Court Opinion

ID: 6044255
Source: CourtListenerOpinion
Date Created: 2022-01-13 14:09:27.878884+00
Date Added: 2024-06-11T08:50:34.283382
License: Public Domain

Sullivan, P. J.
(dissenting). In my view, the majority improperly limits the damages recoverable by the landlord to the amounts paid for insurance premiums and certain “out-of-pocket costs suffered by the landlord and not covered by the procured insurance.” I would modify the order to award the landlord all its damages resulting from the tenant’s failure to procure insurance. Accordingly, I dissent.
The measure of damages for breaching a contractual provision to procure liability insurance naming* the other party to the contract as an additional insured is all damages resulting from the breach, including the amount paid to dispose of the third party’s claim, and defense expenses. (Kinney v Lisk Co., 76 NY2d 215, 219; Roblee v Corning Community College, 134 AD2d 803, 805, lv denied 72 NY2d 803; Morel v City of New York, 192 AD2d 428, 429; Marconi Wireless Tel. Co. v Universal Transp. Co., 194 App Div 272, affd 233 NY 581.) Even if the injured party “ ‘has been wholly or partly indemnified for his loss by insurance effected by him and to the procurement of which the wrongdoer did not contribute,’ ” his damages are not diminished. (Kish v Board of Educ., 76 NY2d 379, 384, quoting Healy v Rennert, 9 NY2d 202, 206.) This principle is based on the collateral source doctrine, which “holds that as a general rule damages cannot be mitigated or reduced because of payments received by an injured party from a source wholly independent of and collateral to the wrongdoer.” (Rutzen v Monroe County Long Term Care Program, 104 Misc 2d 1000, 1001; Silinsky v State-Wide Ins. Co., 30 AD2d 1, 4.) The collateral source doctrine, which originated in tort, is applicable to cases sounding in contract as well. (Rutzen v Monroe County Long Term Care Program, supra, at 1001; Gusikoff v Republic Stor. Co., 241 App Div 889.)
The reason for the rule is clear. The collateral payment by the insurer does not mitigate the wrongdoer’s damages. “[P]roof of the insurance actually paid would not tend to show that the damage claimed was not actually occasioned by the wrong-doer * * * [I]t would simply show that compensation had been received by the injured party in whole or in part from some other person—not that the wrong-doer had made satisfaction [,] which alone could give him a defense.” (Drinkwater v Dins-*129more, 80 NY 390, 392; 36 NY Jur 2d, Damages, § 129, at 222-223.)
The majority’s reliance on Wallen v Polo Grounds Bar & Grill (198 AD2d 19) and Wilson v Haagen Dazs Co. (201 AD2d 361) is misplaced. (See also, Rodriguez v Nachamie, 57 AD2d 920, 921.) In Wallen and Wilson, this Court held that a landlord which has exercised its contractual right to procure its own insurance covering the claims was not entitled to recover from the tenant for the amount of any eventual liability but only for the cost of its insurance premiums. In both cases, however, the lease’s insurance procurement provisions afforded the landlord the right to procure its own insurance and collect, as additional rent, the amount of the premium from the tenant. The fact that the parties thus agreed to a remedy for the tenant’s failure to comply with the procurement provision arguably affords a rationale for limiting the landlord’s damages if it fails to utilize that remedy. No such provision is contained in the lease in this case.
In any event, this recent line of cases can be traced to the 1977 decision in Rodriguez v Nachamie (supra, 57 AD2d 920). In light of Kinney v Lisk Co., (76 NY2d 215, supra), decided in 1990, which explicitly states that “because [the subcontractor] breached its agreement to procure liability insurance covering [the contractor], it is liable for the resulting damages, including [the contractor’s] liability to plaintiff’ (supra, at 219), Rodriguez v Nachamie’s limitation on damages for breach of an agreement to procure insurance is no longer valid. Thus, these recent cases, to the extent that they disagree with the principle that the proper measure of damages in claims for breach of an agreement to procure insurance is the resulting loss sustained, including the expense of defending the underlying third-party claim, misconstrue prevailing law.
To accept the result reached by the majority would remove the incentive for the tenant to comply with the procurement provision and would reward the tenant for its failure to comply, thus rendering the procurement provision meaningless. (See, Santamaria v 1125 Park Ave. Corp., 238 AD2d 259, 260.) In addition, the majoritys holding ignores the fact that, by including this provision in their agreement, the parties, sophisticated business entities, did not merely allocate the cost of insurance *130premiums, but rather, allocated the risk of loss through the employment of insurance.1
Nor can it be said that the landlord will receive a windfall by virtue of any recovery against the tenant.2 The landlord’s insurer, upon payment of the indemnity to the injured third party and after providing a defense of the underlying action, would be automatically entitled, as a subrogee, to the landlord’s rights against the tenant for its breach of its obligation to provide the landlord with liability coverage. (See, Winkelmann v Excelsior Ins. Co., 85 NY2d 577, 581.) One of the objectives of subrogation is “to require the party who has caused the damage to reimburse the insurer for the payment the insurer has made.” (Supra, at 581.) Thus, any recovery from the assertion of such right would—quite properly—be for the benefit of the insurer, not the landlord. The overriding principle here, which hardly needs to be stated, is that the parties to a transaction such as this are free to allocate the risk of loss as they see fit through insurance. (Interested Underwriters at Lloyds v Ducor’s, Inc., 65 NY2d 647.)
Tom and Rubin, JJ., concur with Saxe, J.; Sullivan, P. J., and Buckley, J., dissent in a separate opinion by Sullivan, P. J.
Order, Supreme Court, New York County, entered February 19, 1999, modified, on the law, to the extent of adding the right of third-party plaintiffs to seek damages for any other expense arising out of the liability claim and not covered by substitute insurance, and as so modified, affirmed, without costs, and the matter remanded for determination of third-party plaintiffs’ damages.

. There is not the slightest hint in this record that the landlord purchased liability insurance just for the demised premises in question, knowing that the tenant had failed to provide such coverage for the landlord’s benefit. The notion that the landlord of a large office building in midtown Manhattan would not have building-wide liability coverage and would thereby expose itself to the consequences of allowing any part of its premises to remain uninsured is unrealistic. In any event, the landlord’s knowledge of the tenant’s default in procuring insurance for the landlord’s account is of no legal consequence under the procurement provision here.

. To the extent that whichever way this case turns out, one of the parties will be viewed as receiving a windfall, the tenant should not be allowed to reap an undeserved benefit at the landlord’s expense in the face of its failure to comply with its clear contractual obligations. (Supra.)