In Liberty Mutual Ins. Co. v. Perfect Knowledge, Inc. (N.Y.App.Div. 2002) 299 A.D.2d 524 752 N.Y.S.2d 677, a tenant's contractor caused a fire that damaged the building. The landlord's insurer paid $ 1 million for losses the landlord suffered.

The insurer then sued the tenant, in subrogation, for negligence and breach of contract. The trial court granted the insurer partial summary judgment, striking the tenant's affirmative defense of a subrogation waiver in the lease, and denied the tenant's motion for summary judgment based on that waiver. After first noting that subrogation waivers "are generally valid and enforceable" (Liberty Mutual, supra, 752 N.Y.S.2d at p. 678), the appellate division affirmed.

The tenant had breached three provisions of the lease requiring insurance, by obtaining only two-thirds the required amount of liability coverage, failing to list the landlord as an insured, and hiring a contractor who did not have liability insurance.

The court explained its holding as follows: "Waiver of subrogation provisions exist as part and parcel of a risk allocation agreement whereby liability is shifted to the insurance carriers of the parties to the agreement . Such an agreement is necessarily premised on the procurement of insurance by the parties. Here, however, tenant breached certain provisions of the lease with respect to the procurement of insurance... . Without the procurement of insurance, the shifting envisioned under the agreement could not take place, and the agreement was frustrated. Therefore, tenant is not entitled to enforcement of the waiver provisions in the lease." (Liberty Mutual, supra, 752 N.Y.S.2d at pp. 678-679.)