Travelers Property & Casualty Insurance Company v. AGG Creperie et al
Filing
127
MEMORANDUM & ORDER: The Court concludes that none of the special circumstances justifying the imposition of a tort duty of care based on a contractual obligation is present in this case. Because Chief Fire and High Rise did not owe a duty to Loehmanns, their motions 118 & 121 for summary judgment are granted. Travelerss claims against AGG, along with the various cross-claims, shall proceed. Ordered by Judge Frederic Block on 9/5/2014. (Innelli, Michael)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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TRAVELERS PROPERTY &
CASUALTY INSURANCE
COMPANY, a/s/o Loehmanns Inc. and
other Interested Insureds Under the
Policy of Insurance,
Plaintiff,
MEMORANDUM AND ORDER
No. 11-CV-2066 (FB) (MDG)
-againstAGG CREPERIE d/b/a XO CREPERIE;
2027 EMMONS AVENUE, LLC; 2027
LLC; HIGH RISE FIRE PROTECTION
CORP. d/b/a HIGH RISE FIRE &
SECURITY; CHIEF FIRE
CONTRACTORS CO. INC;
METRODIAL CORPORATION; and
KORA DEVELOPERS, LLC,
Defendants.
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Appearances
For the Plaintiff:
ROBERT C. SHEPS, ESQ.
Sheps Law Group, P.C.
35 Pinelawn Road, Suite 106E
Melville, New York 11747
For Defendant High Rise Fire
Protection Corp.:
KENNETH R. MAGUIRE, ESQ.
Ken Maguire & Associates, PLLC
950 Franklin Avenue, Suite 101
Garden City, New York 11530
For Defendant Chief Fire Contractors
Co. Inc.:
PHILIP C. SILVERBERG, ESQ.
STEVEN A. TORRINI, ESQ.
Mound Cotton Wollan & Greengrass
One Battery Park Plaza
New York, New York 10004
BLOCK, Senior District Judge:
Loehmann’s clothing store suffered property damage as a result of a fire in
an adjacent store. Having reimbursed its insured for the loss, Travelers Property &
Casualty Insurance Company (“Travelers”) now seeks to recover as Loehmann’s
subrogee. It initially sued the building owner, management company and
neighboring tenant, but subsequently voluntarily dismissed the claims against the
owner and management company. The claims against the tenant remain pending.
In addition, Travelers sued the entities contractually responsible for
inspecting the building’s sprinkler and alarm systems. Those two defendants have
each moved for summary judgment on the ground that their contractual obligations
did not give rise to a duty of care to Loehmann’s. For the following reasons, the
Court agrees and grants the motions.1
I
The following facts are undisputed.
Loehmann’s is the anchor store at Loehmann’s Seaport Plaza, a strip mall in
Sheepshead Bay, Brooklyn. A restaurant owned and operated by AGG Creperie
1
As is typical in these cases, Travelers’s suit has engendered various crossclaims among the defendants. The Court has considered all parties’ submissions in
connection with the pending motions, and its conclusions apply equally to
Travelers’ claims and the cross-claims.
2
(“AGG”) occupies the premises next door. The mall is owned by 2027 LLC
(“2027”) and managed by Kora Developers LLC (“Kora”).
On November 21, 2009, a fire broke out at AGG. Although the mall was
protected by a building-wide sprinkler system, the system failed to activate,
leaving the fire to burn unchecked until a passerby alerted the authorities. By the
time the fire was extinguished, Loehmann’s store and inventory had suffered
extensive smoke and water damage. Travelers paid $1,196,896.60 on the propertydamage claim.
A post-fire investigation revealed that a valve in AGG’s part of the sprinkler
system had been turned off. In addition, the valve had been covered by a drop
ceiling and was, therefore, not visible. Although there is no evidence as to when
the valve was covered, the parties agree that it was sometime before AGG’s
tenancy began in 2002.
The New York City Fire Code requires the owners of buildings with
sprinkler systems to retain qualified individuals to inspect the system on a monthly
basis. Since 2004, 2027 has retained Chief Fire Contractors Co, Inc. (“Chief Fire”)
to conduct those inspections. Chief Fire agreed to perform the inspections for an
annual fee of $425. The contract specifically excluded “maintenance, alterations,
repairs and replacements” and, in addition, limited Chief Fire’s total
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liability—“whatever the cause and whether or not due to negligence”—to $100.
Aff. of Roy Wildenberger, Ex. 1.
In addition, the Fire Code required 2027 to monitor valves and other aspects
of the sprinkler system through an electronic alarm system. High Rise Fire
Protection Corp. (“High Rise”) contracted with Kora, on behalf of 2027, to provide
a centrally-monitored alarm service in exchange for monthly payment. The
contract contained provisions disclaiming any guarantees and limiting High Rise’s
total liability to six times the monthly payment. See Aff. of Robert Aiello, Ex. B
High Rise also agreed to perform monthly tests and inspections of the alarm
system in exchange for an additional fee of $3,000 per year. This contract, too,
disclaimed all liability in excess of a stated maximum (in this instance, 10% of the
annual fee). See id., Ex. A.
II
Tort liability depends upon a duty of care, and the existence of a duty is “a
question of law requiring courts to balance sometimes competing public policy
considerations.” Espinal v. Melville Snow Contractors, Inc., 98 N.Y.2d 136, 139
(2002). Since jurisdiction in this case is premised on diversity, the Court is bound
by the pronouncements of the New York Court of Appeals. See Licci ex. rel. Licci
v. Lebanese Canadian Bank, SAL, 739 F.3d 45, 48 (2d Cir. 2013).
4
One such pronouncement is that “a contractual obligation, standing alone,
will impose a duty only in favor of the promisee and intended third-party
beneficiaries and mere inaction, without more, establishes only a cause of action
for breach of contract.” Eaves Brooks Costume Co. v. Y.B.H. Realty Corp., 76
N.Y.2d 220, 226 (1990). By contrast, “a contractual obligation, standing alone,
will generally not give rise to tort liability in favor of a third party.” Espinal, 98
N.Y. 2d at 138. The rule has an impressive pedigree tracing back to H.R. Moch
Co. v. Rensselaer Water Co., 247 N.Y. 160 (1928), in which then-Judge Cardozo
opined that “liability would be unduly and indeed indefinitely extended by this
enlargement of the zone of duty.” Id. at 168.
Travelers argues that Loehmann’s and the other tenants were third-party
beneficiaries of the 2027’s contracts with Chief Fire and High Rise, but the
argument is unavailing. In the first place, Travelers’s claims are based in tort, not
contract. Moreover, if Travelers’s were seeking to impose contractual liability, it
would be bound by the disclaimers and limitations in the contracts. See Dunning v.
Leavitt, 85 N.Y. 30, 35 (1881) (“[I]t would be contrary to justice or good sense to
hold that [a third-party beneficiary] should acquire a better right against the
promisor than the promisee himself had.”).
Nevertheless, in certain circumstances, “parties outside a contract are
permitted to sue for tort damages arising out of negligently performed or omitted
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contractual duties.” Palka v. Servicemaster Mgmt. Servs. Corp., 83 N.Y.2d 579,
586 (1994). In the years since H.R. Moch was decided, the Court of Appeals has
recognized three such circumstances:
(1) where the contracting party, in failing to exercise reasonable care
in the performance of his duties, “launche[s] a force or instrument of
harm”;
(2) where the plaintiff detrimentally relies on the continued
performance of the contracting party's duties[;] and
(3) where the contracting party has entirely displaced the other party’s
duty to maintain the premises safely.
Espinal, 98 N.Y.2d at 140 (quoting H.R. Moch, 247 N.Y. at 168, and citing Eaves
Brooks, 76 N.Y.2d at 226, and Palka, 83 N.Y.2d at 589).
Eaves Brooks—the source of the second exception—is of particular
relevance because it, too, involved claims against companies that had contracted to
inspect sprinkler and fire-alarm systems. Weighing various policy concerns, the
Court of Appeals held that the contracts did not give rise to tort liability to a tenant
whose property was damaged by water when the systems malfunctioned:
[N]othing in our decision precludes plaintiff from seeking damages
from the building’s owners, and the owners and plaintiff are both in a
position to insure against losses such as those sustained here. The
plaintiff and the owners know or are in a position to know the value of
the goods stored and can negotiate the cost of the lease and limitations
on liability accordingly.
If, on the other hand, [the contractors] were answerable for property
damage sustained by one not in contractual privity with them, they
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would be forced to insure against a risk the amount of which they may
not know and cannot control, and as to which contractual limitations
of liability may be ineffective. The result would be higher insurance
premiums passed along through higher rates to all those who require
sprinkler system and alarm services. In effect, the cost of protection
for those whose potential loss is the greatest would be subsidized by
those with the least to lose. In this setting, we see no reason to
distribute the risk of loss in such a manner.
Furthermore, the prices paid for defendants’ services, according to
specific language in the contracts, were calculated on the
understanding that the risk of loss remained with the building’s
owners. While plaintiff is not bound by the provisions of a contract to
which it is not a party, the limited scope of defendants’ undertaking is
nonetheless relevant in determining whether a tort duty to others
should arise from their performance of the contractual obligations.
Moreover, it suggests the need to contain liability within the limits
envisioned in the contract in order to keep these services available at
an affordable rate.
For these reasons we conclude that [the contractors] had no
cognizable duty owing to plaintiff.
76 N.Y.2d at 227; see also Crum & Forster Speciality Co. v. Safety Fire Sprinkler
Corp., 405 F. Supp. 2d 223, 229 (E.D.N.Y. 2005) (Block, J.) (“The public policy
considerations identified by the Court of Appeals in Eaves are equally applicable in
the present case.”).
Travelers argues that Eaves Brooks is distinguishable because the plaintiff in
that case suffered water damage, as opposed to damage from an unsuppressed fire.
The Court disagrees that this is a material distinction. Both types of damage are
the foreseeable consequences of a malfunctioning sprinkler system, but New York
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law is clear that foreseeability alone does not give rise to a duty. See Palka, 83
N.Y.2d at 586 (“On the other hand, the boundaries of duty are not simply
contracted or expanded by the notion of foreseeability[.]”).
Travelers further argues that, unlike the plaintiff in Eaves Brooks, it cannot
look to the building owner for compensation because Loehmann’s “waived any
right of subrogation against the Landlord of the building.” Pl.’s Memo. of Law at
15. This is a curious statement, inasmuch as Travelers did sue 2027, although it
later dismissed those claims. In any event, that Loehmann’s may have agreed to
waive claims against its landlord does not change the underlying policy
considerations.
Finally, Travelers cites cases in which tort duties were imposed on
contractors. A close examination of those cases, however, reveals that each
involved one or more of the exceptions. In Greene v. Simmons, 786 N.Y.S.2d 517
(1st Dep’t 2004), for example, a contractor was held liable for negligence in the
installation of a boiler for failing to include a temperature-limiting valve. See id. at
518. Such conduct can easily be described as “launch[ing] a force or instrument of
harm,” H.R. Moch, 247 N.Y. at 168, because it actually created the dangerous
condition that caused the plaintiff’s injury. Cf. Espinal, 98 N.Y.2d at 141-42
(describing the first exception as creating liability when a defendant “negligently
creates or exacerbates a dangerous condition”). Here, by contrast, there is no claim
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that Chief Fire or High Rise actually closed the sprinkler valve or blocked access to
it; their alleged failure to discover the problem did not create or increase its danger.
In All American Moving & Storage, Inc. v. Andrews, 949 N.Y.S.2d 17 (1st
Dep’t 2012), another case cited by Travelers, the First Department applied the
second exception because there was an issue of fact as to whether the plaintiffs
“detrimentally relied on [a contractor’s] continued performance of its contractual
duties” to inspect a sprinkler system. Id. at 20.2 The claim of detrimental reliance
in that case was far stronger, however, because the plaintiffs were the building
owners, who had required their tenant to maintain the sprinkler system. Thus, the
plaintiffs relied on the tenant’s inspection contract to discharge their own duties
under the Fire Code. See id. at 19. There can be no analogous claim that
Loehmann’s would have conducted its own inspection of AGG’s premises and,
indeed, the entire building. Instead, Travelers argues that Loehmann’s would have
demanded 2027 take corrective action. But that simply assumes—without factual
support—that the closed valve would have been discovered had 2027 not hired
Chief Fire and High Rise.
2
The court further held that the plaintiffs were intended third-party
beneficiaries of the inspection contract. See 949 N.Y.S.2d at 19-20. As explained
above, such status would not help Travelers’s case.
9
With respect to the third exception, Cossu v. JWP Inc., 661 N.Y.S.2d 929
(Sup. Ct. N.Y. County 1997), involved a municipal contract in which the
contractor expressly agreed to “take all reasonable precautions” to protect third
parties from injury. Id. at 281. It also agreed to obtain insurance and to indemnify
New York City. See id. at 282. The contracts in this case have precisely the
opposite tenor and, accordingly, do not come close to “entirely displac[ing]
[2027’s] duty to maintain the premises safely.” Palka, 83 N.Y.2d at 589.
The Second Department’s terse decision in Alsaydi v. GSL Enterprises, Inc.,
656 N.Y.S.2d 691 (2d Dep’t 1997), does not reveal the extent of the contract at
issue in that case. In the decision it cited in support of liability, however, the Court
of Appeals described the duty of care as flowing from an agreement “to maintain
an elevator in safe operating condition.” Rogers v. Dorchester Assocs., 32 N.Y.2d
553, 559 (1973). Chief Fire and High Rise did not make an analogous promise to
maintain 2027’s sprinkler system. In any event, as the Court pointed out in Crum
& Forster, elevator maintenance raises different policy considerations. See 405 F.
Supp. 2d at 230 (“ The public policy considerations behind this rule [that an
elevator maintenance company owes a duty of care to the public] are too obvious
to merit comment.”).
III
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For the foregoing reasons, the Court concludes that none of the special
circumstances justifying the imposition of a tort duty of care based on a contractual
obligation is present in this case. Because Chief Fire and High Rise did not owe a
duty to Loehmann’s, their motions for summary judgment are granted. Travelers’s
claims against AGG, along with the various cross-claims, shall proceed.
SO ORDERED.
/S/ Frederic Block
FREDERIC BLOCK
Senior United States District Judge
Brooklyn, New York
September 5, 2014
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