Bid to amend subrogation Complaint to avoid waiver of subrogation bar rejected: new claim meritless because time-barred

Lexington Insurance Company as subrogee of New Gold Equities Corp. et ano. v. Pasapalos, Inc. d/b/a Marcha Cocina Bar, 156050/2019 (Sup. Ct. N.Y 2022)

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A motion to amend the plaintiff's subrogation action Complaint was denied where the proposed amendment fashioned to circumvent the effects of a waiver of subrogation provision in the insured's lease was asserted too late.

Plaintiff, an insurer, sought to recover its payment of an insurance claim arising from a 2018 fire in the premises owned by the insured. It had paid for property damage caused by a fire, plus lost profits, after applying the $50,000 policy deductible. The premises had been leased to the defendant, the operator of a bar/restaurant occupying floor space and a basement. The Complaint was originally served in 2019 asserting bare-bones subrogation claims by the plaintiff under theories of negligence and breach of lease. The parties litigated the matter for over two years.

After completing discovery the defendant made a motion for summary judgment contending that plaintiff's claims were barred by a waiver of subrogation provision in the lease between the plaintiff's insured and the defendant. Plaintiff then opposed the motion and made a cross-motion seeking to serve an Amended Complaint with an additional plaintiff, the insured property owner, and to add a claim for negligence on behalf of the owner only, and just for that part of the claim, within and up to the deductible, that was not paid by insurance.

A waiver of subrogation provision is a contractual clause that is common to many commercial leases. It is used to allocate risks between the parties and minimize the possibility of future litigation. Typically, the parties agree that both parties will carry property insurance to cover damage to their property caused by fire or other risks, and that they will look first to their respective insurance carriers for any recovery. As part of this arrangement, the parties also agree to waive their insurers' prospective rights to subrogate and sue the other party to recover the proceeds of the insurance. Hence, a typical waiver of subrogation provision in a lease bars the lessor's insurer from suing the lessee, even though the insurer was not a signatory of the lease. In this case, the subject lease had not just one but two such provisions: one set forth in the body of a pre-printed standard form and another in an addendum appended to the form.

The parties had no dispute as to the validity of the lease or whether it included the waiver of subrogation provisions. The provisions clearly barred the plaintiff insurance company's claim against the lessee. Thus, plaintiff withdrew the subrogation claims, as was right and proper. But to salvage some portion of the suit, plaintiff proposed to add its insured, the owner of the premises, as a new plaintiff who could at least assert a claim to recover the $50,000 within the policy deductible, which, it contended, was not a claim for subrogation and did not come within the lease provisions. To bolster its case, the plaintiff pointed out to the court that it had mentioned the deductible in its original Complaint and had included it in the amount it sued for.

The problem, by this point, was that more than three years had passed since the fire, and any new claim sounding in negligence would be time-barred by the applicable statute of limitations. Plaintiff contended that the claim was nonetheless timely since it related back to the withdrawn, but timely, subrogation claims. Not so, argued the defendant. It was, in fact, a whole new claim by the property owner who had had no part of the litigation up till then except in name, as subrogor. Even though the owner had been well aware of its claim from the beginning, it had not taken any action. What's more, initiating what was essentially a new action at this late stage would prejudice the defendant. Apart from lack of notice to the lessee, and the necessity of defending the case on new, different grounds, key evidence was lost and irretrievable, the owner having disposed of it. And a key witness - the defendant's allegedly negligent employee - could not be located.

The Court agreed. "As it is undisputed that the negligence claim would be time-barred if asserted for the first time in 2022," the Court wrote, "the proposed amendment clearly lacks merit."

The matter was defended by AGF&J's Mark Binsky, who briefed and argued the motion and successfully opposed the cross-motion.


Mark Ian Binsky

Practice Areas

First-Party and Third-Party Property Defense