Kaf-Kaf, Inc., rented two floors of a building in Hollis, New York, from Rodless Decorations, Inc. The parties used a loft lease agreement which provided that both parties waived subrogation in regard to any claim against the other party for loss or damage resulting from fire or other peril. The waiver was not limited to the rented property but extended to:
The clause was designed to bar subrogation by insurance companies which issued policies to either party. While one paragraph of the lease contained the waiver of subrogation provision, another paragraph permitted the tenant to seek reimbursement for property losses caused by the landlord's negligence.
In May 1983, a fire of unknown origin damaged the portion of the building leased to Kaf-Kaf as well as its personal property. Kaf-Kaf had secured a policy from National Union Fire which paid the insured's claims, including loss of personal property and business interruption. Meanwhile, Rodless's claims for building damage and loss of rents were paid by its insurance company, Industrial Risk Insurers (IRI).
National Union, as subrogor of Kaf-Kaf, filed a subrogation action against Rodless on the ground that it was negligent in failing to maintain the sprinkler system. Rodless moved for summary judgment relying on the lease's waiver of subrogation provision. The motion was granted and the action was dismissed. An appeal to the intermediate court followed, and the original motion in favor of Rodless was affirmed.
In a second , separate action, IRI, as subrogor of Rodless, sued Kaf-Kaf alleging negligence. This action also was dismissed by the trial court because of the waiver in the lease; and this, too, was affirmed by the intermediate court. Both actions were taken on appeal to the Court of Appeals of New York.
The higher court pointed out there were two points to be decided: (1) whether the waiver of subrogation in the lease was limited to the demised premises or included all losses, and (2) whether paragraph 8 preserved the right to seek subrogation for losses caused by the landlord's negligence.
Both Kaf-Kaf and Rodman obtained insurance policies which acknowledged the right of the insured to waive the insurance company's subrogation rights. The court said that, presumably in fixing premiums, the companies took into consideration the fact that they had permitted the insureds to waive their right of subrogation. In conclusion, the higher court found that the broad applicability of the waiver of subrogation clause in the lease precluded the subrogation claims of both insurance companies.
The original judgments reached by the lower-level courts were affirmed.
Kaf-Kaf, Inc., Appellant v. Rodless Decorations, Inc.; Rodless Decorations, Inc., Appellant v. Kaf-Kaf, Inc., et al.--Court of Appeals of New York--October 16, 1997--687 North Eastern Reporter 2d 1330.