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Recovery Rights Waived – By the Insurer

May a party waive its right to recover for property damage incurred as a result of leaks and mold? Will a persistent leak be deemed a single occurrence for statute of limitations purposes, or will each act of leakage constitute a new event? These were some of the issues addressed in Joanne Payson v. 50 Sutton Place South Owners, Inc. and Brown Harris Stevens Residential Management, LLC.

Joanne Payson owned a cooperative apartment in the building located at 50 Sutton Place South in Manhattan. Payson began an action against the cooperative corporation and the building manager. Motions to dismiss the complaint were brought by the defendants, and Payson filed a cross-motion for summary judgment.

The court described the facts presented in the complaint. On or about September 27, 2006, Payson reported to her property insurance carrier that she had sustained property damage resulting from leaks and mold in her apartment. Payson claimed to have first noticed the leaks in 2005 and the resulting mold condition in June 2006. Payson reported the loss to her property insurance carrier in September 2006, and the insurance company paid Payson for expenses associated with relocation and for costs to restore the apartment. Payson brought this action seeking money damages for items that were not reimbursed by her carrier. After Payson started the action, she acquired an assignment from the insurance company of claims it may have had against the co-op by way of subrogation, and Payson amended her complaint to assert these claims.

The first issue addressed by the court was whether Payson and her insurance carrier waived their right of subrogation against the co-op and the building manager under the terms of the proprietary lease and the insurance policy. The concept of “subrogation” is common in insurance matters, where an insurance company will often compensate its insured for a loss and then bring an action against the party at fault to collect the monies it paid out.

In this case, the co-op’s proprietary lease contained a provision that provided that “[i]n the event that the Lessee suffers loss or damage for which the Lessor would be liable, and the Lessee carries insurance which covers such loss or damage, and such insurance policy or policies contain a waiver of subrogation against the Lessor then in such event the Lessee releases the Lessor from any liability with respect to such loss or damage.”

Payson’s insurance policy, issued by Vigilant Insurance Company, contained the following provision: “Condominiums: We waive any rights of recovery against the corporation or association of property owners of the condominium where the residence is located.”

The court discussed a decision in another case where an insurance policy permitted the lessee to waive its right of recovery against another for a covered loss, as did Payson’s policy in the present case, but in that case the policy did not actually create a waiver of subrogation against the lessor. In other words, in that case the insurance company had not waived its right to seek monies from the co-op by way of subrogation.

In this case, however, the court found that the carrier had explicitly waived the right to recover monies through subrogation. The court explained that, although the building was a cooperative and the insurance policy referred to condominiums, its review of the entire policy made it apparent that when referring to a “condominium,” the drafter of the policy (i.e., the insurance company) intended that it apply to the cooperative. The court cited several examples: the policy specifically identified the insured property as the “Condominium at 50 Sutton Place South, New York, New York.” It identified the type of coverage provided as “Deluxe Condominium Coverage.” The policy also contained an undertaking to pay losses that occur at and to the “covered condominium” at 50 Sutton Place South.

Thus, the court determined that the language of the insurance policy that waived the carrier’s right to seek recovery (through subrogation) as against the “condominium” was required to be interpreted as applicable to the cooperative. Indeed, if the “condominium” vs. “cooperative” distinction created an ambiguity, such an ambiguity would be construed against the drafter of the insurance policy, i.e., the insurance company.

The carrier assigned its right to recover to Payson. However, the carrier could only assign the rights that it had. Thus, the court dismissed Payson’s claims to the extent they were based on an assignment of the carrier’s claims to recover monies that the carrier paid in connection with Payson’s loss.

The next issue the court addressed was whether Payson’s complaint was time-barred by the statute of limitations. The court cited CPLR Section 214(4), which provided that “an action to recover damages for an injury to property” shall be started within three years. The court observed that a claim for damages based on the failure of a cooperative or condominium to repair leaks that had caused water damage is restricted by statute to any alleged damage that occurred within three years of the date the action began. Therefore, Payson was not time-barred from bringing her claim as long as any of the property damage occurred within the three-year period before the action started.

The court found that the co-op’s failure to fix a recurring leak, however, constituted a continuing wrong that “is not referable exclusively to the day the original wrong was committed.” Accordingly, even if the leak initially occurred more than three years before the action, any recurrence began a new time period for statute of limitations purposes.

Thus, Payson was time-barred from bringing any claims based on damage that occurred more than three years before the action started. However, since Payson had clearly asserted that she incurred damage to her property resulting from water damage within three years of the action, she could seek relief for those damages.

Finally, the court addressed Payson’s cross-motion for summary judgment on her claims for breach of the proprietary lease, breach of the warranty of habitability, negligence, and attorney’s fees. All these claims were based on the contention that the co-op and the building manager had failed to keep the building in good repair and had failed to repair the water leaks and remediate the mold in her apartment. To support her claims, Payson submitted an affidavit attaching unauthenticated expert reports. In opposition, the defendants submitted an affidavit of the property manager assigned to the building. After the court reviewed both documents, it found that there were numerous disputed issues of fact as to when or whether the apartment became uninhabitable and whether Payson allowed the building manager access to the apartment to make repairs and assess the situation to determine what repairs were needed. In addition, the unauthenticated reports submitted by Payson were not admissible for purposes of supporting Payson’s summary judgment request. Therefore, Payson’s cross-motion for summary judgment was denied.

Comment: By reviewing the insurance policy in its entirety, the court disregarded “form over substance,” and concluded that the policy’s references to the “condominium” were applicable to the insured cooperative. Setting aside the question of how or why a policy issued to a cooperative referred repeatedly to the insured as a condominium, it is important to note that an insurance professional as well as the managing agent should review any policy before it is purchased by the board.

The court also pointed out, through its reference to another case, that there are circumstances where shareholders/lessees could waive their right to recover from the cooperative, but their insurance policy might retain that right.

The statute of limitations holding is also significant. In most instances, a statute of limitations begins to run on the date of the occurrence of the harm. Consistent with other cases we have seen in the cooperative context, however, this case explained that each recurrence of the same leak constitutes a new occurrence, allowing the statute to begin anew. Consequently, although the plaintiff could not recover for damage that occurred more than three years before the action started, she could recover for any damage that occurred within the three-year period, even if from the same continuing leak. n



For Plaintiff
Wachtel & Masyr

For Defendant
Gartner & Bloom

The authors wish to thank Andrew Werbler, an associate at Stroock, for his assistance in preparing this Case Note.


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