Tuesday, April 5, 2016
Hurricane Sandy's flooding of the Red Hook section of Brooklyn damaged are in the Christie's warehouse located there, and provoked a rash of subrogation cases against Christie's, including AXA Art Insurance Corp. v. Christie's Fine Art Storage Services, Inc., 652862/13.
All of the cases revolved around the same core set of facts: As Hurricane Sandy was approaching, the Mayor of New York warned that Red Hook was likely to be flooded, and eventually ordered its evacuation. Christie's sent an e-mail to its clients stating it would "take extra precautions" in the face of "significant inclement weather," and that "may include" making sure the generators were working, providing extra security, and raising all of the artwork up off the floor. Allegedly Christie's did none of these things. Shortly after Sandy went through, Christie's sent another e-mail assuring its clients that the artwork was safe, but a few days later Christie's corrected itself, contacting some of its client to inform them that flooding had damaged some of the artwork.
Some insurance companies had to pay out millions of dollars in the wake of this news, and this insurance companies sought to collect the money from Christie's. AXA brought a typical case, that resulted in a typical failure, based on the fact that Christie's storage agreement contained a waiver of subrogation: Christie's clients were "responsible for arranging insurance cover" for the artwork stored at Christie's and "agree[d] to notify [the] insurance carrier/company of this agreement and arrange for them to waive any rights of subrogation against [Christie's] . . . with respect to any loss of or damage to the [artwork] while it remains in [Christie's] care, custody and control."
The court held that this subrogation waiver acted to bar AXA's claims for gross negligence, negligent misrepresentation, breach of bailment, and breach of contract. AXA tried to argue that this was in violation of U.C.C. Section 7-204, but the court disagreed: The U.C.C. prevented Christie's from exempting itself from all liability, but this subrogation waiver, according to the court, merely allocated the risk of liability to the insurance companies. AXA also argued that Christie's breached the storage agreement in its actions (apparently no artwork was supposed to be stored on the ground floor, which had been represented to the clients as being used for "intake" before the artwork was move to more secure storage), but the court said those breaches didn't affect the enforceability of the subrogation waiver.
Well, the appellate court has spoken, and claims like AXA's now live to be litigated another day. In the similar case XL Specialty Insurance Company v. Christie's Fine Art Storage Services, Inc., the appellate court held that the subrogation waiver did violate Article 7 of the U.C.C. and attempt to exempt Christie's from all liability, the lower court's characterization otherwise notwithstanding. Therefore, the fight will now shift to whether Christie's actions were reasonable.