Interested Underwriters at Lloyds v. Ducor's, Inc.

OPINION OF THE COURT

Sullivan, J.

On March 17, 1982, Fur Galleria, Inc., a commercial tenant of a portion of the premises at 434 Central Avenue, Cedarhurst, New York, owned by defendant, Meyer Ducorsky, sustained a $218,000.14 loss as the result of a fire which originated in the vacant adjoining premises at 432 Central Avenue, also owned by defendant. The tenant was compensated in full for its loss by plaintiff, its fire insurer, to which it assigned all its right, title and interest in any claim it might have against defendant for such loss. Plaintiff thereafter commenced this action for the recovery of $218,000.14, alleging that defendant’s negligence in the *77ownership, operation, maintenance and control of the adjoining premises was the sole cause of the fire.

Defendant moved to dismiss the complaint on the ground that the action was barred by a waiver of subrogation clause contained in paragraph 9 of the lease agreement executed by defendant and the tenant’s assignor on September 27, 1972. In pertinent part paragraph 9 provides: “Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Landlord and Tenant each hereby releases and waives all right of recovery against the other or anyone claiming through or under each of them by way of subrogation or otherwise.” Special Term granted the motion, holding that the foregoing clause constituted a waiver of subrogation which barred the action. We disagree.

At the outset we note that, absent any indication of overreaching or conscionability, a waiver of subrogation rights provision “violate[s] neither section 5-323 of the General Obligations Law nor any other public policy” of this State. (Board of Educ. v Valden Assoc., 46 NY2d 653, 657; see Brentano’s, Inc. v Charter Mgt. Corp., 46 AD2d 861.) Such clauses are viewed as a device by which the parties merely allocate the risk of liability between themselves to third parties through insurance. Here, however, the dereliction of duty with which defendant is charged is completely extraneous to any duty or obligation encompassed by the parties’ agreement and the relationship created thereunder.

We have been unable to discern, nor has either party offered, any New York cases interpreting a lease provision similar to the clause at issue in instances where, as here, the loss claimed arises out of an act wholly outside the scope of the landlord and tenant relationship. Faced with the same issue, New Jersey courts have held that the clause does not encompass conduct unrelated to the land*78lord and tenant relationship. (W.F. Zimmerman, Inc. v Daggett & Ramsdell, 34 NJ Super 81; cf. Mayfair Fabrics v Henley, 48 NJ 483.) While, clearly, it was the intent of the parties to the lease in question to allocate to their respective insurers the risk of liability for breach of any duty or obligation related to the landlord and tenant relationship, we are not persuaded that they expressed a similar intent with respect to liability unrelated to that relationship.

A lease should be construed in the light of the legal relationship which the parties, by entering into such an agreement, mutually assume, namely, that of landlord and tenant (Redding v Gulf Oil Corp., 38 AD2d 850), and it is in the context of this limited relationship that a lease’s provisions must be read. Throughout the lease and, more particularly, paragraph 9, the parties are referred to exclusively as landlord and tenant. The references to their respective rights, duties and obligations clearly limit the risks to be allocated between them to those which arise out of the landlord’s ownership and the tenant’s use and occupancy of the demised premises. In fact, the lease explicitly provides that the landlord’s duties and obligations terminate upon the sale of the premises. In such circumstances, the new owner would be entitled to the benefit of the waiver of subrogation clause and the former landlord, though a party to the original agreement, could not claim its benefit if a fire, negligently caused, emanated from his adjoining premises and damaged the demised premises, causing the tenant to sustain a loss. We see no reason why he should be in any better position because he is the coincidental owner of the damaged premises. In construing an agreement “the entire contract must be considered and, as between possible interpretations of an ambiguous term, that will be chosen which best accords with the sense of the remainder of the contract.” (Rentways, Inc. v O’Neill Milk & Cream Co., 308 NY 342, 347.) Thus, it seems to us that in executing a form lease agreement (the Real Estate Board of New York Inc.’s standard form of store lease) of which paragraph 9 was an integral part, the natural intendment of the parties was to waive their subrogation rights against each other for risks arising out of the relationship to which they were committing themselves, viz., landlord and tenant, and no other.

*79Furthermore, the parties would not have had any need or reason for allocating any other risk. Certainly the record does not reveal any such consideration. Nor can it be inferred from the surrounding circumstances (see Fleischman v Furgueson, 223 NY 235) that the parties intended to allocate all risks between them to their insurers, including, as here, the risk of loss from any act wholly unrelated to the landlord and tenant relationship and committed by a third party who happens to be the landlord. By defendant’s interpretation the waiver clause would apply even if, for example, he was in the construction business and caused the tenant to suffer damages at the demised premises as a result of his use of dynamite in blasting at a construction site some distance away. No practical or economic reason for such a strained interpretation is suggested. Moreover, by denying a casualty insurer a right of recourse against the wrongdoer in such a situation the entire loss, to the extent it is covered by insurance, is foisted upon the insurer. Inevitably, such an inequitable method of spreading the risk has to have an adverse impact upon the cost of purchasing such insurance.

Finally, we are fortified in our view that the clause at issue does not extend to conduct unrelated to the landlord and tenant relationship by reference to one of the cardinal rules of contract construction. “[W]here there is ambiguity in the terms of a contract prepared by one of the parties, ‘it is consistent with both reason and justice that any fair doubt as to the meaning of its own words should be resolved against’ such party.” (Rentways, Inc. v O’Neill Milk & Cream Co., 308 NY, at p 348, citing Mutual Ins. Co. v Hurni Co., 263 US 167, 174.) This rule has been applied even where the language in question appears in a form used, but not originally drafted, by one of the parties to the contract. (See A & Z Appliances v Electric Burglar Alarm Co., 90 AD2d 802.) In this case defendant’s use of a form lease qualifies it as the drafter of the contract, since it had the opportunity in the first instance to eliminate any ambiguity. Thus, any uncertainty as to the meaning of the waiver clause should be resolved in the tenant’s favor.

Accordingly, the judgment of the Supreme Court, New York County (Dontzin, J.), entered January 3,1984, grant*80ing defendant’s motion pursuant to CPLR 3211 to dismiss the complaint, should be reversed, on the law, with costs and disbursements, and the motion denied.