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Tenant Is All Wet As Res Judicata Won't Bar Subro. Case Despite Prior Settlement

January 28, 2008

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In Employers' Fire Insurance Company v. Brookner, 2008 NY Slip Op. 00448, AD Index 2007-02514, Kings Co. Index 13987/06, tenants and owners of a commercial building owned by RAIA Realty Corp allegedly sustained extensive water damage due to a faulty hose of a laser machine owned by Andrew Brookner, the third floor tenant. Employers' Fire Insurance Company, RAIA Realty Corp's insurer, paid the claims of its insureds and the first floor tenant.

Meanwhile the second floor tenants, Alexandra and Edward Etkin, commenced a lawsuit against RAIA, RAIA's principal and Brookner for property damage and personal injury stemming from this same incident. RAIA and its principal asserted crossclaims for contribution and indemnification against Brookner. Ultimately, without contribution from RAIA or its principal, Brookner paid the settlement reached, a stipulation of discontinuance was executed and the case was discontinued with prejudice.

Thereafter, Employers' Fire Insurance Company commenced a subrogation action against Brookner to recoup the monies paid to its insureds as a result of the water damage caused by Brookner's negligence. Brookner moved to dismiss, asserting that this subrogation action was barred by res judicata based upon the stipulation of discontinuance in the Etkin case, which arose from the same occurrence. The trial court denied this motion.

In affirming the lower court's decision, the Appellate Division - Second Department, stated that subrogee insurer stands in the shoes of its insureds and that the doctrine of res judicata only bars additional actions between the same parties, on the same claims, based upon the same harm. RAIA and its principal's crossclaims in the Etkin case were based upon Etkins' harm whereas the subrogation action was based upon the harm suffered by RAIA and its principal. Moreover, the stipulation of discontinuance in the Etkin case was silent as to the crossclaims. In the end, the Court determined since RAIA and its principal were not barred by res judicata, the subrogation action could proceed.

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