Footlocker, Inc. v KK & J, LLC

[*1] Footlocker, Inc. v KK & J, LLC 2008 NY Slip Op 52502(U) [21 Misc 3d 1145(A)] Decided on November 13, 2008 Supreme Court, New York County Lehner, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 13, 2008
Supreme Court, New York County

Footlocker, Inc. and St. Paul Fire And Marine Insurance Company a/s/o Duane Reade, Inc., Plaintiffs,

against

KK & J, LLC and SPRINGFIELD FOOD COURT, INC., Defendants.



105811/04

Edward H. Lehner, J.

Before me is a motion by defendants for summary judgment dismissing the claims asserted against them by plaintiff St. Paul Fire and Marine Insurance Company ("St. Paul").

Duane Reade, Inc. ("Duane") was a tenant of the premises located at 2914 Third Avenue in the Bronx ("2914") pursuant to a lease dated June 12, 1998 (the "Lease"). On September 24, 2002, a fire originated in premises that had been occupied by defendant Springfield Food Court, Inc. ("Springfield") as a Burger King restaurant at 2916 Third Avenue ("2916"). The fire, which was allegedly caused by the negligence of defendants in the course of preparing the premises for a new tenant (tr. pp. 23, 31, 41-42), damaged Duane's premises as well as that of plaintiff Footlocker, Inc. located at 2912 Third Avenue ("2912"). At the time of the fire, defendant KK & J, LLC ("KK & J") was the owner of 2912, 2914 and 2916, and Springfield was its managing agent.

As a result of damages to its premises, Duane was paid $2,785,910.51 by St. Paul, its property insurer, who as subrogee of Duane seeks to recover that sum from defendants. Defendants assert that the claim is barred by the waiver of subrogation clause in the Lease. Paragraph 15 of the Lease, which requires Duane to maintain fire insurance naming the landlord as an additional insured, provides in part as follows: [*2] (e)LANDLORD hereby waives any and all rights of recovery which it might otherwise have against TENANT, its parent, subsidiaries or affiliates, or its or their directors, officers, servants, agents, or employees, for any loss, injury, or damage to the extent the same is covered by LANDLORD's insurance, notwithstanding that such loss, injury, or damage may result from the negligence or fault of TENANT, its parent, subsidiaries or affiliates, or its or their directors, officers, servants, agents or employees. TENANT hereby waives any and all right of recovery which it might otherwise have against LANDLORD. its directors, officers, servants, agents, or employees, for any loss, injury, or damage to the extent the same is covered by TENANT's insurance, notwithstanding that such loss, injury, or damage may result from the negligence or fault of LANDLORD, its directors, officers, servants, agents, or employees.

Paragraph 19 of the St. Paul policy issued to Duane states:

A.Any release from liability (oral or written) entered into by the Assured prior to loss hereunder shall not affect this policy or the right of the Assured to recover hereunder. The right of subrogation against the Assured or subsidiary or affiliated corporation or companies or any other corporations or companies associated with the Assured through ownership or management is waived.

St. Paul claims that since defendants have failed to attach a copy of their policy providing for a waiver of subrogation, the waiver in the St. Paul policy is not binding for lack of mutuality, and is unenforceable under GOL § 5-321. St. Paul further claims that since the fire that caused the damages to Duane's store did not start in 2914, but rather in 2916, the waiver does not apply as it only applies to acts of the landlord occurring at 2914 and not to "the landlord's negligent acts at another building fortuitously owned by the same landlord" (¶28 of affirmation of Robert C. Sheps dated May 14, 2008). Defendants maintain that 2912, 2914 and 2916 are one building, with separate entrances.

Regarding the fire clause in the Lease, it is noted that it is substantially different from that in the standard Real Estate Board form of lease, which in paragraph 9(e) thereof provides that both landlord and tenant waive subrogation rights against each other. However, the standard clause further provides that the "waiver shall be in force only if both releasors' insurance policies contain a clause providing that a release or waiver shall not invalidate the insurance and also provided that such a policy can be obtained without additional premiums." See, Kaf-Kaf, Inc. v. Rodless Decorators, Inc., 90 NY2d 654, 658 (1997). Here, the above-quoted provisions of the Lease contain a waiver by each party to the extent the damage involved is covered by the party's insurance. However, there is no condition to the waiver, as contained in the above-quoted standard form, that the party's insurer consent to the waiver. While St. Paul waived its right of subrogation, it claims that it is not enforceable because of lack of proof that defendants' insurer also waived. While I find that a waiver by KK & J's insurer was unnecessary to enforce the Lease waiver, defendants in their reply papers (served more than 3 months prior to oral argument) did submit a copy of their insurance policy containing a waiver. In light of such submission, St. Paul at one point in the oral argument appeared to withdraw its contention that [*3]the Lease waiver was not valid because of a lack of mutuality (tr. p. 17). However, its counsel subsequently argued that it could not determine from the blanket policy submitted by defendants that it covered them and applied to the subject premises. However, I am satisfied that defendants, who are being defended in this action by attorneys appointed by the insurer set forth in said policy (AIG) (tr. p. 20), are covered by that policy.

GOL § 5-321 declares void any lease provision exempting a landlord from liability for its negligence "in the operation or maintenance of the demised premises." St. Paul's contends that this statutory provision bars enforcement of the waiver of subrogation. I find that such argument lacks merit. In Hogeland v. Sibley, Lindsay & Curr Co., 42 NY2d 153, 161 (1977), where a similar contention was made, it was ruled that under such circumstances the landlord "is not exempting itself from liability to the victim for its own negligence (but) [r]ather, the parties are allocating the risk of liability to third parties between themselves, essentially through the employment of insurance," and that hence GOL § 5-321 does not preclude the landlord's indemnification claim (p. 161). In Great Northern Insurance Company v. Interior Construction Corp., 7 NY3d 412, 419 (2006), the court declined the tenant's "invitation to overrule Hogeland" and held, in a case involving "a commercial lease negotiated between two sophisticated parties," that where "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."

In Kaf-Kaf, Inc. v. Rodless Decorations, Inc., supra at p. 661, it was held that the "broad application of the waiver of subrogation clause contained in the parties' lease precludes the negligence claims of both parties' subrogated insurance carriers." Recently, the Second Department stated in State Farm Insurance Company v. J.P. Spano Construction, Inc., ___ AD3d ___ (NYLJ, October 27, 2008, p. 30, c. 3), 2008 WL 468 1980, that "[w]here a party has waived its right of subrogation, its insurer has no cause of action." There, as in the case at bar, the parties to the contract waived subrogation for fire damage "to the extent covered by property insurance obtained." The court, finding that the plaintiff insurer had acknowledged the right of its insured to waive the insurer's subrogation rights, concluded that the waiver of subrogation barred the insurer's claim.

While the defendants agree that proof of gross negligence would bar enforcement of a subrogation waiver (tr. p. 34), I find no factual allegations or proof sufficient to demonstrate such negligence, which has been held to be "conduct that evinces a reckless disregard for the rights of others or 'smacks' of intentional wrongdoing" [Colnaghi, U.S.A., Ltd. v. Jewelers Protection Services, Ltd., 81 NY2d 821, 823-824 (1993)].

Thus, if the fire that damaged the premises occupied by Duane resulted from a negligent act of KK & J or Springfield in the operation of the building in which Duane was a tenant, St. Paul's subrogation claim against defendants would be barred by the Lease waiver. However, it is asserted that the alleged negligence of defendants involved acts performed at 2916, which St. Paul maintains is a separate building.

Where the negligence of a landlord that causes damage to a tenant's property emanates from a separate building, it has been held that the lease waiver of subrogation is not effective as the negligent act "is completely extraneous to any duty or obligation encompassed by the parties' agreement and the relationship created thereunder ... (and) the loss claimed arises out of an act [*4]wholly outside the scope of the landlord and tenant relationship" [Interested Underwriters at Lloyds v. Ducor's, Inc., 103 AD2d 76, 77 (1st Dept. 1984), aff'd. 65 NY2d 647 (1985)]. Recently, the First Department cited the foregoing case in ruling that an issue of fact existed as to whether the damages to the subrogor's premises was caused by the building owner in its capacity as the landlord of the building, in which case the subrogation clause would bar the claim, or as a result of negligence in the operation of premises it occupied as a tenant in the building, in which case the waiver would not be applicable as the wrongful act would not have arisen out of the landlord-tenant relationship [One Beacon Insurance Company v. French Institute Alliance, 50 AD3d 388 (2008), lv. to ap. dism., 11 NY3d 761 (2008)].

Here, defendants assert that not only were 2914 and 2916 one building, but also that the store occupied by Footlocker at 2912 was also part of the same building (tr. p. 40). Since St. Paul's counsel stated that the stores were burned down to rubble (tr. p. 26), there are no photographs submitted which would determine the issue, although St. Paul did submit photographs taken during the course of the fire and shortly thereafter, but they do not show a Burger King restaurant.

In separate reports, the Fire Department showed the address of the fire as at both 2914 and 2916, and listed Burger King as the occupant of 2914 ( rather than 2916 as asserted by St. Paul). However, the documentary evidence submitted in the form of the certificate of occupancy annexed to the Lease showed "2914-16" as one brick building on four tax lots with only a cellar and a first floor for occupancy for stores, having been constructed under a 1936 permit. As aforesaid, the photos submitted by St. Paul do not depict the Burger King store, although they do show a store without any name on the front located between the stores occupied by Duane and Footlocker. That store and the Duane store appear to be located in a single building with separate addresses. The store pictured to the immediate left of the Duane store was clearly not a Burger King and was in a multi-story building. From the foregoing, the court concludes that the stores occupied by Duane and Burger King were in a single building with separate addresses and entrances. Hence, it cannot be said, as was held in Interested Underwriters at Lloyds v. Ducor's, Inc. supra, that the loss arose "out of an act wholly outside the scope of the landlord-tenant relationship."

Lastly, St. Paul argues that due to the fact that the fire was caused by the acts of defendants in preparing the premises for a new tenant, and not in connection with any duty owed to Duane as an existing tenant, the subrogation waiver is inapplicable (tr. pp. 31-33). A similar argument was made and rejected by the First Department in Atlantic Mutual Insurance Company v. Elliana Properties, 261 AD2d 296 (1999). There, a subrogee-insurer sought to recover for damages it paid to its insured for "losses that allegedly were caused by an unlicensed contractor defendants had hired to renovate the apartment above the leased premises." The court concluded that such renovation "was not 'wholly outside the scope of the landlord and tenant relationship' ..., and thus the losses claimed to have been caused by defendants' negligence in contracting for such work fall within the scope of the lease's broad waiver of subrogation provision."

In light of the foregoing, the motion of defendants is granted and the Clerk shall enter judgment dismissing the claim of St. Paul, severing the claim of co-plaintiff Footlocker, Inc., against whom defendants have not moved. The cross-motion of plaintiff is denied as moot.

This decision constitutes the order of the court. [*5]

Dated: November 13, 2008_______________

J.S.C.