J & B Schoenfeld, Fur Merchants, Inc. v. Albany Ins. Co.

• Decision Date: 18 July 1985
• Citation: 492 N.Y.S.2d 38,109 A.D.2d 370
• Parties: J & B SCHOENFELD, FUR MERCHANTS, INC., Plaintiff-Appellant, v. ALBANY INSURANCE COMPANY, Daynard & Van Thunen, Harold Ruddy and George Ruddy, Defendants-Respondents. ALBANY INSURANCE COMPANY, Third-party Plaintiff, v. BOURBON CONSTRUCTION CORP., Third-Party Defendant and Fourth-Party Plaintiff, v. 132 WEST 31st STREET REALTY CORP., Fourth-Party Defendant.
• Court: New York Supreme Court — Appellate Division

Page 38

492 N.Y.S.2d 38

109 A.D.2d 370

J & B SCHOENFELD, FUR MERCHANTS, INC., Plaintiff-Appellant, v. ALBANY INSURANCE COMPANY, Daynard & Van Thunen, Harold Ruddy and George Ruddy, Defendants-Respondents.

ALBANY INSURANCE COMPANY, Third-party Plaintiff, v. BOURBON CONSTRUCTION CORP., Third-Party Defendant and Fourth-Party Plaintiff, v. 132 WEST 31st STREET REALTY CORP., Fourth-Party Defendant.

Supreme Court, Appellate Division First Department.

July 18, 1985.

C. Raymond Nelson, New York City, of counsel (Jeffrey Sunshine and Sylvain R. Jakabovics, New York City, with him on the brief; Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey, New York City, attorneys), for plaintiff-appellant.

Frederic R. Mindlin, New York City, of counsel (Herbert P. Polk, New York City, with him on the brief; Whitman & Ransom, New York City, attorneys), for defendants-respondents.

Before MURPHY, P.J., and SULLIVAN, CARRO, LYNCH and ELLERIN, JJ.

ELLERIN, Justice.

These consolidated appeals stem from a controversy arising out of a property damage claim under a policy of insurance with particular focus on the parameters of the subrogation rights incident thereto.

The plaintiff J & B Schoenfeld Fur Merchants Inc. ("Schoenfeld"), a dealer in raw fur skins, is the insured under an all-risks property insurance policy issued by Albany Insurance Co. ("Albany") which provides for payment for loss or damage to sold merchandise "on the basis of the Assured's net selling price".

On June 22, 1982, various bales of bobcat and mink skins, stored in the basement of plaintiff's premises, sustained extensive water damage as a result of a water pipe break in the course of renovation work being performed on the premises by Bourbon Construction Corp. ("Bourbon"). Bourbon subsequently acknowledged responsibility for the rupture of the pipe. At the time the damage occurred, the bales of skins had already been sold to a third-party for the total sum of $215,000 of which $95,000 represented the price for the bobcat skins and $120,000 the price for the mink skins. The purchaser examined the skins after the occurrence and refused to accept delivery because of the damage.

Shortly after notification of the loss, the insurer Albany acknowledged its liability under the policy and its independently retained adjusters and appraisers entered into negotiations with plaintiff for purposes of settling the claim. The bobcat and mink skins were treated separately for settlement purposes, with early agreement by the insurer that the bobcat skins, which had already begun to deteriorate, would be paid for on the basis of the full selling price of $95,000. Payment of that amount was conditioned upon execution by plaintiff of a separate proof of loss with respect to the bobcat skins and a salvage removal agreement in Albany's favor as to those skins. While plaintiff did execute both such documents relative to the bobcat skins, negotiations with respect to the mink skins took an acrimonious turn with the amount payable on such loss being sharply disputed, plaintiff claiming that defendant sought to pay only $12,000, or 10% instead of the entire net selling price, for the damage to those skins. It was in that setting that plaintiff Schoenfeld instituted Action # 1 in August, 1981 against Albany and its various representatives and agents. At about the same time, Schoenfeld also commenced an action (Action # 2) directly against both Bourbon, the contractor, and the landlord of the premises charging them with tort responsibility for the damage to the skins.

In September, Albany remitted its draft for $95,000 to plaintiff to cover the bobcat loss but, before payment was made thereon, it learned of the separate tort action which Schoenfeld had instituted against Bourbon and the landlord. It thereupon advised Schoenfeld that the payment of the $95,000 was conditioned upon either a discontinuance of the tort action or a substitution of Albany in place and stead of Schoenfeld in such action. Upon Schoenfeld's refusal to comply, the $95,000 draft was dishonored.

The complaint in Action # 1 against Albany and its agents asserts three causes of action. The first cause of action, which is the subject of appeal # 22914, seeks a recovery in the sum of $215,000 on the insurance contract. In its answer, defendant Albany interposed an affirmative defense to such cause of action alleging that plaintiff had arrogated and prejudiced Albany's subrogation rights by maintaining a separate independent action against the tortfeasors, that such action constituted an election by plaintiff to pursue the third parties rather than defendant and that defendants were thereby relieved of any liability to plaintiff. Thereafter, Albany moved for summary judgment dismissing plaintiff's first cause of action on such ground or, in the alternative, for an order directing plaintiff to discontinue its independent action against the tortfeasors. (In its moving papers Albany stated that it was contemporaneously taking the steps necessary to implead Bourbon, as a third-party defendant, in the main action--i.e. Action # 1.) Plaintiff cross-moved for summary judgment on its first cause of action.

In its decision, dated May 24, 1983, the court below (Greenfield, J.) granted summary judgment to plaintiff with respect to Albany's liability under the policy, with damages to be determined at an assessment, "upon condition that within 10 days from service of the order herein, it provides to defendant an assignment of its causes of action against Bourbon Construction Corp.". No such assignment was executed by plaintiff and in an order entered on October 5, 1983 the court denied plaintiff's further motion to stay implementation of the condition and for reconsideration.

In essence, the court below determined that the insurer's acknowledgment of liability, albeit disputing the amount thereof, entitled it to be immediately subrogated to all of plaintiff's rights against the tortfeasor and it made an assignment of such rights by the plaintiff a condition precedent to recovery of payment under the policy. In so doing it erred. The condition imposed is contrary to the express provisions of the policy itself and is at variance with the controlling principles of the law of subrogation.

In general, the right to subrogation arises upon payment to the subrogor and may be created by contract or by operation of law. As an equitable doctrine in the context of insurance, an insurance carrier, upon payment of a loss becomes subrogated to the rights and remedies of its assured to proceed against a party primarily liable without the necessity of any formal assignment or stipulation. The right is coextensive with the amount of indemnity paid to the insured. (See N.Y. Bd. v. Trans Urban, 91 A.D.2d 115, 458 N.Y.S.2d 216, Kassal, J.; underscoring added.)

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