New York Business Lawyer Blog

April 5, 2013

Subrogation Of Property Claims In New York IV: Commercial Litigation In Disguise

by The Law Firm of Grasing & Associates

The last few articles have discussed the basic concepts and rules of subrogation in New York. It is the equitable doctrine that allows an insurer that pays a covered claim to its own insured to stand in the shoes of its insured to recover the money from the person or entity that caused the loss.

Subrogation, once you determine that the insurer can bring the claim, at least in claims involving property loss or damage to businesses, is really an exercise in commercial litigation. Whoever the insured could sue to recover for the loss it suffered, the insurance carrier also could sue; whoever the insured could not sue, the insurer also could not sue.

A good example of this is a subrogation claim I had that involved a theft of a few hundred thousand dollars of merchandise from a clothing warehouse. The thieves, who never were caught, were ingenious. They broke into the warehouse and jerry-rigged a conveyor system so that it brought the clothes right to the loading dock door. Once there, the thieves loaded the clothes into a waiting truck and drove off. The whole operation took approximately 2 hours; not bad for a night’s work.

March 29, 2013

SUBROGATION III – RECOVERING FOR PROPERTY DAMAGE CLAIMS IN NEW YORK

by The Law Firm of Grasing & Associates

The last two articles discussed the rules behind the equitable doctrine of subrogation in New York and how they all boil down to an application of the basic idea of fairness. Someone who damages another’s property should not be able to avoid liability merely because he was lucky enough to harm a business or person who had the foresight to purchase an insurance policy that fully insured, and reimbursed the insured for, the loss. Subrogation, in effect, holds the wrongdoer to account. Even if the insurer has paid the insured for the property loss, the wrongdoer still has to pay the insurer.

Subrogation claims come in all shapes and sizes, at least for commercial insurance policies which protect against property damage and business interruption. Recently, Lloyd’s of London made the news by bringing a subrogation action against a New Hampshire utility to recover the money it paid its insured as a result of a fire. According to news reports, a fire engulfed a block of businesses in Hampton Beach, New Hampshire, in February 2010. One of those stores, Decalomania, was insured by Lloyd’s of London. The water used to put out the fire allegedly damaged Decalomania’s property and, pursuant to the policy of insurance it issued to Decalomania, Lloyd’s of London paid Decalomania $33,000.00 as reimbursement for that property damage. Lloyd’s of London has brought suit against the local electrical utility, Unitil, to recover the $33,000.00 it paid Decalomania. It alleges that the fire started due to a fault in an electrical feeder line owned by Unitil and that Unitil failed to use reasonable care when maintaining the line, which was under its exclusive control.

Whether or not Lloyd’s of London will be successful in recovering, from Unitil, any of the $33,000.00 it paid to Decalomania, will depend on a number of factors. If the subrogation action had been brought in New York, rather than New Hampshire, Unitil first would be able to challenge whether the policy required Lloyd’s of London to pay Decalomania for the loss. If the policy did not provide coverage for Decalomania for the loss, then Lloyd’s of London made a voluntary payment for which it could not maintain a subrogation action. See Fid. & Cas. Co. of N.Y. v. Finch, 3 A.D.2d 141, 145, 159 N.Y.S.2d 391, 396 (3rd Dept. 1957).
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March 22, 2013

SUBROGATION II – The Just Details

by The Law Firm of Grasing & Associates

In our last article, we discussed subrogation, a legal concept that plays a large role in commercial property insurance coverage in New York. It is the equitable doctrine that allows an insurer, once it has paid its insured for a covered loss under its insurance policy, to try to recoup the money it paid from the party that caused the loss.

Once an insurer pays its insured for a covered loss, it stands in the insured’s shoes, at least up to the amount of the payment. If the insured can sue someone for causing the loss, so, too, can the insurer, to try to get its money back. The insurer does not even always have to name itself in the subrogation action. If the insured properly assigns its rights to recover for the loss to the insurer, for example by signing a subrogation receipt, the insurer can name the insured as the only Plaintiff, even though the real party in interest is the insurer. See CPLR 1004.

When the insurer tries to recover its money, it does not do it alone; the insured has a duty under the policy to cooperate with the subrogation action. Basically, the money the insured receives for the loss from the insurer comes with strings attached; the insured has to try to help the insurer get its money back from the party that has caused the loss. Most policies, however, allow the insured to waive subrogation, as long as the agreement to do so is in place before the loss occurs. This means the insured can waive the right of its insurer, which pays it for a covered loss, to recover in subrogation from the party which has caused the loss. A common example is found in a lease, in which the tenant and the landlord each give up the right of its insurer to recover from the other for a covered loss, such as a fire loss, that it might suffer due to the negligence of the other. See Kaf-Kaf, Inc. v. Rodless Decorations, Inc., 90 N.Y.2d 654, 660, 687 N.E.2d 1330, 1332-33 (1997).
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March 15, 2013

SUBROGATION IN NEW YORK: THE BASICS – IF THE SHOE FITS

by The Law Firm of Grasing & Associates

There are many terms, related both to insurance and business, which seem too intimidating for most people even to want to try to understand. Subrogation is one such term. It sounds like an impressively dense legal concept that only can be understood through the use of skilled professionals pouring over thick stacks of documents trying to decipher obtuse language to discern some hidden meaning or obtain some pearl of wisdom. Well, so much for fantasy. It really is a straightforward legal concept that every New York business and insurance adjuster should become familiar with, because it can affect the business’ recovery after a property or casualty loss.

Subrogation is an equitable doctrine that allows an insurer, which has paid its insured for a covered loss, to stand in the shoes of its insured to try to recover the money it paid, from the party that caused the loss in the first place. See Kaf-Kaf, Inc. v. Rodless Decorations, Inc., 90 N.Y.2d 654, 660, 687 N.E.2d 1330, 1332-33 (1997).

The easiest way to think of subrogation is in terms of an insurance policy that provides coverage for property damage. Just about every New York business has one. For the most part, every insurance policy protects the insured, to one degree or another, from responsibility, or liability, for its own negligence. Homeowners’ policies, and many business owners’ policies, also known as “BOP” policies, often also provide property coverage. That is, the policies require that the insurer pay the insured for the loss or damage to the insured’s real or personal property when the loss or damage results from a cause of loss covered under the policy. When the insured makes a claim to recover under its own policy for damage caused to its own property, called a first-party property claim, the insurer will evaluate, or adjust, the claim. If the damage was caused by a covered cause of loss, the insurer will pay the insured either the value of the property at the time of the loss, including depreciation, or the cost to repair or replace the property if the repair or replacement is done within a certain amount of time after the loss.

Once the insurer pays the insured’s first-party property claim, the insurer can try to recover the money it paid to its insured, from the person or entity that caused the damage in the first place. This is subrogation. By paying the insured’s claim, the insurer becomes subrogated to the insured’s right to recover from the party that caused the damage, to the full amount it paid the insured under the policy. The insurer can sue in the insured’s name, even when trying to recover the insured’s uninsured loss, when the insured assigns all its rights to recovery to the insurer, which it often does in a subrogation receipt. See CPLR 1004, and CNA Ins. Co. v. Carl R. Cacioppo Elec. Contractors, Inc., 206 A.D.2d 399, 400, 616 N.Y.S.2d 187 (2nd Dept. 1994).
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March 8, 2013

Injunctions in New York II – 2 Bites of the Apple

by The Law Firm of Grasing & Associates

The last time we spoke about injunctions, we described what they are and how to obtain them. These effective, if hard to get, remedies play a pivotal role in New York litigation, in all sorts of disputes, ranging from those involving businesses large and small, to neighbors fighting over a boundary line. Illustrating how they have been used is a good way to know how they can be used to effectively protect your business’ rights and interests in New York.

One of the biggest recent commercial disputes in which a preliminary injunction played a key role was the patent dispute between Apple and Samsung Electronics, in which Apple claimed that Samsung smartphones and tablet computers impinged on Apple’s patents for its versions of those products. Apple twice asked the United States District Court for the Northern District of California to issue a preliminary injunction forbidding the sale and distribution of Samsung’s Tab 10.1 tablet. The first time, the court refused because it held that Apple was not likely to succeed on the merits at trial. The second time, after the appellate court ruled that Apple was likely to succeed on the merits, at least as to the enforceability of its relevant patent, the trial court issued the preliminary injunction. That was a large victory in an even larger case. Apple and Samsung are two of the largest competitors in the tablet computer market and one was ordered not to sell its product anywhere in the United States, even before the merits of the dispute could be fully decide at trial. According to news reports, Samsung sells approximately 300,000 tablets in the United States every three months. That is a large amount of product that a major corporation no longer could sell and a large share of the tablet computer market that no longer was available for the purchasing public to buy.
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March 1, 2013

Injunctions in New York – A TKO Before The Final Bell?

by The Law Firm of Grasing & Associates

Perhaps one of the most misunderstood tools found in New York law is the injunction. Injunctions affect businesses big and small because they often are used in commercial litigation. Injunctions frequently make the news, especially when one is granted in a high profile case. Many times there will be news coverage of two parties just outside a courtroom, one triumphantly telling all who will listen that the end of the world has been averted; the other, down-faced and glum, saying only that he will live to fight another day. More often than not, the second one is right; for the injunction they most often talk about is a preliminary injunction, which is a provisional remedy that only lasts until the underlying case is decided on the merits.

Most recently, New York State tried to withhold school aid from New York City because the City and the local teacher’s union have not agreed on a teacher evaluation plan. Some parents of children who attend New York City public schools sued to stop the aid from being cut. A New York state judge ordered the State not to cut the education aid; he did so by issuing a preliminary injunction. This doesn’t mean that the parents won, the State lost, and the aid won’t ever be cut. It does mean that the aid will not be cut for now, at least until the court renders a final judgement on the parents’ lawsuit.

There actually are three different types of what commonly are known as injunctions. Though they might seem confusing, they really are straightforward:

– A Permanent Injunction.

This is a final judgement of the court after a trial on the merits of the case, which normally restrains or enjoins one of the parties from taking some action. It is an equitable remedy issued after all the relevant facts have been gathered, all the necessary discovery has been had, and a verdict has been rendered. A court does not have the power to issue a permanent injunction in advance of trial. See Oppenheim v. Thanasoulis, 123 App.Div. 494, 108 N.Y.S. 505 (1st Dept.1908).

– A Preliminary Injunction.

This stops a party from doing something, or, less frequently, orders that he take certain actions, even before the court has decided the case on the merits. This interim step, also known an injunction pendente lite, is a provisional remedy, often done to keep things as they are, to maintain the status quo, until the case itself has been decided. See CPLR 6301.

– A Temporary Restraining Order.

This is an instantaneous freeze issued while the court decides whether to order a preliminary injunction. That is, even before the court decides whether to stop someone from doing something, it stops that person from doing it, at least temporarily. See CPLR 6301.

February 26, 2013

Collapse Coverage In New York II – Huff & Puff & Blow Your House Down

by The Law Firm of Grasing & Associates

Collapse coverage for first-party property claims in New York is important because of the large building damages involved and the various policy exclusions that help determine whether the policy affords coverage for the claimed loss. As with any other complex problem, however, you should start with the basics: the definition of collapse.

In our last article on the subject, we discussed what constitutes a collapse in New York. Some courts have concluded that a collapse occurs when the structural integrity of a building is substantially impaired. Royal Indem. Co. v. Grunberg, 155 A.D.2d 187, 553 N.Y.S.2d 527(3rd Dept. 1990). Others require that a collapse include an element of suddenness, a falling in, and total or near total destruction. See Graffeo v. U.S. Fid. & Guar. Co., 20 A.D.2d 643, 246 N.Y.S.2d 258 (2nd Dept. 1964), motion for leave to appeal denied, 14 N.Y.2d 685, 198 N.E.2d 911 (1964).

It’s also important to know the reasoning behind the rules in order to understand how they apply to any given claim. In this article we are going to discuss the reasoning behind the substantial impairment rule, set out in Royal Indem. Co. v. Grunberg, supra. A close examination of the facts of that case expose the reasons why the rule has been implemented in so many jurisdictions.

In Royal v Grunberg, supra, the insureds were homeowners who purchased land on which to build their house. It was a modular home, in which the pre-fabricated sections are transported to the site and, as they are placed on the foundation, joined together into a finished home. The land on which it was built was hilly and overlooked a ravine; it must have had a gorgeous view.

During the course of construction, however, the Insureds noticed serious problems. One wall of the house, which faced the east, or the downslope of the hill, as well as a deck, were seven inches out of plumb. Certain windows and doors wouldn’t open or close. A large number of cracks developed throughout the house, including a four inch deep crack that ran along the entire basement floor. The foundation wall on the east, or downslope, side of the house, bowed outward; and the house itself tilted in the same direction. The house, in other words, looked like it was leaning downhill. It did not, however, fall down or fall in; its walls still stood; and it was not reduced to rubble. It still was a house, not a pile of debris. The Insureds repaired the damage and made a claim to recover under their policy of homeowner’s insurance for the cost of the repairs. The carrier disclaimed coverage and commenced a declaratory judgement action seeking a declaration that the Insureds’ claim was not covered by the policy.

The main issue in the case was whether the house had collapsed, even though it had never fallen down.
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February 22, 2013

A Simple Sales Contract in New York (II) – A Story of Few Words

by The Law Firm of Grasing & Associates

Is there really a simple sales contract in New York? As we pointed out previously, the answer is no. Every business should know that there is always much more to even the simplest sales contract than meets the eye; unspoken promises included.

A simple sales contract, to most people, means nothing more than a contract to buy and sell goods. This does not have to be, and often is not, what most people think of as a full-blown written contract, which sets out in great detail what each party promises to do and is promised to receive in return. That, of course, would be best; but it’s not feasible or necessary.

Most sales contracts for the purchase of goods in New York fall under the special set of rules known as the Statute of Frauds, which govern sales of goods worth $500 or more. The only writing that requires is a simple note, memorandum, or correspondence, which states just the type and amount of the goods to be sold. It does not even necessarily have to include the price; oral evidence can be used to fill in the blanks. It can be enforced against the parties who signed the writing. It can be established through partial performance, even without any writing; i.e., if the Buyer accepts delivery of the goods, he can be forced to pay the agreed price for them. Likewise, if the Seller accepts the Buyer’s payment, the Seller can be forced to deliver the goods the Buyer has paid for. If between two merchants, the sales contract can be established where one of them sends the other a written confirmation of a contract, which often can be nothing more than an invoice, and the other fails to respond, or object, within ten days. See UCC 2-201.

Even with writings that record only the bare essentials of a sales contract, a New York business that sells goods can be liable for promises that it did not expressly make and are not specifically written anywhere. One, as we previously discussed, is the implied warranty of merchantability.
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February 19, 2013

Collapse Coverage in New York – Does a Building Have to Fall Down to Be Covered?

by The Law Firm of Grasing & Associates

Everyone might think they know what a collapse is. Everyone probably says they know a collapse when they see it. Most New York businesses and homeowners have policies of property insurance to protect them and their property from major, and sometimes minor, damage. But has anyone ever really taken the time to figure out whether a collapse is actually covered under their policy of property insurance? Even if the policy states that it provides additional coverage for collapse, whether or not the policyholder will be able to recover depends, in large part, on the definition of collapse.

There have been a number of major collapses in the news recently. There have been crane collapses in New York City. The blizzard of February 8-February 9, 2013, aka winter storm Nemo, dumped more than two and one half feet of snow on many parts of eastern Long Island. As a result, the roof of a local bowling alley in Smithtown, New York collapsed, and the nearby Smithhaven Mall was evacuated because authorities feared the roof would collapse when large amounts of water gushed through the ceiling of multiple stores within it.

The two recent incidents on Long Island point out the key aspects of what constitutes a collapse under New York law and whether a policy of property insurance will provide coverage for it when it occurs. To be clear, we are talking about a specific type of claim: A first party property claim. This is one in which the policyholder, which is normally the business owner or the homeowner, makes a claim to recover for what they allege is damage that occurred as a result of a loss for which the policy provides coverage; i.e., they try to recover under their own policy of insurance.

Under New York law, there are two definitions of collapse. The first is the significant impairment of the structural integrity of a building or part of a building. This means that a building or part of a building does not have to fall down, fall in, or be nearly destroyed in order to collapse; it can just be in imminent danger of doing so. See Royal Indem. Co. v. Grunberg, 155 A.D.2d 187, 553 N.Y.S.2d 527(3rd Dept. 1990). This seems to be the view of the majority of courts and jurisdictions across the country.

The second definition requires that a collapse include an element of suddenness, a falling in, and total or near total destruction; and it excludes sinking, bulging, or cracking. See Graffeo v. U.S. Fid. & Guar. Co., 20 A.D.2d 643, 246 N.Y.S.2d 258 (2nd Dept. 1964), motion for leave to appeal denied, 14 N.Y.2d 685, 198 N.E.2d 911 (1964). A policy of property insurance, however, can specifically exclude coverage for imminent collapse; it depends on the precise policy language. See Rector St. Food Enterprises, Ltd. v. Fire & Cas. Ins. Co. of Connecticut, 35 A.D.3d 177, 827 N.Y.S.2d 18 (1st Dept. 2006).
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February 15, 2013

ADVERSE POSSESSION IN NEW YORK II: UNWANTED GUESTS INCLUDED

by The Law Firm of Grasing & Associates

In our last article on the subject, we discussed how a person could come to own land in New York that she never purchased, through adverse possession. It is not an easy task, but it can be done. It takes a long time; ten years. All the while, she has to do it in such a way that the real owner would have a right to evict her. Whether it even should be possible, however, is another question.

The law of adverse possession is open to abuse. It has been used by squatters to try to justify their moving into seemingly vacant homes and claiming them as their own. Recently, a Texas man was convicted of burglary and theft because he moved into a $400,000.00 home that he apparently thought was vacant. The true owners, however, were merely out of town for several months seeking medical treatment. His defense was that he was making a legitimate effort to obtain title to the house through adverse possession. He had, after all, filed an affidavit with the local government making a claim for adverse possession, turned on the utilities, and posted no trespassing signs. The jury did not accept his defense, and he eventually was sentenced to 3 months in jail, ten years’ probation, and ordered to pay $10,000.00 in fines.

The problem is more widespread than people might think. According to the same news reports, there had been a spate of approximately 60 adverse possession filings in the same county; and there were at least six additional trials scheduled in which the defendants were asserting adverse possession as a defense to similar charges.

Two of the most often disputed, and most important, elements of establishing an adverse possession claim in New York are hostility and exclusivity. Though we are not going to comment on any possible criminal charges, it is important to note that if the Texas man had tried to do the same thing in New York, he would have established both.

Hostility means that an individual asserts a right to the land, which is hostile to the rights of the legal, or true, owner. In essence, it means that the person making claim to the land must treat it like it is her own and does not belong to the real owner or to anyone else. This provides the key ingredient to obtaining title to land through adverse possession: The real owner must acquiesce in the open and obvious use of the land by another person as if the land actually did belong to that other person. Hostility, however, is negated by seeking permission from the real owner. See Estate of Becker v. Murtagh, 19 N.Y.3d 75, 968 N.E.2d 433 (2012).
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