Commercial Division Blog

Posted: February 9, 2016 / Categories Commercial, Contracts, Insurance

Loss Damage Waiver Bars Subrogation Action

On January 21, 2016, Justice Scarpulla of the New York County Commercial Division issued a decision in AXA Art Insurance Corp. v. Christie's Fine Art Storage Services, Inc., 2016 NY Slip Op. 30148(U), holding that a loss damage waiver signed by an insured barred a subrogation action by the insurer, explaining:

Subrogation, an equitable doctrine, allows an insurer to stand in the shoes of its insured and seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse. While parties to an agreement may waive their insurer's right of subrogation, a waiver of subrogation clause cannot be enforced beyond the scope of the specific context in which it appears. Waiver of subrogation provisions reflect the parties' allocation of the risk of liability whereby liability is shifted to the insurance carriers of the parties to the agreement. A waiver of subrogation is viewed as a device by which the parties merely allocate the risk of liability between themselves to third parties through insurance.

. . .

In the LDL waiver, the Trust expressly agreed to obtain insurance coverage against All Risks of physical loss or damage to the artworks, and the [insured] accordingly released [the defendant] from all liability for physical loss or damage to my Goods. The [insured] further agreed to notify its insurer regarding the LDL waiver, and arrange for its insurer to waive any rights of subrqgation against [the defendant] regarding any loss or damage to the property while it remained in [the defendant's] care, custody, and control. . . . I find that it constitutes a waiver of subrogation that bars Plaintiffs' complaint for gross negligence, negligent misrepresentation, breach of bailment, and breach of contract.

Plaintiff contends that the waiver of subrogation is void because it permits [the defendant] to excuse itself from all liability in violation of U.C.C. § 7-204. However, it is well settled that a waiver of subrogation is not a contractual provision which seeks to exempt a party from liability but instead simply requires one of the parties to the contract to provide insurance for all the parties. As parties to a commercial transaction, [the defendant] and the [insured] were free to allocate the risk of liability to third parties through insurance and deployment of a waiver of subrogation clause.

(Internal quotations and citations omitted).