In a rare UCC Article 7 issue, the First Appellate Division reversed the defendant’s motion to dismiss in XL Specialty Ins. Co. v Christie’s Fine Art Stor. Servs., Inc., 2016 NY Slip Op 01901 [U][1st Dept., 2016].
The plaintiff is the insurance company for Chowaiki Art Gallery and the defendant is Christie’s Fine Art Storage Services, Inc. which stored Chowaiki’s art pieces. The parties entered into a one year agreement to provide secured storage for Chowaiki’s art works at Christie’s storage facility in Brooklyn.
Pursuant to the agreement, the Chowaiki had the option to either: “(a) have defendant “accept liability for physical loss of, or damage to, the Goods,” or to (b) “sign a loss/damage waiver,” under which Chowaiki accepted that defendant “shall not be liable for any physical loss of, or damage to, the Goods. Furthermore, if Chowaiki elected to sign the waiver, it must provide an adequate insurance policy for all goods deposited. The agreement also had a provision whereby Christie’s additional liability, if ever applicable, would be limited to the lower of either: (1) $100,000 or (2) the market value of the goods.
Chowaiki elected to sign the waiver. The waiver also required Chowaiki to inform the plaintiff to “arrange for them to waive any rights of subrogation” against Christie’s.
In 2012, Hurricane Sandy struck New York. Prior to the hurricane approaching, Christie’s informed Chowaiki that all property located on the first floor would be relocated to higher floors to prevent damage to the goods. However, Christie’s failed to remove the goods and left them on the first floor resulting in extensive damage to Chowaiki’s goods.
The plaintiff reimbursed Chowaiki for the damages and commenced action against Christie’s for gross negligence, breach of bailment, negligence, breach of contract, negligent misrepresentation and fraudulent misrepresentation. Christie’s responded by moving to dismiss pursuant to CPLR 3016(b), 3211(a)(1), (3), and (7). Furthermore, in its response, Christie argued four points: (1) the waiver signed by Chowaiki also contained a provision whereby subrogation was waived and in addition liability was limited; (2) the liability was limited to $100,000; (3) there was no breach of bailment as the relationship between the parties was a lessor/lessee relationship and not a bailor/bailee relationship and (4) Hurricane Sandy was an act of god.
The Court affirmed the motion court’s position that the agreement was governed by UCC 7-204(a) and there was a bailor/bailee relationship created. Thus, any waiver of liability was not enforceable as it was in contravention to the governing statute. Under UCC 7-204, a “warehouse is liable for damages for loss of or injury to the goods caused by its failure to exercise care with regard to the goods that a reasonably careful person would exercise under similar circumstances.” There was a question of fact as to whether Christie’s exercised reasonable duty of care in its failure to move Chowaiki’s goods to another floor to prevent damage.
Furthermore, the Court disagreed with the motion court’s decision to to dismiss the action on the grounds that the waiver of subrogation bars any cause of action. The Court’s decision was based on Kimberly-Clark Corp. v Lake Erie Warehouse, Div. of Lake Erie Rolling Mill, 49 AD2d 492 [4th Dept 1975], which held that such exculpatory clauses were invalid. While it is acceptable for a bailor to limit its liability, it cannot completely exempt itself from liability pursuant to UCC Article 7.
Ultimately, the Court’s decision reaffirms that waiver of liability cannot be enforced whereby a bailor/bailee relationship has been established. Such waivers are in conflict with Article 7 and therefore unenforceable.