Breach of insurance policy Subrogation Clause and Cooperation Clause bar property damage claim; Appellate Division reverses lower court's denial of motion for summary judgment

915 2nd Pub, Inc. v QBE Ins. Corp., __ A.D.3d __, 2017 NY Slip Op 00019 (1st Dep't 2017)

Plaintiff's property insurance policy contained terms requiring the insured to "do everything necessary to secure" and "do nothing after loss to impair" the defendant insurer's subrogation rights. A unanimous Appellate Division panel found that the plaintiff breached these terms when it negotiated a sale of the damaged property to the developer that caused the damage without provision to protect its insurer's subrogation rights. It therefore reversed the decision of the motion court and dismissed the Complaint against the insurer.

The claim arose out of a familiar New York City construction problem: the failure of builders to secure the insured's property during excavation by providing adequate underpinning and lateral support. When the insured's property was damaged by the excavation on the adjacent land, the insured made a claim under its property insurance. However, prior to concluding its adjustment of the insurance claim, the insured also negotiated a sale of the insured property to the owner of the adjacent land and building project, which would have been responsible for damage caused by the project and thus subject to a possible insurance subrogation claim. The transaction made sense: insured building owner was made whole, and the developer and new owner was enabled to proceed with the building project. Eventually, the insured property was demolished while the insurance dispute continued.

The lower court had rejected the insurer's motion for summary judgment finding that there was no impairment or prejudice to the defendant's subrogation rights. The Appellate Division instead held that the insured, by selling the damaged building to the entity that damaged it, had "violated the terms of the policy that required them to 'do everything necessary to secure' and 'do nothing after loss to impair' defendant's subrogation rights, i.e., the insurer's right to pursue any claim that plaintiffs had against the tortfeasor." The Court also held that the sale of the building violated the insured's duty to cooperate with the insurer in its investigation of the claim.

A copy of the decision may be found at:

AGF&J partner Chris Christofides represented the defendant and briefed and argued the appeal, with contributions by Michael Goldwasser.