New York Central Mutual Insurance Company v. TopBuild Home Services, Inc.
ORDER granting 18 : Defendant's motion for partial summary judgment is granted to the extent that Plaintiff's recovery against Defendant is limited as a matter of law to the diminution in value of the subject property attributable to Defendant's conceded negligence. See attached Order. Ordered by Judge Denis R. Hurley on 4/24/2019. (Bochner, Francesca)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
NEW YORK CENTRAL MUTUAL
INSURANCE COMPANY, as subrogee of
Paul and Karen Mazzola,
MEMORANDUM AND ORDER
- against TOPBUILD HOME SERVICES, INC.,
Attorneys for Plaintiff
45 Broadway, 23rd Floor
New York, NY 10006
Virginia Markovich, Esq.
John Brian Galligan, Esq.
ANSA ASSUNCAO, LLP
Attorney for Defendant
707 Westchester Ave., Suite 309
White Plains, NY 10604
James Simon Coons, Esq.
HURLEY, Senior District Judge:
Plaintiff New York Central Mutual Insurance Company (“Plaintiff”), as subrogee of Paul
and Karen Mazzola, brought this damages-only subrogation action against Defendant TopBuild
Home Services, Inc. (“Defendant”). Presently before the Court is Defendant’s motion for partial
summary judgment pursuant to Fed. R. Civ. P. (“Rule”) 56. For the reasons set forth below,
Defendant’s motion is granted to the extent that Plaintiff’s recovery against Defendant is limited
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as a matter of law to the diminution in value of the subject property attributable to Defendant’s
The following relevant facts are taken from the Parties’ Rule 56.1 Statements, and are
uncontested unless otherwise stated.
Plaintiff’s subrogors, Paul and Karen Mazzola (“Mazzolas”), are the original owners of
the real property located at 27 Ferraro Drive in Holbrook, New York (“Property”), which is
currently owned solely by Paul Mazzola. (P.’s R. 56.1 Stmt. [ECF No. 18-24] ¶ 2.) The
Mazzolas acquired the Property in 1990. (Id. ¶ 3.) In or around September 2011, Defendant
installed blown-in insultation in certain parts of the Property. (Id. ¶ 4.) On November 29, 2015,
a fire occurred in the Property causing damage to the exterior and interior. (Id. ¶ 5.) Plaintiff
claims that Defendant’s insulation work caused the fire. (Id. ¶ 6.) For purposes of this litigation,
Defendant has conceded liability. (Id. ¶ 7.)
According to Plaintiff, the value of the Property diminished by $270,000. (Id. ¶ 8.)
Plaintiff’s designated real estate appraisal expert performed a retrospective market analysis that
concluded that before the fire, the real property (land and improvements) had a value of
$570,000. (Id. ¶ 9.) Following the fire, the value of the real property (vacant land, the in-ground
pool, and the house’s original foundation) was $300,000. (Id. ¶ 10.) Given the extent of the
damage, the appraisal expert determined the real estate’s diminution in value by subtracting the
value of the post-fire remaining “vacant land” from the pre-fire value of $570,000. (Id. ¶ 11.)
Another appraisal done at Mrs. Mazzola’s request in 2012 by a different certified appraised
found that the Property was worth $540,000. (Id. ¶ 13.)
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The fire damaged 25 to 30 percent of the structure on the Property. (Id. ¶ 14.) The
Parties dispute whether the fire and smoke damage to the house was limited to this 25 to 30
percent estimate, as Defendant contends, or if the entirety of the house was damaged to some
degree, as Plaintiff contends. (Id.) At the time of the fire, the Mazzola’s house was insured by
Plaintiff under a homeowner’s insurance policy (“Policy”). (Id. ¶ 15.) The Policy was an
insurance contract that was entered into by Plaintiff and the Mazzolas, whereby the latter paid
the former $2,319 in annual premiums for certain coverage, including, coverage for physical
damage to the Property. (Id. ¶ 17.)
After the fire, Mr. Mazzola submitted a claim to Plaintiff for insurance coverage under
the Policy through his public adjuster, Jerrold Kotler. (Id. ¶ 19.) Thereafter, Plaintiff assigned
insurance adjuster Terrance Walker to adjust the loss on its behalf. (Id. ¶ 20.) Mr. Walker
investigated and adjusted the loss, and negotiated a settlement of Mr. Mazzola’s structural
repairs with Mr. Kotler. (Id. ¶ 21.) Mr. Kotler and Mr. Walker arrived at an agreed-upon total
payment that exhausted the Policy’s limits, as well as the Policy’s additional guaranteed
replacement cost coverage limit and the “other structures” and “code update” limits. (Id. ¶ 22.)
There was no appraisal of the Property before or after the fire. (Id. ¶¶ 23–24.)
On or about July 26, 2016, Plaintiff’s attorney’s tendered a demand to Defendant for full
reimbursement of the repair costs it paid to the Mazzola’s following the fire. (Id. ¶ 25.)
Following unsuccessful efforts to resolve this matter, Plaintiff filed suit against Defendant in
state court on February 27, 2017. (Id. ¶ 26.) On April 7, 2017, Defendant removed the case to
this Court. (Id. ¶ 27.) In the Complaint, Plaintiff sought to recover $1,042,479.86 from
Defendant, together with pre-judgment interest, attorney’s fees, and costs. (Compl. [ECF No. 12] ¶ 31.) At some later time, that amount was lowered to $708,465.74, as the “amount
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corresponding to costs incurred to repair the dwelling [and] other structures” on the Property.
(P.’s R 56.1 Stmt. ¶ 51.) Defendant moved for partial summary judgment on September 7, 2018,
as articulated in the Introduction supra.
Summary judgment pursuant to Rule 56 is appropriate only where admissible evidence in
the form of affidavits, deposition transcripts, or other documentation demonstrates the absence of
a genuine issue of material fact, and one party’s entitlement to judgment as a matter of law. See
Viola v. Philips Med. SYS. of N. Am., 42 F.3d 712, 716 (2d Cir. 1994). The relevant governing
law in each case determines which facts are material; “only disputes over facts that might affect
the outcome of the suit under the governing law will properly preclude the entry of summary
judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). No genuinely triable
factual issue exists when the moving party demonstrates, on the basis of the pleadings and
submitted evidence, and after drawing all inferences and resolving all ambiguities in favor of the
non-movant, that no rational jury could find in the non-movant's favor. Chertkova v. Conn.
Gen’l Life Ins. Co., 92 F.3d 81, 86 (2d Cir. 1996).
To defeat a summary judgment motion properly supported by affidavits, depositions, or
other documentation, the non-movant must offer similar materials setting forth specific facts that
show that there is a genuine issue of material fact to be tried. Rule v. Brine, Inc., 85 F.3d 1002,
1011 (2d Cir. 1996). The non-movant must present more than a “scintilla of evidence,” Del. &
Hudson Ry. Co. v. Consol. Rail Corp., 902 F.2d 174, 178 (2d Cir. 1990) (quoting Anderson, 477
U.S. at 252) (internal quotation marks omitted), or “some metaphysical doubt as to the material
facts,” Aslanidis v. U.S. Lines, Inc., 7 F.3d 1067, 1072 (2d Cir. 1993) (quoting Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986)) (internal quotation marks
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omitted), and cannot rely on the allegations in his or her pleadings, conclusory statements, or on
“mere assertions that affidavits supporting the motion are not credible.” Gottlieb v. Cnty. of
Orange, 84 F.3d 511, 518 (2d Cir. 1996) (internal citations omitted).
The district court considering a summary judgment motion must also be “mindful . . . of
the underlying standards and burdens of proof,” Pickett v. RTS Helicopter, 128 F.3d 925, 928
(5th Cir. 1997) (citing Anderson, 477 U.S. at 252), because the “evidentiary burdens that the
respective parties will bear at trial guide district courts in their determination of summary
judgment motions.” Brady v. Town of Colchester, 863 F.2d 205, 211 (2d Cir. 1988). “[W]here
the nonmovant will bear the ultimate burden of proof at trial on an issue, the moving party's
burden under Rule 56 will be satisfied if he can point to an absence of evidence to support an
essential element of the nonmoving party's claim.” Id. at 210-11. Where a movant without the
underlying burden of proof offers evidence that the non-movant has failed to establish her claim,
the burden shifts to the non-movant to offer “persuasive evidence that his claim is not
‘implausible.’” Id. at 211 (citing Matsushita, 475 U.S. at 587).
The Parties Arguments
The Complaint sets forth two causes of action against Defendant: (1) negligence in the
installation work on the Property; and (2) breach of contract for failure to install the insulation in
accordance “with all applicable statutes, ordinances, rules, orders, regulations and/or codes, as
well as in conformance with current industry standards and practices.” (Compl. ¶¶ 16–26.)
In Defendant’s motion for summary judgment, it asserts that it should only owe Plaintiff
the lesser of: (1) the difference between the Property’s market value before and immediately
after it was damaged, also known as the “diminution in value;” or (2) the reasonable cost of
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repairs necessary to restore it to its original condition. (Def.’s Mem. in Supp. [ECF No. 18-2] at
8.) Defendant argues that it should not be liable for replacement value repair costs that exceed
the diminution of value, especially given that Plaintiff paid for the Mazzola’s upgrades1 to the
Property “pursuant to a private bargained-for agreement that had nothing to do with [Defendant]
or its assumed negligence in this case.” (Id. at 9–10.)
Plaintiff argues in opposition that “[t]he proper measure of damages in this subrogation
action is the amount that [Plaintiff] was forced to expend because of Defendant’s wrongful
conduct, [namely] the cost to repair the home.” (P.’s Mem. in Opp. [ECF No. 18-32] at 4.)
Plaintiff further avers that the “lesser of two rule does not apply to subrogation actions,
especially in the insurance context, as there is no way that Plaintiff could have mitigated the
amounts paid to its insured.” (Id. at 4–5.)
Defendant’s real estate valuation expert determined that the Property was worth $650,000
before the fire, the land was worth of $195,000, and the improvements were worth $455,000.
(Id. at 5.) Defendant’s expert determined that the diminution in market value caused by the fire
was $245,000. (Id. at 6.) As previously noted, Plaintiff’s expert on the market value of the
Property determined that the diminution in value was $270,000. (Id.) However, the Parties have
not asked the Court to evaluate this inconsistency. Rather, on the instant summary judgment
motion, Defendant asks the Court to determine only whether the lesser of two doctrine applies to
this subrogation action for negligent damage to real property. (Id. at 9.) Once the Court so
While not discussed in the Parties’ Rule 56.1 Statements, Defendant alleges in its memorandum that Mr.
Mazzola installed premium finishes and made other upgrades to the Property with the insurance money he
received from Plaintiff. (See Mem. in Supp. at 10.) Defendant claims that the value of the house
increased substantially after these upgrades, from $570,000 before the fire to $750,000 after the
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decides, the Parties agree that the calculation of the amount of damages should be put to a jury.
Subrogation Legal Standard
In New York, a subrogation action “allocates responsibility for the loss to the person who
in equity and good conscience ought to pay it, in the interest of avoiding absolution of a
wrongdoer from liability simply because the insured had the foresight to procure insurance
coverage.” In re Sept. 11 Litigation, 802 F.3d 314, 351 (2d Cir. 2015) (quoting N. Star
Reinsurance Corp. v. Cont’l Ins. Co., 82 N.Y.2d 281, 294 (1993)). In the insurance context, the
equitable doctrine of subrogation “entitles an insurer to ‘stand in the shoes’ of its insured to seek
indemnification from third parties whose wrongdoing has caused a loss for which the insurer is
bound to reimburse.” Id. The insurer then “acquires [the insured’s] rights against the person
whose debt was discharged.” Nacional Financiera, S.N.C. v. Americom Airlease, Inc., 803 F.
Supp. 886, 892 (S.D.N.Y. 1992) (citing Salzman v. Holiday Inns, Inc., 48 A.D. 258 (N.Y. App.
Dic. 1975), modified on other grounds, 40 N.Y.2d 919 (1976)). In other words, in a subrogation
action the insurer can recover from the tortfeasor what the insured could have recovered in his or
her own right. See Allstate Ins. Co. v. Mazzola, 175 F.3d 255, 258 (2d Cir. 1999) (“In short, one
party known as the subrogee is substituted for and succeeds to the rights of another party known
as the subrogor”).
Under New York law, “an award of damages to a person injured by the negligence of
another is designed to restore the injured party, to the extent possible, to the position that would
have been occupied had the wrong not occurred.” In re Sept. 11 Litigation, 802 F.3d at 328
(quoting McDougald v. Garber, 73 N.Y.2d 246, 253–54 (1989)) (internal quotation marks
omitted). There are two ways that damages can be calculated when negligence results in the
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destruction of real property. The first, “diminution-in-value,” awards to the plaintiff “the
difference between the value of the land before the injury and its value after the injury[.]” 36
N.Y. Jur.2d Damages § 75. The second is to award the cost of restoration plus the “reasonable
worth” of the property’s use while the plaintiff “is deprived of” the property. 36 N.Y. Jur.2d
Damages § 113. These two measures of damages often produce awards of different sizes. As
such, the New York Court of Appeals has held that “the proper measure of damages for
permanent injury to real property is the lesser of the decline in market value and the cost of
restoration.” Jenkins v. Etlinger, 55 N.Y.2d 35, 39 (1982).
Defendant’s Motion for Partial Summary Judgment is Granted
The only question before the Court on this summary judgment motion is whether the
“lesser of two” doctrine applies to a subrogation action. If it does, then Plaintiff is limited to
recovering the diminution in value, as the Parties concede that this is less than the cost of
restoration. If the “lesser of two” doctrine does not apply, then Plaintiff may recover the full
$708,465.74 that it dispensed to the Mazzolas to repair the dwelling and the other structures on
As explained above, New York Law provides that when negligence results in the
destruction of real property, recovery is limited by the lesser of two doctrine. Here, the Property
was damaged by Defendant’s negligence. Accordingly, the Mazzolas’s recovery against
Defendant for the damage to the Property would be limited by the lesser of two doctrine. Since
Plaintiff has stepped into the Mazzola’s shoes, its rights are the same as the Mazzola’s, and
Plaintiff’s ability to recovery is likewise limited by the lesser of two doctrine. Thus, Plaintiff
may only recover the diminution in value.
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Plaintiff argues in its memorandum in opposition that the reasoning underlying the lesser
of two principle does not apply to subrogation actions because an insurance company cannot
mitigate the loss. In support of this argument, Plaintiff does not cite a single case in which a
New York court has awarded an insurance company more than its insured could recover in a
subrogation action for negligent damage to real property. The Court was likewise unable to find
any precedent in its own review of applicable case law that directly decides this issue. See, e.g.,
Atlantic Mutual Insurance Co. v. Noble Van & Storage Co., 146 A.D.2d 729 (N.Y. App. Div.
1989) (an action by a subrogee to recover damages decided on other grounds); see also
Interested Underwriters at Lloyds v. Third Holding Corp., 88 A.D.2d 863 (N.Y. App. Div. 1982)
(overturning a jury verdict in a subrogation action because the valuation did not provide the jury
sufficient proof for a proper determination). If the Court were to grant Plaintiff’s request for full
reimbursement, it would establish a bifurcated system whereby insurance companies would be
eligible to receive more than the injured party himself could. This would punish both uninsured
homeowners and tortfeasors, as the latter would be liable for differing amounts for the same
exact negligent action and resulting injury based solely on whether the injured party purchased
home insurance. To do so would also upend the well-established doctrine of subrogation
because the insurer would no longer be inheriting the rights of its insured, no more and no less.
Plaintiff’s assertion that it could not mitigate the loss does not overcome the aforementioned
legal and logical inconsistencies in Plaintiff’s argument. This is particularly true given that
Plaintiff negotiated a private contract with the Mazzolas that allowed Mr. Mazzola to invest
more into the property than the actual value of the damage that Defendant caused.
Plaintiff next argues that there is no reason to apply the lesser of two principle because it
only seeks to be reimbursed for the money it has disbursed to the Mazzolas so there would be no
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windfall. Plaintiff ignores that this would effectively result in a significant windfall to Mr.
Mazzola, to the tune of over $500,000. If Mr. Mazzola had brought this action against
Defendant, he would only be able to recover the diminution in value even though he invested
over $1 million into repairs. If Mr. Mazzola recovered more than the diminution in value, he
would receive a windfall. As Plaintiff is stepping into Mr. Mazzola’s shoes, it too can only
recover the diminution in value. The fact that Mr. Mazzola has received over $1,000,000 from
Plaintiff pursuant to a privately negotiated insurance contract does not change the analysis.
As the Court is persuaded by Defendant’s arguments and Plaintiff has not offered any
authority in support of its position, Defendant’s motion for partial summary judgment is granted.
The Court finds that the lesser of two doctrine applies to this damages-only subrogation action.
For the reasons set forth above, Defendant’s motion for partial summary judgment is
Dated: Central Islip, New York
April 24, 2019
Denis R. Hurley
United States District Judge
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