Christie's art storage facility at 100 Imlay St. in Red Hook, Brooklyn
Christie’s art storage facility at 100 Imlay St. in Red Hook, Brooklyn (New York Daily News)

An insurer’s lawsuit against Christie’s Fine Art Storage Services, claiming Christie’s is liable for the cost of artwork damaged during Hurricane Sandy, has been revived by a state appellate court.

The Appellate Division, First Department, ruling Thursday could influence the outcome of two other insurance carriers’ suits dismissed by the same trial judge, Manhattan Supreme Court Justice Saliann Scarpulla, which are also being appealed.

All told, the three suits allege more than $12.3 million in damages against Christie’s.

Blank Rome partner William Bennett III, who represents Christie’s in the three suits, said of the ruling, “We think it’s incorrect and we intend to address it.”

The plaintiff, XL Specialty Insurance Co., was acting as a subrogee to Chowaiki & Co. Fine Art Ltd., a private fine art gallery.

Under a 2011 agreement, Chowaiki had stored artwork at a warehouse owned and managed by Christie’s in Red Hook, Brooklyn, a low-lying coastal area known to have a high risk of flooding, according to the XL complaint.

Prior to Hurricane Sandy, Christie’s notified Chowaiki in an email that “extra precautions” were being taken for Chowaiki’s property.

Specifically, Christie’s said, “all property on the first floor,” where Chowaiki’s artwork was stored would be “checked to ensure all items are raised off the floor,” or, if necessary, the goods would be removed to empty rooms on the upper floors of the storage facility.

During Hurricane Irene in 2011, the Christie’s facility flooded, but Christie’s had taken measures to protect Chowaiki’s items, according to the First Department ruling.

But when Hurricane Sandy hit in 2012, the facility flooded and Chowaiki’s goods were damaged, apparently because they were left on the first floor, the panel said.

Under an insurance policy, XL reimbursed Chowaiki for the losses. It then sued Christie’s in October 2013 seeking more than $704,000 in damages.

XL alleges Christie’s acted negligently in the caring, storing and handling of the artwork and breached the storage agreement by failing to relocate the artwork to a higher floor in anticipation of Sandy.

XL also alleges that Christie’s made fraudulent misrepresentations to Chowaiki by stating it would relocate the artworks to a higher floor.

Christie’s moved to dismiss based on the storage agreement and a loss damage liability waiver signed by Chowaiki. That waiver provided that Chowaiki was responsible for arranging insurance coverage for the artwork, ultimately provided by XL.

The waiver also absolved Christie’s of all responsibility for damage to Chowaiki’s goods and required Chowaiki to notify its insurer of the waiver and arrange for it to waive any rights of subrogation against Christie’s for any damage to the artwork.

In September 2014, Scarpulla dismissed XL’s lawsuit based on the waiver of subrogation provision.

The panel, which included Justices Peter Tom, John Sweeny Jr., Richard Andrias and Judith Gische, said that Scarpulla correctly found that the agreement between Chowaiki and Christie’s created a bailor/bailee relationship under the Uniform Commercial Code and that a limitation of liability in that agreement was unenforceable.

The panel, however, found Scarpulla erred in finding that the waiver of subrogation is enforceable and bars the XL suit.

It noted that under UCC 7-204(a), a warehouse is liable for damages for injury to goods caused by its failure to exercise care “that a reasonably careful person” would exercise under similar circumstances.

“There is a question of fact concerning whether [Christie's], in failing to move Chowaiki’s goods to either another floor, or to a location above ground level on the floor they were on, was reasonable under the circumstances,” the panel said in XL Specialty Insurance Co. v. Christie’s Fine Art Storage Services, 159926/13.

“If the trier of fact finds that defendant did not act reasonably, then defendant may be liable for damages to Chowaiki’s goods,” it said.

The panel cited Kimberly-Clark Corp. v. Lake Erie Warehouse, Div. of Lake Erie Rolling Mill, 49 AD2d 492 (4th Dept 1975), in which that court noted that while the UCC permits a warehouseman to limit the amount of liability, it cannot completely exempt itself from liability as imposed by UCC Article 7.

The XL case now goes back to Supreme Court for further proceedings.

Two other insurers, AXA Art Insurance Corp. and StarNet Insurance Co., as subrogees to other parties, also sued Christie’s in 2013, alleging that artwork stored at the Brooklyn warehouse was damaged during Hurricane Sandy and Christie’s failed to move the items.

Scarpulla dismissed both of those suits in January 2016, again citing waiver of subrogation, and AXA and StarNet in the last two months have filed notices of appeal.

Eliot Greenberg, a partner at Rosner Nocera & Ragone who represents both XL and StarNet, said he was pleased with the ruling. He declined further comment.

Dennis Wade, a partner of Wade Clark Mulcahy who represents AXA, said, “Our view is the Appellate Division, First Department, got it right, and it is dispositive of our case as well.”

He added that the ruling likely moots his appeal and AXA will likely move to renew in Supreme Court now “that there’s new controlling precedent in the First Department.”