Appellate Court Holds That Tenant's Insurer, As Subrogee, Stood In Shoes Of Tenant And Could Not Avoid The Covenants Of The Lease
August, 2006
In Seneca Insurance Company, as subrogee of Sultana Distribution-Services, Inc. v. The City of New York, 35 A.D.3d 248 (1st Dep’t 2006), the tenant’s insurer (“Seneca”) paid the tenant’s claim for property damage that it sustained as a result of the malfunctioning of a sprinkler system at its Premises. Following Seneca’s payment, it commenced a subrogation action against the landlord. The landlord moved for summary judgment to dismiss Seneca’s complaint, based upon the language of the lease it held with the tenant. The trial court granted the landlord’s motion and Seneca appealed.
After occupying the Premises for a number of years as a sublessee, under a 2001 lease, Sultana Distribution-Services, Inc. (“Tenant”) leased the Premises directly from the landlord. Under this new lease, Tenant accepted the Premises “as is”, acknowledging its previous occupancy and familiarity with the physical condition. Pursuant to the lease, Tenant agreed to take care of the water connections, pipes and mains, inter alia, to the extent that these were part of the Premises, and to keep, maintain and “make all repairs therein and thereon, interior and exterior, ordinary and extraordinary, foreseen and unforeseen.” Article 18 of the lease provided that the landlord will not be liable for any damage to the Premises or property caused by “use, misuse, or abuse . . . or that may arise from any other cause whatsoever.” However, Article 18 further provided that the landlord will be liable for damage resulting from its own gross negligence. The lease also provided that Tenant will hold the landlord harmless from all liabilities and required Tenant to obtain insurance coverage designating the landlord as an additional insured, with a waiver of subrogation p rovision.
On appeal, the Supreme Court, Appellate Division, First Department, stated that the trial court properly granted the landlord’s motion since Seneca, as a subrogee, stood in the shoes of Tenant (its insured) and cannot avoid the covenants of the lease. See Kaf-Kaf, Inc. v. Rodless Decorations, 90 N.Y.2d 654, 665 N.Y.S.2d 47 (1997). In Kaf-Kaf, the insurer for the tenant, Kaf-Kaf, commenced a subrogation action against the landlord for damage to personal property that the tenant sustained as a result of a fire. The complaint alleged that the landlord was negligent in failing to maintain the sprinkler system which greatly increased the fire and water damage suffered by Kaf-Kaf. Id. at 658. Paragraph 9(e) of the lease in Kaf-Kaf 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. The landlord moved for summary judgment seeking to dismiss the complaint based upon the waiver of subrogation provision. The court ultimately held that the waiver of subrogation provision precluded the negligence claims of the tenant’s insurer.
In Seneca (similar to Kaf-Kaf), Article 18 of the lease provided that the landlord will be liable for damage resulting from its own gross negligence. However, the lease also provided that Tenant will hold the landlord harmless from all liabilities and required the tenant to obtain insurance coverage designating the landlord as an additional insured and as in Kaf-Kaf, with a waiver of subrogation provision. Based upon the lease language, the Seneca Court stated that while the lease does hold the landlord liable for gross negligence and failure to perform certain maintenance and repairs, these lease provisions were inapplicable to this case given the lease language, particularly requiring a waiver of subrogation provision. The Court further stated that even if Tenant’s insurance policy did not name the landlord as an additional insured, such breach by Tenant will not impose on the landlord any liability for the property damage, and Seneca will have no additional rights against the landlord. Id. at 249.
Learning Point: New York Courts continue to hold that despite the fact that a lease may state that a landlord is liable for damage resulting from its own negligence or gross negligence, if the lease contains a waiver of subrogation provision or requires the tenant to obtain insurance coverage designating the landlord as an additional insured with a waiver of subrogation provision, the waiver will govern and preclude claims against the landlord for negligence or gross negligence
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