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Supreme Court, Appellate Division, Third Department, New York.

PEERLESS INSURANCE COMPANY, as Subrogee of RAINER'S GOURMET, INC., Respondent-Appellant, v. MICHAEL BESHARA, INC., et al., Appellants-Respondents.


Decided: July 01, 2010

Before:  Peters, J.P., Rose, Lahtinen, McCarthy and Egan Jr., JJ. Goldberg Segalla, L.L.P., Albany (Jonathan M. Bernstein of counsel), for appellants-respondents. Taylor & Associates, Albany (Sean A. Tomko of counsel), for respondent-appellant.


Calendar Date:  May 26, 2010

Cross appeals from an order of the Supreme Court (Williams, J.), entered April 6, 2009 in Saratoga County, which, among other things, granted defendants' motion for summary judgment dismissing the complaint.

In September 1998, Rainer Mehalick, the owner of Rainer's Gourmet, Inc., leased property from defendant Michael Beshara consisting of a large restaurant and storage building in the Village of South Glens Falls, Saratoga County.   The lease provided that Beshara certified that the heating and air circulating systems “are working and in good repair” and that “[a]ll future maintenance and repair are [l]essee's responsibility.”   Rainer's Gourmet occupied the property until February 2004, when water pipes froze and burst, causing water to flood the premises.   Following the flood, plaintiff paid an insurance claim to Rainer's Gourmet in the amount of $151,583.84.

Plaintiff, as subrogee of Rainer's Gourmet, thereafter commenced this action seeking to recover from defendants the sum it paid under the insurance policy.   In particular, the complaint alleges that defendants failed to provide a heating system that was in good repair and that the frozen pipes were caused by a heating malfunction.   Defendants interposed counterclaims against plaintiff for property damage, alleging that Mehalick was responsible for the heating system's maintenance and agreed to indemnify defendants for any loss resulting from the bursting of pipes.   Following joinder of issue, defendants moved and plaintiff cross-moved for summary judgment.   Supreme Court granted defendants' motion dismissing the complaint and, finding that the allegations underlying defendants' counterclaims only provide the basis for an affirmative defense of comparative negligence, dismissed the counterclaims as well.   The parties cross-appeal.

Plaintiff contends that summary judgment dismissing the complaint was inappropriate because a question of fact exists as to whether Beshara provided a heating system that was “working and in good repair” at the commencement of the lease.   Initially, we find that defendants made a prima facie showing of entitlement to judgment as a matter of law.   In support of the motion, defendants proffered deposition testimony establishing that Beshara sent a vendor to the property at the time the lease commenced to start up the heating units and ensure that they were operational, and relied on the term of the lease agreement providing that Mehalick was responsible for all future maintenance and repair of the heating and air circulating systems.   Further, Beshara testified that he never had problems with the heating system when he used the property as a restaurant and was not aware that there was a problem with the system until 2003.

In opposition, plaintiff raised a triable issue of fact.   Mehalick testified that he experienced problems with the heating system “from day one” of the lease and throughout the entirety of the tenancy.   Although he confirmed that Beshara had a vendor “fire the unit[s] up” and warranted that they worked properly at the time the lease commenced, Mehalick also testified that the units only came on intermittently, as was the case during the entire time he leased the property.   Plaintiff also provided the testimony of Paul White, a heating service technician who had worked on the heating system at the property for the past 25 to 30 years.   White testified that he inspected the system within three months of the commencement of the lease and found it to be old, in poor condition and unsafe.   He explained that one half of one of the units was not functioning at all and that, even at the beginning of the lease, the units were not in good working order and were simply too old to be repaired or restored.   Viewing this evidence in a light most favorable to plaintiff and according it the benefit of every reasonable inference that can be drawn therefrom (see Ballou v Ravena-Coeymans-Selkirk School Dist., 72 AD3d 1323, 1326 [2010];  Gadani v Dormitory Auth. of State of N.Y., 43 AD3d 1218, 1219 [2007] ), we find that plaintiff raised a genuine issue of fact as to whether Beshara fulfilled his duty of providing a heating system that was “working and in good repair” in the first instance (cf.  Padovano v. Vivian, 217 A.D.2d 868, 869-870 [1995] ).

Turning to defendants' cross appeal, we likewise find that outright dismissal of the counterclaims was improper.   It is well settled that “[a] subrogee acquires all rights, defenses and remedies of the subrogor and is subject to any claims or defenses which may be raised against the subrogor” (Servidori v. Mahoney, 129 A.D.2d 944, 945 [1987];  see United States Fid. & Guar. Co. v Smith Co., 46 N.Y.2d 498, 504 [1979];  Solomon v Consolidated Resistance Co. of Am., 97 A.D.2d 791, 792 [1983] ).   Having commenced the instant action, plaintiff stepped into the shoes of Rainer's Gourmet, “succeeding to the benefits which it might bring, but chargeable to the extent of it with the liabilities of [Rainer's Gourmet]” (Seibert v. Dunn, 216 N.Y. 237, 245-246 [1915] [emphasis added] ).   Despite plaintiff's contention and Supreme Court's conclusion to the contrary, defendants' claims may properly be interposed as counterclaims (see Siegel, N.Y. Prac § 226 [4th ed];  Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3019:5, at 210-211;  see also Allstate Ins. Co. v. Babylon Chrysler Plymouth, 45 A.D.2d 969 [1974];  cf.  James Talcott, Inc. v. Winco Sales Corp., 14 N.Y.2d 227, 231-233 [1964] ).   However, they cannot effect an affirmative recovery against plaintiff, but rather may be maintained against plaintiff in the present action only to the extent of setting off plaintiff's claim (see Allstate Ins. Co. v. Babylon Chrysler Plymouth, 45 A.D.2d at 969;  see also Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3019:5, at 210;  Travelers Indem.  Co. v. Zeff Design, 23 Misc.3d 1121[A], *2 [2009];  Allstate Ins. Co. v. Trans Hudson Express, Inc., 4 Misc.3d 1029[A], *2-3 [2004] ).   In order to seek affirmative relief, defendants must commence an independent action against Rainer's Gourmet or implead Rainer's Gourmet on the counterclaims (see CPLR 3019[d];  see also Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3019:5, at 211).

The parties' remaining contentions have been reviewed and are either without merit or have been rendered academic by our decision.

Rose, Lahtinen, McCarthy and Egan Jr., JJ., concur.

ORDERED that the order is modified, on the law, without costs, by reversing so much thereof as granted defendants' motion for summary judgment and granted plaintiff's cross motion for summary judgment dismissing defendants' counterclaims to the extent that they seek to set off plaintiff's claim;  motion and cross motion denied to said extent;  and, as so modified, affirmed.


Michael J. Novack

Clerk of the Court

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