Chaos in the courts as insurers fight to recover Superstorm Sandy losses

Three lawsuits allege that a storage facility company, a subsidiary of Christie’s, failed to take proper precautions, despite urgent warnings

Who is left holding the bag for the estimated $300m in art damages caused by Superstorm Sandy in 2012? That question is being debated in three separate lawsuits in New York state court. Insurance companies are suing Christie’s Fine Art Storage Services (CFASS), a subsidiary of the auction house which runs a warehouse in Brooklyn that was flooded when Sandy struck.

Whether some of the contested $12m losses to art stored in the Brooklyn facility ultimately fall on CFASS or the insurers may hinge on the appeal of the one case decided so far: the lower court ruled that the insurers had no right to sue the storage firm.

The insurers want to recover the sums they paid after the storm to the Leroy Neiman Foundation, Madison Avenue’s Chowaiki gallery and the trust in the name of Jacqueline Piatigorsky, the wife of the cellist Gregor. All three stored works of art at the Brooklyn warehouse. The insurers are arguing that the facility should be liable because it failed to move works off the ground floor or to elevate them, despite warnings that Sandy would be “the storm of the century”.

An insurer can stand in the shoes of a policyholder in an action called subrogation and sue the wrongdoer to recover money it paid under its insurance policy. But in a decision issued last September, Judge Saliann Scarpulla ruled that XL Specialty Insurance could not sue CFASS. She dismissed the lawsuit because XL’s policyholder, the Chowaiki gallery, signed a storage contract with the storage firm that included a clause waiving XL’s right of subrogation. Chowaiki may have violated its insurance policy, which did not permit it to waive XL’s right to sue. But the court said that this matter between the insurer and the policyholder was not its concern. XL is now working on its motion asking the appellate court to overturn that decision, says its attorney Eliot Greenberg of Rosner, Nocera & Ragone, who declined to comment further.

The storage firm has also moved to dismiss two other cases—brought by StarNet Insurance and Axa Art Insurance—arguing its contracts with the Piatigorsky trust and Neiman Foundation have the same clause waiving the right of subrogation. None of the lawyers in those cases responded to our inquiries.

“Waiver clauses are common in this kind of situation…the parties are free to shift the loss to the insurer,” says Alan Lyons, the head of Herrick Feinstein’s insurance group.

If the allegations against CFASS are true, they are damning. Its warehouse is located in an area in Brooklyn that government authorities identified in advance of Sandy’s arrival as having the greatest risk of flooding. Constant news coverage preceding the storm and the governor’s declaration of a State of Emergency before Sandy hit should have alerted CFASS that the storm was likely to have a severe impact, the insurers say. Court papers quote an email CFASS sent its clients outlining the precautions it intended to take to safeguard the art in its care. These included checking property on the first floor “to ensure all items are raised off the floor” and adding that “empty rooms on upper floors…can house property if property movement is required”.

But the insurers say CFASS “never took any precautions”, to quote XL’s complaint. CFASS declined to comment on the ongoing litigation. However, in 2013, a spokeswoman told The Art Newspaper that Superstorm Sandy had caused damage at its Brooklyn facility “because the surge was not expected”.

If the decision in favour of the storage company is upheld, there is a “moral hazard” because it allows a warehouse owners to say “we can be negligent…we can’t be bothered” to adequately protect the art in our care, says art lawyer John Cahill, who is involved in an unrelated dispute with CFASS.