "demised premises,” the waiver of subrogation clause in subsection (e) is conspicuously devoid of any mention of the "demised premises.” Furthermore, subsection (e) makes explicit reference to items which clearly do not fall within the definition of "demised premises,” such as "furniture and/or furnishings or any fixtures and equipment, improvements or appurtenances removable by Tenant,” indicating that the application of the waiver clause was not intended to be limited to the "demised premises.”

The waiver provision in subsection (e) reflects the parties’ intention to look first to their insurers for recovery of losses sustained through "Destruction, Fire and Other Casualty,” and to release any right of recovery "against the other or any one claiming through or under each of them by way of subrogation or otherwise.” Subsection (e) also expressly provides that Rodless would not carry insurance on or be obligated to repair or replace any damage to Kaf-Kaf’s personal furnishings, fixtures, equipment, improvements or appurtenances. As such, Kaf-Kafs attempt to look to Rodless’s insurer for the recovery of such damages is inconsistent with the express provisions of

p. 661

the waiver of subrogation clause. Additionally, both Kaf-Kaf and Rodless, pursuant to that clause, obtained insurance policies which acknowledged the right of the insured to waive the insurer’s subrogation rights. Presumably, in fixing premiums, the insurers considered that they had permitted their insureds to waive their subrogation rights.

The provisions of paragraph 8, wherein Rodless agrees to be responsible for damages to Kaf-Kaf s personal property caused by any negligent act of Rodless, are not inconsistent with the waiver of subrogation clause in paragraph 9 (e). Although Kaf-Kaf could have invoked paragraph 8 to collect any portion of its damages not covered by insurance, here the insurance policy covered all of Kaf-Kaf s damages, and the insurer’s action in subrogation was barred by the waiver provision in paragraph 9. The broad applicability of the waiver of subrogation clause contained in the parties’ lease precludes the negligence claims of both parties’ subrogated insurance carriers.

Accordingly, in each case, the order of the Appellate Division should be affirmed, with costs.

Judges Titone, Bellacosa, Smith, Levine, Ciparick and Wesley concur.

In each case: Order affirmed, with cost.

Cases cited

Hogeland v. Sibley 42 NY2d 153 N.Y. 1977-06-16 p. 655, p. 656
S.S.D.W. Co. v. Brisk Waterproofing Co. 76 NY2d 228 N.Y. 1990-06-12 p. 655, p. 656, p. 660
Alexandra Restaurant, Inc. v. New Hampshire Insurance 297 NY 858 N.Y. 1948-03-11 p. 655
Continental Insurance v. Faron Engraving Co. 179 AD2d 360 N.Y. App. Div. 1992-01-07 p. 656, p. 657
Empire Bias Binding Co. v. Andros Realty Corp. 210 AD2d 198 N.Y. App. Div. 1994-12-05 p. 656, p. 657
Popkin v. Security Mutual Insurance 48 AD2d 46 N.Y. App. Div. 1975-05-13 p. 656
Board of Education of Lakeland Central School District v. Barni 66 AD2d 340 N.Y. App. Div. 1979-02-05 p. 656
In re the Construction of the Will of Falvey 15 AD2d 415 N.Y. App. Div. 1962-02-15 p. 656
Kirshenbaum v. General Outdoor Advertising Co. 258 NY 489 N.Y. 1932-03-03 p. 656
Goetz v. Duffy 215 NY 53 N.Y. 1915-05-25 p. 656
Interested Underwriters at Lloyds v. Ducor's, Inc. 103 AD2d 76 N.Y. App. Div. 1984-07-26 p. 656
Brown v. Two Exchange Plaza Partners 76 NY2d 172 N.Y. 1990-06-07 p. 656
Kinney v. G. W. Lisk Co. 76 NY2d 215 N.Y. 1990-06-07 p. 656
Extaza of 34th Street v. City Stores Co. 62 NY2d 919 N.Y. 1984-06-14 p. 656
Morlee Sales Corp. v. Manufacturers Trust Co. 9 NY2d 16 N.Y. 1961-01-12 p. 656
City of New York v. New York Telephone Co. 108 AD2d 372 N.Y. App. Div. 1985-05-23 p. 656
Rodolitz v. Neptune Paper Products, Inc. 22 NY2d 383 N.Y. 1968-07-01 p. 656
Cobrin v. Deluna 143 AD2d 723 N.Y. App. Div. 1988-10-11 p. 656
Parochial Bus Systems, Inc. v. Board of Education 60 NY2d 539 N.Y. 1983-12-15 p. 656
Pennsylvania General Insurance v. Austin Powder Co. 68 NY2d 465 N.Y. 1986-11-25 p. 656, p. 660
Viacom International, Inc. v. Midtown Realty Co. 193 AD2d 45 N.Y. App. Div. 1993-08-26 p. 656
Nichols v. Nichols 306 NY 490 N.Y. 1954-04-08 p. 656
Sutton v. East River Savings Bank 55 NY2d 550 N.Y. 1982-05-11 p. 656
Laba v. Carey 29 NY2d 302 N.Y. 1971-11-24 p. 656
Machinery Funding Corp. v. Stan Loman Enterprises, Inc. 91 AD2d 528 N.Y. App. Div. 1982-12-09 p. 657
Sony Corp. of America v. American Express Co. 115 Misc 2d 1060 N.Y. Civ. Ct. 1982-10-18 p. 657
Laye v. Shepard 48 Misc 2d 478 N.Y. Sup. Ct. 1965-05-04 p. 657
Massie v. Crawford 78 NY2d 516 N.Y. 1991-11-25 p. 657
Snyder v. Wetzler 84 NY2d 941 N.Y. 1994-12-01 p. 657
141 East 47th Street Associates v. ABR Management, Inc. 225 AD2d 341 N.Y. App. Div. 1996-03-07 p. 657
Aguirre v. City of New York 214 AD2d 692 N.Y. App. Div. 1995-04-24 p. 657
B.T.R. East Greenbush, Inc. v. General Accident Co. 206 AD2d 791 N.Y. App. Div. 1994-07-28 p. 657
Avid Equities, Ltd. v. Commerce & Industry Insurance 225 AD2d 446 N.Y. App. Div. 1996-03-21 p. 657
Cohen v. Herbal Concepts, Inc. 100 AD2d 175 N.Y. App. Div. 1984-03-08 p. 657
Cohen v. Herbal Concepts, Inc. 63 NY2d 379 N.Y. 1984-11-20 p. 657