## Facts

- A fine art gallery stored artwork at a professional art storage facility under a managed storage agreement.
- The agreement offered (a) limited storage-company liability capped at the lower of $100,000 or market value, or (b) a loss/damage waiver stating the storage company would not be liable for physical loss or damage.
- The waiver option required the gallery to maintain insurance and to notify its insurer and arrange a waiver of subrogation against the storage company.
- The gallery chose the loss/damage waiver and maintained an all-risks fine arts policy with the insurer; the agreement was renewed for a second year.
- The storage facility had previously experienced flooding from a storm, with minimal damage because first-floor artwork had been elevated.
- Before a major storm, the storage company emailed the gallery that extra precautions would be taken, including raising first-floor property off the floor and moving goods to upper floors if needed.
- The gallery’s first-floor artwork was not adequately protected and was damaged by floodwater.
- The insurer paid the loss and, as subrogee, sued the storage company alleging negligence and seeking recovery notwithstanding the contractual waivers.
- The trial court granted the storage company’s motion to dismiss based on the waiver provisions; the insurer appealed.

## Issues

1. Whether the loss/damage waiver and waiver-of-subrogation provisions barred the insurer’s subrogation claims at the pleading stage.
2. Whether public policy and the alleged conduct (including knowledge of flood risk and asserted precautions) limited enforcement of contractual exculpation and subrogation-waiver provisions in a commercial bailment.

## Decision

- The appellate court reversed the dismissal order and denied the motion to dismiss.
- The court held that, accepting the complaint’s allegations as true, it was premature to conclude the waiver provisions barred the claims as a matter of law.
- The court determined factual development was needed regarding the storage company’s conduct and the existence and scope of any effective waiver of subrogation binding the insurer.

## Legal Principles

- Exculpatory clauses and related risk-allocation terms in commercial contracts are enforceable only to the extent consistent with public policy and are strictly construed.
- Contractual provisions do not shield a party from liability for gross negligence, and allegations supporting conduct beyond ordinary negligence generally preclude dismissal on the pleadings.
- In a bailment, a bailee’s duties to safeguard property and allegations of failure to protect against a known risk can raise fact questions not resolvable on a motion to dismiss.
- A contractual requirement that the bailor obtain a waiver of subrogation from its insurer does not automatically establish, on the pleadings alone, that the insurer waived subrogation or is bound by such a waiver.

## Conclusion

The court reinstated the insurer’s subrogation action, holding that the storage agreement’s loss/damage waiver and waiver-of-subrogation language did not justify dismissal where the complaint alleged inadequate flood precautions despite prior risk awareness and where the effectiveness and scope of any insurer subrogation waiver required further factual development.


XL Specialty Ins. Co., as Subrogee of Chowaiki & Co., Fine Art Ltd. v. Christie’s Fine Art Storage Servs., Inc., 137 A.D.3d 563 (N.Y. App. Div. 1st Dep’t 2016)