author: Chief Judge Lippman. Smith, J.

text:
    [25 NE3d 916, 2 NYS3d 3]
    In the Matter of Roseann Kilduff, Respondent, v Rochester City School District et al., Appellants.
    Argued October 16, 2014;
    decided November 20, 2014

      POINTS OF COUNSEL

      Edwin Lopez-Soto, General Counsel, Rochester City School District, Rochester (Cara M. Briggs and Steven G. Carling of counsel), for appellants.
    I. The plain meaning of the statute does not support Roseann Kilduff s or the Appellate Division’s interpretation. (Matter of DaimlerChrysler Corp. v Spitzer, 7 NY3d 653; Matter of Long v Adirondack Park Agency, 76 NY2d 416; Long v State of New York, 7 NY3d 269.) II. The Appellate Division failed to consider the legislative history of Education Law § 3020 (1). (Matter of Professional Staff Congress-City Univ. of N.Y. v New York State Pub. Empl. Relations Bd., 7 NY3d 458.) III. The legislative history indicates an intent to allow alternate disciplinary procedures to survive until those procedures are renegotiated. (Matter of DaimlerChrysler Corp. v Spitzer, 7 NY3d 653; McGaffin v City of Cohoes, 74 NY 387.)

      Richard E. Casagrande, General Counsel, New York State United Teachers, Latham {Anthony J. Brock of counsel), for respondent.
    I. The Appellate Division correctly ruled that respondent is entitled to a hearing pursuant to Education Law §§2573 (5); 3020 and 3020-a because she is a tenured educator subjected to disciplinary action. (Matter of Lynch v Nyquist, 41 AD2d 363, 34 NY2d 588; Holt v Board of Educ. of Webutuck Cent. School Dist., 52 NY2d 625; Ricca v Board of Educ. of City School Dist. of City of N.Y., 47 NY2d 385; Matter of Mannix v Board of Educ. of City of N.Y., 21 NY2d 455; Matter of Boyd v Collins, 11 NY2d 228; Matter of Abramovich v Board of Educ. of Cent. School Dist. No. 1 of Towns of Brookhaven & Smithtown, 46 NY2d 450; Matter of Lambert v Board of Educ. of Middle Country Cent. School Dist., 174 Misc 2d 487; Matter of American Broadcasting Cos. v Roberts, 61 NY2d 244.) II. Education Law § 3020 conferred upon the respondent the right to make an election between the alternate disciplinary procedures contained in the collective bargaining agreement, and the disciplinary procedures in Education Law § 3020-a. (A.J. Temple Marble & Tile v Union Carbide Marble Care, 87 NY2d 574.)
   OPINION OF THE COURT

Chief Judge Lippman.

By letter dated September 23, 2011, respondent School District notified petitioner, a tenured school social worker, that she was to be suspended for 30 days without pay for specified misconduct. Petitioner made a written request for a hearing on the specifications pursuant to Education Law § 3020-a, but was advised by respondent that she was not entitled to the process prescribed in that statute, and could challenge the disciplinary determination against her only by means of the procedures set forth in the collective bargaining agreement (CBA) between the School District and the Rochester Teachers Association, then most recently renegotiated in 2006. That agreement provided in relevant part:

“Except as specified elsewhere in this Section, any disciplinary action imposed upon any eligible teacher may be processed as a grievance and arbitration procedure” (emphasis added).

After unsuccessfully grieving the matter via the process specified in the CBA, petitioner commenced this CPLR article 78 proceeding to annul the disciplinary determination, alleging that she had been disciplined without being afforded the process to which she was entitled under the Education Law as a tenured school district employee. She pointed out that the relevant CBA had been altered through renegotiation and had taken effect since September 1, 1994, and that Education Law § 3020 (l) required, in substance, that all CBAs altered by renegotiation or becoming effective on or after September 1, 1994 afford eligible (i.e., tenured) school district employees the option of challenging the imposition of discipline by the process set forth in Education Law § 3020-a, notwithstanding the provision of an alternative process in a CBA. Supreme Court, however, understood Education Law § 3020 (1) to grandfather alternative, mandatorily prescribed pre-September 1, 1994 CBA discipline procedures for as long after September 1, 1994 as those procedures remained unaltered, even if the CBA in which they were contained had during the same period been altered in other respects through renegotiation.

Finding this understanding of the statute at odds with the provision’s plain language, the Appellate Division reversed and granted the petition (107 AD3d 1536, 1537 [2013]). It read the statute categorically to require that all CBAs becoming effective on or after September 1, 1994 afford eligible employees facing discipline the right to elect the review process provided by Education Law § 3020-a, even if the CBA retained an unaltered alternative grievance procedure originally agreed upon before September 1, 1994 (107 AD3d at 1537). Inasmuch as the governing CBA took effect in 2006, petitioner, in the court’s view, had the right pursuant to Education Law § 3020 (1) to choose the statutory review process over the alternative grievance procedure contained in the CBA, and the School District’s failure to honor that right required the annulment of the challenged discipline, imposed without the process to which petitioner was entitled (id.). The matter is now before us pursuant to leave granted by this Court (22 NY3d 854 [2013]) and we affirm.

Prolix though the governing statute, Education Law § 3020 (1), may seem, it is plain that the legislative intent informing its 1994 amendment (L 1994, ch 691) was to assure that tenured educators against whom formal disciplinary charges were lodged could avail themselves, if they so chose, of the procedural protections set forth in contemporaneously amended Education Law § 3020-a. While section 3020 (1) does “grandfather” preSeptember 1, 1994 CBA discipline review procedures contained in unaltered CBAs, its evidently dominant purpose was prospectively to secure the right of tenured employees to avail themselves of the process set forth in Education Law § 3020-a. That purpose and the indefinite retention of mandatory alternative CBA review procedures are not easily, if at all, reconcilable. With that in mind, we believe the statute must be understood to sunset CBA provisions depriving tenured employees of the section 3020-a recourse to which they are otherwise entitled. Respondents object that the phasing out of these provisions would deprive the CBA parties of a bargained for benefit or detriment, but it is manifest that the 1994 amendment of Education Law § 3020 (1) was intended precisely to render a tenured employee’s right to elect the statutory process in the event of discipline generally nonnegotiable. We have, of course, previously recognized the importance the legislature has accorded the status of tenure in the educational context as well as its attendant purpose to preserve the process by which tenured educators are to be disciplined and removed against the vagaries of collective bargaining (see Holt v Board of Educ. of Webutuck Cent. School Dist., 52 NY2d 625, 632 [1981]).

While, understandably, the legislature did not in its 1994 amendment of section 3020 (1) undertake to invalidate negotiated provisions in then operative CBAs, or to disallow the continued inclusion in CBAs of alternative, more “streamlined” discipline procedures, neither did it countenance the indefinite perpetuation of CBA terms depriving tenured employees of the choice of process it expressly guaranteed. Thus, the statute unambiguously provides that when a CBA is altered by renegotiation or takes effect on or after September 1, 1994, it must permit tenured employees to elect section 3020-a’s discipline review procedures, notwithstanding the availability of alternative, CBA-prescribed procedures. The School District’s and dissent’s proposed interpretation — that only renegotiation of alternative CBA discipline procedures themselves (as opposed to renegotiation of the CBA in which they are contained), is capable of triggering the statutorily required employee option — is not only grammatically unavailable (since the phrases “that was effective” and “and has been unaltered by renegotiation” unmistakably refer to the CBA in its entirety and not to any distinct CBA components), but at odds with section 3020 (l)’s manifest purpose of eventually ensuring that all tenured educators will have the nonnegotiable right to avail themselves of the disciplinary process prescribed by the 1994 Education Law amendments.

The relevant legislative history does not suggest that respondent’s proposed gloss is viable. It is true that that history does indicate that a purpose of the 1994 amendments was to continue to authorize the use of alternative, bargained-for discipline procedures (see e.g. Governor’s Program Bill Mem, Bill Jacket, L 1994, ch 691 at 7-9), but it does not follow that the legislature also meant to deny tenured educators facing discipline the right to elect the likely more protective review procedures set forth in Education Law § 3020-a. That section, we note, was extensively revised as part of the 1994 Education Law amendments to make the statutory review process less cumbersome. And, in view of that reworking, the rationale for permitting the statutory process to be supplanted by bargained-for CBA alternatives became significantly less compelling. In any case, it is the language of the statute that is the best evidence of the legislature’s intent (Riley v County of Broome, 95 NY2d 455, 463 [2000]), and Education Law § 3020-a plainly provides that, in any CBA taking effect on or after September 1, 1994, tenured employees must be permitted to elect the discipline procedures set forth in Education Law § 3020-a. Here, as the Appellate Division correctly observed, the determinative circumstance is that the governing renegotiated CBA became effective in 2006.

We would add that, while the statute would trump a CBA provision becoming effective on or after September 1, 1994 relegating a tenured employee exclusively to a non-statutory discipline procedure, we perceive no reason to conclude that the present CBA in fact does that. It provides merely that a disciplinary action “may,” not that it “must,” be processed in accordance with the agreement’s grievance and arbitration provisions. Indeed, the record strongly suggests that it was only in view of the optional, and therefore statutorily inoffensive, character of the contractually available discipline process, that the provision, originally negotiated prior to September 1, 1994, was retained unaltered in the parties’ subsequent CBAs. Thus, even under the CBA itself, petitioner may well have not been foreclosed from invoking the statutory procedure.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Smith, J.

(dissenting). The Legislature amended Education Law § 3020 (1) effective September 1, 1994, to require that tenured teachers and other educators be allowed to elect the procedures contained in Education Law § 3020-a in preference to any other procedures that might be provided in a collective bargaining agreement. The amendment contained a grandfather clause, allowing discipline “in accordance with alternate disciplinary procedures contained in a collective bargaining agreement . . . that was effective on or before September first, nineteen hundred ninety four and has been unaltered by renegotiation.” The majority interprets the words “and has been unaltered by renegotiation” in a way that gives them substantially no effect. Under today’s decision, the Legislature was wasting its time when it put those six words in the statute.

The School District here seeks to enforce alternative disciplinary procedures that have been preserved unchanged in collective bargaining agreements with petitioner’s union since at least 1992. The majority says that these procedures are not within the grandfather clause because, though the procedures have been continued in existence, they are not in the same agreement that they once were; the collective bargaining agreement has been replaced by successor agreements, and its terms have been altered in ways irrelevant here, several times since September 1, 1994.

The majority makes no attempt to answer the question: What was the Legislature trying to accomplish when it wrote the words “and has been unaltered by renegotiation”? If those words were not there, the statute would mean essentially the same thing that the majority says it means. It would grandfather disciplinary procedures “contained in a collective bargaining agreement . . . that was effective on or before” September 1, 1994. It seems to me that the obvious purpose of the “unaltered by renegotiation” language is to extend the grandfather clause’s protection to procedures that remain unaltered in subsequent agreements.

The majority makes essentially two arguments in defense of its reading of the statute. First, it points out that grammatically only the singular noun “agreement,” not the plural noun “procedures,” can be the subject of the verb “has been unaltered.” Secondly, it says that the School District’s interpretation is “at odds with” the Legislature’s “manifest purpose of eventually ensuring that all tenured educators will have the nonnegotiable right to avail themselves” of section 3020-a procedures (majority op at 510). I concede the grammatical point, but it seems to me much more likely that the Legislature made a grammatical error than that it intended the words “and has been unaltered by renegotiation” to be inconsequential. The majority’s other point seems to me without force. Every grandfather clause makes an exception to the accomplishment of the legislative purpose. That is what a grandfather clause is.

Judges Graffeo, Rivera and Abdus-Salaam concur; Judge Smith dissents in an opinion in which Judges Read and Pigott concur.

Order affirmed, with costs.

      . In a subsequent subsection of the CBA it is provided that no eligible teacher may be discharged without the process prescribed in Education Law §§ 3020 and 3020-a.

      . The portion of Education Law § 3020 (1) relevant to the issues presently raised states:
      “No person enjoying the benefits of tenure shall be disciplined or removed during a term of employment except for just cause and in accordance with the procedures specified in section three thousand twenty-a of this article or in accordance with alternate disciplinary procedures contained in a collective bargaining agreement covering his or her terms and conditions of employment that was effective on or before September first, nineteen hundred ninety-four and has been unaltered by renegotiation, or in accordance with alternative disciplinary procedures contained in a collective bargaining agreement covering his or her terms and conditions of employment that becomes effective on or after September first, nineteen hundred ninety-four; provided, however, that any such alternate disciplinary procedures contained in a collective bargaining agreement that becomes effective on or after September first, nineteen hundred ninety-four, must provide for the written election by the employee of either the procedures specified in such section three thousand twenty-a or the alternative disciplinary procedures contained in the collective bargaining agreement” (emphasis added).

      . The grandfathering language which the dissent finds so significant as to justify the conclusion that the legislature made a grammatical error, even though textually the statute is grammatically unflawed, obviously does no more than emphasize that the statute is not intended to undo still effective pre-September 1, 1994 CBAs. We decline to ascribe to it a counter-textual purpose on the general theory that all grandfathering provisions are at cross-purposes with a broader legislative objective. That may be conceptually true but is not a particularly useful observation where, as here, the question is not whether there is some measure of grandfathering intended, but its extent. The statute, read in its entirety, addresses that question clearly and indeed with grammatical precision. It presents no occasion for the interpretive liberty the dissent proposes.

      . Indeed, it was understood at the time of the legislation’s consideration that “[f]or collective bargaining agreements containing disciplinary procedures which are effective after September 1, 1994, the employee must be able to elect either the procedures contained in the agreement or those contained in 3020-a” (Governor’s Off of Employee Relations Mem in Support, Bill Jacket, L 1994, ch 691 at 24 [emphasis supplied]).

      . That the CBA required section 3020-a process where the discharge of a tenured employee was sought, does not mean, as the District contends, that it purported to preclude a tenured employee from electing such process where less serious discipline was at issue.


source: Caselaw Access Project

author: Smith, J.

license: Public Domain

text:
    [25 NE3d 921, 2 NYS3d 8]
    Juan Sierra, Plaintiff, v 4401 Sunset Park, LLC, et al., Defendants/Third-Party Plaintiffs-Respondents. LM Interiors, Contracting, LLC, Third-Party Defendant, and Scottsdale Insurance Company, Third-Party Defendant-Appellant. (And a Second Third-Party Action.)
    Argued October 22, 2014;
    decided November 24, 2014

      POINTS OF COUNSEL

      Goldberg Segallo, LLP, Albany (Matthew Lerner and Carrie Appier of counsel), for third-party appellant.
    I. Scottsdale Insurance Company complied with Insurance Law § 3420 (d) by sending a written disclaimer to the purported additional insureds’ insurer within 27 days of receiving notice of claim. (Matter of

      Allcity Ins. Co. [Jimenez], 78 NY2d 1054, 79 NY2d 823; First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64; Zappone v Home Ins. Co., 55 NY2d 131; Cincinnati Ins. Cos. v Sirius Am. Ins. Co., 51 AD3d 1365; Excelsior Ins. Co. v Antretter Contr. Corp., 262 AD2d 124; 233 E. 17th St., LLC v L.G.B. Dev., Inc., 78 AD3d 930; Industry City Mgt. v Atlantic Mut. Ins. Co., 64 AD3d 433; J.T. Magen v Hartford Fire Ins. Co., 64 AD3d 266, 13 NY3d 889; Thrasher v United States Liab. Ins. Co., 19 NY2d 159.) II. 4401 Sunset Park, LLC’s and Sierra Realty Corp.’s late notice of Juan Sierra’s accident vitiates coverage under Scottsdale Insurance Company’s insurance policy. (Argo Corp. v Greater N.Y. Mut. Ins. Co., 4 NY3d 332; Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436; Power Auth. of State of N.Y. v Westinghouse Elec. Corp., 117 AD2d 336; Allstate Ins. Co. v Moon, 89 AD2d 804; Zadrima v PSM Ins. Cos., 208 AD2d 529, 85 NY2d 807; Herold v East Coast Scaffolding, 208 AD2d 592; Winstead v Uniondale Union Free School Dist., 201 AD2d 721; Mason v Allstate Ins. Co., 12 AD2d 138; Vanderbilt v Indemnity Ins. Co. of N. Am., 265 App Div 495; Abitante v Home Indem. Co., 240 App Div 553.)

      Brill & Associates, PC., New York City (Corey M. Reichardt of counsel), and Margaret G. Klein & Associates, New York City, for third-party respondents.
    I. Scottsdale Insurance Company failed to comply with the statutory requirements of Insurance Law § 3420 (d) as it failed to give written notice of disclaimer to its additional insureds. (Industry City Mgt. v Atlantic Mut. Ins. Co., 64 AD3d 433; J.T. Magen v Hartford Fire Ins. Co., 64 AD3d 266, 13 NY3d 889; Greater N.Y. Mut. Ins. Co. v Chubb Indem. Ins. Co., 105 AD3d 523; 233 E. 17th St., LLC v L.G.B. Dev., Inc., 78 AD3d 930; Matter of Eveready Ins. Co. v Dabach, 176 AD2d 879; 2619 Realty v Fidelity & Guar. Ins. Co., 303 AD2d 299; West 56th St. Assoc. v Greater N.Y. Mut. Ins. Co., 250 AD2d 109; Chimart Assoc. v Paul, 66 NY2d 570; Cincinnati Ins. Cos. v Sirius Am. Ins. Co., 51 AD3d 1365; Excelsior Ins. Co. v Antretter Contr. Corp., 262 AD2d 124.) II. Scottsdale Insurance Company’s argument that 4401 Sunset Park, LLC and Sierra Realty Corp.’s “late notice of accident” vitiates coverage under Scottsdale’s insurance policy is not properly before this Court for review.
   OPINION OF THE COURT

Smith, J.

Insurance Law § 3420 (d) (2) requires a liability insurer that disclaims liability to give written notice of the disclaimer “to the insured.” This case involves parties who were insureds under two different policies: they were named insureds under their own policy, and additional insureds under a policy obtained by a contractor they had hired. The contractor’s insurer, seeking to disclaim liability, sent written notice to the insureds’ own carrier, but not to the insureds themselves. We hold that this did not meet the requirement of the statute.

I

4401 Sunset Park, LLC and Sierra Realty Corp., defendants and third-party plaintiffs in this action, are respectively the owner and managing agent of an apartment building in Brooklyn. They contracted with third-party defendant LM Interiors Contracting, LLC to do renovation work on the building. The contract required LM to maintain liability insurance that named the owner and managing agent as additional insureds, and LM obtained such a policy from third-party defendant Scottsdale Insurance Company. The owner and managing agent also had their own liability insurance policy, issued by Greater New York Mutual Insurance Company (GNY).

On August 18, 2008, plaintiff, Juan Sierra, an LM employee (unrelated to the managing agent, Sierra Realty Corp.), lost a finger in an accident while working on the renovation project. The managing agent learned of the accident that day, but gave no notice of it to either GNY or Scottsdale. More than three months later, on November 30, 2008, plaintiff brought this action seeking damages for personal injuries against the owner and the managing agent, and at this point they notified GNY of the claim. GNY retained a lawyer for its insureds, but neither the insureds nor GNY informed Scottsdale of the injury or the claim until January 6, 2009, when GNY sent the summons and complaint to Scottsdale. In a letter that accompanied the summons and complaint, GNY asked Scottsdale to “respond in writing upon receipt of this letter whether you will defend, indemnify and hold our insured harmless in connection with this lawsuit.” The letter included the name and address of the law firm that GNY had retained to answer the complaint on the insureds’ behalf.

Scottsdale replied to GNY on February 2, 2009, disclaiming liability on various grounds, including the insureds’ failure to comply with their obligation under the policy “to see to it that we are notified as soon as practicable of an ‘occurrence’ which may result in a claim.” Scottsdale did not send its letter to the owner and managing agent (its additional insureds and GNY’s insureds) or to the lawyer representing the insureds in this action.

The owner and managing agent brought third party claims against LM Interiors and Scottsdale asserting, among other things, that Scottsdale was required to provide them with a defense and indemnification. Supreme Court granted summary judgment against Scottsdale on that claim, and the Appellate Division affirmed that portion of Supreme Court’s order (Sierra v 4401 Sunset Park, LLC, 101 AD3d 983 [2d Dept 2012]). The Appellate Division concluded that Scottsdale had failed to comply with Insurance Law § 3420 (d) (2) because it had not sent its disclaimer notice to its additional insureds. We granted leave to appeal from a later judgment, bringing this part of the Appellate Division order up for review (22 NY3d 854 [2013]), and we now affirm.

II

Insurance Law § 3420 (d) (2) says:

“If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage ... it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant” (emphasis added).

It is undisputed that Scottsdale did not give notice of its disclaimer directly to its additional insureds or to the lawyer who had been retained to represent them. Scottsdale argues that the disclaimer notice it sent to GNY was sufficient to satisfy the statute. We disagree.

GNY was not an insured under Scottsdale’s policy; it was another insurer. While GNY had acted on the insureds’ behalf in sending notice of the claim to Scottsdale, that did not make GNY the insureds’ agent for all purposes, or for the specific purpose that is relevant here: receipt of a notice of disclaimer. GNY’s interests were not necessarily the same as its insureds’ in this litigation. There might have been a coverage dispute between GNY and the insureds, or plaintiff’s claim might have exceeded GNY’s policy limits. Because the insureds had their own interests at stake, separate from that of GNY, they were entitled to notice delivered to them, or at least to an agent— perhaps their attorney — who owed a duty of loyalty in this matter to them only. As the Appellate Division correctly held in Greater N.Y. Mut. Ins. Co. v Chubb Indem. Ins. Co. (105 AD3d 523, 524 [1st Dept 2013]), the obligation imposed by the Insurance Law is “to give timely notice of disclaimer to the mutual insureds . . . not to . . . another insurer.”

Scottsdale argues that it has “substantially complied” with the statute, relying on Excelsior Ins. Co. v Antretter Contr. Corp. (262 AD2d 124 [1st Dept 1999]) and Cincinnati Ins. Cos. v Sirius Am. Ins. Co. (51 AD3d 1365 [4th Dept 2008]). Excelsior, as the court in GNY v Chubb pointed out (105 AD3d at 525), may be distinguishable: in that case, as a result of a settlement, the insured had no real interest in the litigation, and the insurer to which the disclaimer was sent was the only real party in interest (see Excelsior, 262 AD2d at 127). In any event, if Excelsior and Cincinnati are read to stand for the general proposition that notice to an additional insured’s liability carrier serves as notice to the additional insured under section 3420 (d) (2), those cases should not be followed.

Accordingly, the judgment appealed from, and the order of the Appellate Division, insofar as reviewed, should be affirmed with costs.

Chief Judge Lippman and Judges Graffeo, Read, Pigott, Rivera and Abdus-Salaam concur.

Judgment appealed from and order of the Appellate Division, insofar as brought up for review, affirmed, with costs.


author: Smith, J. Pigott, J.

text:
    [25 NE3d 924, 2 NYS3d 11]
    Jannie Nesmith, as Parent and Natural Guardian of Jannie Patterson, an Infant, et al., Appellants, v Allstate Insurance Company, Respondent.
    Argued October 15, 2014;
    decided November 25, 2014

      POINTS OF COUNSEL

      Nixon & Richter, PLLC, Whitesboro (Mark G. Richter and James E. Nixon of counsel), for appellants.
    I. The Fourth Department erroneously applied this Court’s ruling in Hiraldo v Allstate Ins. Co. (5 NY3d 508 [2005]) given that the case at bar does not involve a continuous exposure to the “same general conditions.” (Greenidge v Allstate Ins. Co., 312 F Supp 2d 430; Ramirez v Allstate Ins. Co., 26 AD3d 266; National Union Fire Ins. Co. of Pittsburgh, Pa. v Farmington Cas. Co., 1 Misc 3d 671.) II. The “condition” which caused the lead poisoning injury to the Suarez/Young children is not the “same general condition” which caused the lead poisoning injury to the Nesmith children and, as such, there is a new, separate and distinct occurrence arising in a subsequent policy period. (Mt. McKinley Ins. Co. v Corning Inc., 28 Misc 3d 893, 96 AD3d 451; ExxonMobil Corp. v Certain Underwriters at Lloyd’s, London, 15 Misc 3d 1144, 50 AD3d 434; Appalachian Ins. Co. v General Elec. Co., 8 NY3d 162; International Flavors & Fragrances, Inc. v Royal Ins. Co. of Am., 46 AD3d 224.) III. Allstate Insurance Company should not be permitted to avoid its contractual obligations to pay the limits of successive insurance policies based upon its erroneous, self-serving and strained interpretation of its own ambiguous policy provisions and given the reasonable expectation of coverage. (Cragg v Allstate Indem. Corp., 17 NY3d 118; Dean v Tower Ins. Co. of N.Y., 19 NY3d 704; Hiraldo v Allstate

      Ins. Co., 5 NY3d 508; SR Intl. Bus. Ins. Co., Ltd. v World Trade Ctr. Props., LLC, 467 F3d 107; Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377; Stoney Run Co. v Prudential-LMI Commercial Ins. Co., 47 F3d 34; Lavanant v General Acc. Ins. Co. of Am., 79 NY2d 623; Guardian Life Ins. Co. of Am. v Schaefer, 70 NY2d 888; Home Ins. Co. v American Home Prods. Corp., 75 NY2d 196; Matter of Mostow v State Farm Ins. Cos., 88 NY2d 321.) IY Public policy dictates coverage, especially where interpretation of the contract renders coverage illusory and unjustly enriches Allstate Insurance Company to the detriment of policyholders and injured victims. (Juarez v Wavecrest Mgt. Team, 88 NY2d 628; Matter of New York City Coalition to End Lead Poisoning v Vallone, 100 NY2d 337.)

      Rivkin Radler LLP, Uniondale (Barry I. Levy, Evan H. Krinick, Cheryl F. Korman, Alan Eagle and Henry Mascia of counsel), for respondent.
    Allstate Insurance Company’s liability arising out of claims of unrelated individuals resulting from exposure to lead paint in the same apartment during successive tenancies is limited to a single policy limit because the injuries resulted from exposure to the same general lead conditions. (Appalachian Ins. Co. v General Elec. Co., 8 NY3d 162; Excess Ins. Co. Ltd. v Factory Mut. Ins. Co., 3 NY3d 577; Two Guys from Harrison-N.Y. v S.F.R. Realty Assoc., 63 NY2d 396; Government Empls. Ins. Co. v Kligler, 42 NY2d 863; Sanabria v American Home Assur. Co., 68 NY2d 866; Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640; Hartford Acc. & Indem. Co. v Wesolowski, 33 NY2d 169; Arthur A. Johnson Corp. v Indemnity Ins. Co. of N. Am., 7 NY2d 222; Mt. McKinley Ins. Co. v Corning Inc., 96 AD3d 451; Hiraldo v Allstate Ins. Co., 5 NY3d 508.)

      Anderson Kill PC., New York City (William G. Passannante, John G. Nevius and Nicholas R. Maxwell of counsel), and Amy Bach, San Francisco, California, for United Policyholders, amicus curiae.
    I. Insurance policies are standard-form contracts of adhesion interpreted according to a policyholder’s reasonable expectations, in order to avoid rendering coverage illusory. (Kosierowski v Madison Life Ins. Co., 31 AD2d 930; Hanover Ins. Co. v Losquadro, 157 Misc 2d 1014; Diamond v Mutual Life Ins. Co. of N.Y., 75 Misc 2d 443, 77 Misc 2d 528; Pan Am. World Airways, Inc. v Aetna Cas. & Sur. Co., 505 F2d 989; American Home Prods. Corp. v Liberty Mut. Ins. Co., 565 F Supp 1485; Eagle Star Ins. Co. v International Proteins Corp., 45 AD2d 637; Satz v Massachusetts Bonding & Ins. Co., 243 NY 385; Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 NY2d 390; Bird v St.

      Paul Fire & Mar. Ins. Co., 224 NY 47; Dean v Tower Ins. Co. of N.Y., 19 NY3d 704.) II. Allstate Insurance Company’s interpretation of its own policy renders coverage illusory, in defiance of Tony Wilson’s reasonable expectations.

      Lewis Johs Avallone Aviles, LLP, Islandia (Daniel A. Bartoldus of counsel), for New York Insurance Association, Inc., amicus curiae.
    The noncumulation clause in the Allstate Insurance Company policies expressly limits coverage to one policy limit. (Champion Intl. Corp. v Liberty Mut. Ins. Co., 701 F Supp 409, 758 F Supp 127; Uniroyal, Inc. v Home Ins. Co., 707 F Supp 1368; Hiraldo v Allstate Ins. Co., 5 NY3d 508; Greenidge v Allstate Ins. Co., 312 F Supp 2d 430, 446 F3d 356; Ramirez v Allstate Ins. Co., 26 AD3d 266; Shared-Interest Mgt. v CNA Fin. Ins. Group, 283 AD2d 136; Endicott Johnson Corp. v Liberty Mut. Ins. Co., 928 F Supp 176, 116 F3d 53; J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 21 NY3d 324; South Rd. Assoc., LLC v International Bus. Machs. Corp., 4 NY3d 272; W.W.W. Assoc. v Giancontieri, 77 NY2d 157.)
   OPINION OF THE COURT

Smith, J.

In Hiraldo v Allstate Ins. Co. (5 NY3d 508 [2005]), we interpreted a so-called “noncumulation clause” contained in a series of successively-issued liability insurance policies. We held that a person suing for exposure to lead paint during the terms of all the policies could recover no more than one policy limit.

Here we interpret a nearly identical clause in a case where members of different families were successively exposed to lead paint in the same apartment. We hold that, here as in Hiraldo, the insurer’s maximum total liability is only one policy limit.

I

In September 1991, Allstate Insurance Company issued a policy of liability insurance to the landlord of a two-family house in Rochester. The policy was renewed annually for the years beginning September 1992 and September 1993. It stated on the declarations page a $500,000 limit for “each occurrence,” and contained the following noncumulation clause:

“Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability under the Family Liability Protection coverage for damages resulting from one accidental loss will not exceed the limit shown on the declarations page. All bodily injury and property damage resulting from one accidental loss or from continuous or repeated exposure to the same general conditions is considered the result of one accidental loss” (emphasis omitted).

Felicia Young and her children lived in one of the two apartments in the house from November 1992 until September 1993. In July 1993, the Department of Health notified the landlord that one of the children had been found to have an elevated blood lead level and that several areas in the apartment were in violation of state regulations governing lead paint. The Department listed the violations and directed the landlord to correct them. The landlord made some repairs, and the Department advised him in August 1993 that the violations “have been corrected.”

After the Young family moved out of the apartment in September 1993, Lorenzo Patterson, Sr. and Qyashitee Davis moved in with their two children. Again a child was found to have an elevated blood lead level, and the Department of Health sent another letter saying that violations had been found and instructing the landlord to correct them. (This letter was sent in December 1994, but the parties seem to assume that the elevated readings resulted at least in part from events on or before September 29, 1994, the last day of Allstate’s coverage.)

In 2004, Young, on behalf of her children, and Jannie Nesmith, on behalf of the Patterson children (her grandchildren), brought two separate actions against the landlord for personal injuries allegedly caused by lead paint exposure. Young’s action was settled in 2006 for $350,000, which Allstate paid. In 2008, Nesmith settled her claim pursuant to a stipulation that reserved the issue of the applicable policy limit for future litigation. Allstate paid the $150,000 that it claimed was the remaining coverage. Nesmith then brought the present action against Allstate for a declaratory judgment, asserting that a separate $500,000 limit applied to each family’s claim, and that her grandchildren could therefore recover an additional $350,000.

Supreme Court granted Nesmith the declaration she sought, saying it could not conclude that the children in the two cases were injured by exposure “to the same conditions.” The Appellate Division reversed (Nesmith v Allstate Ins. Co., 103 AD3d 190 [2013]). The Appellate Division held that, under Hiraldo, the renewal of the policy could not make an additional limit available; that, under the plain terms of the noncumulation clause, the number of claims and claimants could not do so either; and that the injury to Young’s children and Nesmith’s grandchildren resulted “from . . . continuous or repeated exposure to the same general conditions,” so that the injuries were only one “accidental loss” within the meaning of the policy (id. at 193-194). We granted leave to appeal (21 NY3d 866 [2013]) and now affirm.

II

Hiraldo involved a single child, who had lived in the building in question for three years while three successive Allstate policies, each with a limit of $300,000, were in force. The plaintiffs claimed that the child had been exposed to lead paint continuously during the terms of all three policies, and that therefore $900,000 in coverage was available to him. We rejected the argument, relying on a noncumulation clause not significantly different from the one involved in this case (see 5 NY3d at 512). (The policy in Hiraldo referred simply to “loss” rather than “accidental loss,” but no one suggests that that difference is relevant here.) We found the argument of the Hiraldo plaintiffs to be inconsistent with the policy’s plain statement that Allstate’s liability was limited to the amount shown on the declaration page, $300,000, “[r]egardless of the number of . . . policies involved” (id. [emphasis omitted]).

Here, Nesmith does not, and could not under Hiraldo, argue that the annual renewals of the landlord’s policy increased the limits of the available coverage. And the noncumulation clause is equally clear in saying that the number of “injured persons,” “claims” and “claimants” makes no difference. Nesmith’s only argument is that the alleged injuries to Young’s children and Nesmith’s grandchildren were separate losses because they did not result “from continuous or repeated exposure to the same general conditions.”

We reject this argument. Young’s children and Nesmith’s grandchildren were exposed to the same hazard, lead paint, in the same apartment. Perhaps they were not exposed to exactly the same conditions; but to say that the “general conditions” were not the same would deprive the word “general” of all meaning. Nesmith argues that, because the landlord made an effort to correct the problem after Young’s children were exposed and before Nesmith’s grandchildren moved in, the “conditions” that injured her grandchildren must have been new ones. But she makes no claim, and the record provides no basis for inferring, that a new lead paint hazard had been introduced into the apartment. The only possible conclusion from this record is that the landlord’s remedial efforts were not wholly successful, and that the same general conditions — the presence of lead paint that endangered children’s health — continued to exist. Because Young’s children and Nesmith’s grandchildren were injured by exposure to the same general conditions their injuries were part of a single “accidental loss,” and only one policy limit is available to the two families.

Accordingly, the order of the Appellate Division should be affirmed with costs.

Pigott, J.

(dissenting). The majority recognizes that this appeal presents a different set of circumstances than those in Hiraldo v Allstate Ins. Co. (5 NY3d 508 [2005]), yet it reaches the same conclusion. Because I cannot agree with the majority’s theory that the “noncumulation clause” limits the insurer’s maximum total liability to only one policy limit under the circumstances presented here, I dissent.

The “noncumulation clause” at issue in this case provides:

“4. Our Limits of Liability
“Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability under the Family Liability Protection coverage for damages resulting from one accidental loss will not exceed the limit shown on the declarations page. All bodily injury and property damage resulting from one accidental loss or from continuous or repeated exposure to the same general conditions is considered the result of one accidental loss.”

Fairly read, this provision provides that the policy limit— $500,000 limit for “each occurrence” — applies to limit the liability for lead exposure of children in one family during the course of that family’s tenancy. Indeed, this is what we held in Hiraldo. However, the insurer seeks to expand that reasoning to a situation that was clearly unknown to the insured at the time he procured the additional insurance: that coverage for liability of any kind had diminished considerably.

For purposes of this litigation, it is undisputed that the Nesmith children moved into the apartment during the second renewal period and lived in the apartment from September 1993 to September 1994. They, like the Young children, were injured as a result of lead paint hazards. According to the majority, because $350,000 was paid to the Young children, who were injured during the policy period from 1992 to 1993, the insured had only $150,000 coverage for the claim made by the Nesmith children.

The majority finds that this case turns on the interpretation of the “same general conditions” language of the “Limits on Liability” clause and reasons that because the Young children and Nesmith children were exposed to the same hazard, lead paint, in the apartment only one policy limit is triggered (see majority op at 525). However, this interpretation is inconsistent with the reasonable expectations of the insured (see generally Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 NY2d 390, 398 [1983] [insurance contracts must be interpreted according to “the reasonable expectation and purpose of the ordinary businessman”]).

To accept that position would mean that, for purposes of insurance coverage, the insured’s alleged failure to remove lead paint in the building before the Nesmiths moved in was equivalent to the landlord having done nothing at all. In other words, if there is any possibility of a nexus between the cause of the injuries during policy year one and the cause of injuries in any later policy year, even if the injuries were suffered by different children from different families living in the apartment at different times, coverage is only available under the first policy year.

It would also mean that when the insured renewed his policy and paid his premium, he procured less protection with respect to lead paint claims. If the insured knew that his later policies would not cover lead paint injuries occurring after his remediation efforts, he surely would not have continued purchasing the insurance at essentially the same premium from the same insurer.

Judges Graffeo, Read and Abdus-Salaam concur; Judge Pigott dissents in an opinion in which Chief Judge Lippman concurs; Judge Rivera taking no part.

Order affirmed, with costs.


author: Rivera, J.

text:
    [25 NE3d 952, 2 NYS3d 39]
    172 Van Duzer Realty Corp., Respondent, v Globe Alumni Student Assistance Association, Inc., et al., Appellants.
    Argued November 19, 2014;
    decided December 18, 2014

      POINTS OF COUNSEL

      Herzfeld & Rubin, EC., New York City (Linda M. Brown and David B. Hamm of counsel), for appellants.
    I. The Appellate Division’s decision conflicts with precedent from this Court and from other Departments of the Appellate Division, which hold that an acceleration clause should not be enforced when the landlord terminates the lease and repossesses the property. (Fifty States Mgt. Corp. v Pioneer Auto Parks, 46 NY2d 573; Benderson v Poss, 142 AD2d 937; International Publs. v Matchabelli, 260 NY 451; Gotlieb v Taco Bell Corp., 871 F Supp 147; Vanguard Commercial Leasing Corp. v Dayanzadeh, 147 AD2d 557; Stats, LLC v Elevation, Inc., 2008 NY Slip Op 32449[U]; Fairfield Lease Corp. v Marsi Dress Corp., 60 Misc 2d 363; Ring v Printmaking Workshop, Inc., 70 AD3d 480; Holy Props. v Cole Prods., 87 NY2d 130; Gallery at Fulton St., LLC v Wendnew LLC, 30 AD3d 221.) II. The Appellate Division’s decision conflicts with precedent from this Court and from the other Departments of the Appellate Division, which hold that an acceleration clause will not be enforced when it is disproportionate to the plaintiffs probable loss. (Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420; Fifty States Mgt. Corp. v Pioneer Auto Parks, 46 NY2d 573; Benderson v Poss, 142 AD2d 937; International Publs. v Matchabelli, 260 NY 451; Gotlieb v Taco Bell Corp., 871 F Supp 147; Frontier Leasing Corp. v Griffin Petroleum Inc., 172 F Supp 2d 1172; Heller Fin., Inc. v Burry, 633 F Supp 706.) III. The acceleration clause is unenforceable for the further reason that there is no corresponding duty of the landlord to mitigate. (Ross Realty v V & A Iron Fabricators, Inc., 5 Misc 3d 72; Holy Props. v Cole Prods., 87 NY2d 130; American Capital Access Serv. Corp. v Muessel, 28 AD3d 395; Delvecchio v Bayside Chrysler Plymouth Jeep Eagle, 271 AD2d 636; Bank One, Tex., N.A. v Prudential Ins. Co. of Am., 878 F Supp 943; International Publs. v Matchabelli, 260 NY 451.) IV Plaintiffs claims are barred by res judicata. (Matter of Hunter, 4 NY3d 260; Jones v Gianferante, 305 NY 135; 1422 Corp. v Rosenfeld, 44 AD3d 451; Licini v Graceland Florist, Inc., 32 AD3d 825; Ross Realty v v & A Fabricators, Inc., 42 AD3d 246; European Am. Bank & Trust Co. v Boyd, 131 AD2d 629; Dart Assoc. v Ste-Con Corp., 66 AD2d 973.)

      Cox Padmore Skolnik & Shakarchy LLP, New York City (Noah B. Potter, Steven D. Skolnik and Sanford Hausler of counsel), for respondent.
    I. Judgment enforcing the acceleration clause is appropriate because appellants failed to meet their burden of proof. (Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420; Tenber Assoc. v Bloomberg L.P., 51 AD3d 573.) II. This Court should protect freedom of contract by rejecting the extreme changes proposed by defendants. (Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420; Fifty States Mgt. Corp. v Pioneer Auto Parks, 46 NY2d 573; International Publs. v Matchabelli, 260 NY 451; Olim Realty Corp. v Big John’s Moving, 250 AD2d 744; Gallery at Fulton St., LLC v Wendnew LLC, 30 AD3d 221; Holy Props. v Cole Prods., 87 NY2d 130; Parsons & Whittemore v 405 Lexington, 299 AD2d 156; Long Is. R.R. Co. v Northville Indus. Corp., 41 NY2d 455; Benderson v Poss, 142 AD2d 937; Crown IT Servs., Inc. v Koval-Olsen, 11 AD3d 263.) III. Appellants’ own legal authority shows that plaintiffs claim is not barred by res judicata. (Gotlieb v Taco Bell Corp., 871 F Supp 147; Benderson v Poss, 142 AD2d 937; Vanguard Commercial Leasing Corp. v Dayanzadeh, 147 AD2d 557; Stats, LLC v Elevation, Inc., 2008 NY Slip Op 32449[U]; Fairfield Lease Corp. v Marsi Dress Corp., 60 Misc 2d 363; Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420; New 24 W. 40th St. LLC v XE Capital Mgt., LLC, 104 AD3d 513; Gannett Suburban Newspapers v El-Kam Realty Co., 306 AD2d 312; Olim Realty Corp. v Big John’s Moving, 250 AD2d 744; Ring v Printmaking Workshop, Inc., 70 AD3d 480.)
   OPINION OF THE COURT

Rivera, J.

This appeal involves a dispute over future rental payments sought under an acceleration clause from an out-of-possession tenant after termination of the leasehold agreement. The Appellate Division affirmed an order of Supreme Court which granted the landowner plaintiff summary judgment on the issue of liability, and affirmed a judgment for damages in accordance with the parties’ stipulation. We conclude that the acceleration clause is not per se invalid merely because the landowner terminated the lease and the tenant is no longer in possession. However, defendants should have been permitted to present evidence in support of their contention that the undiscounted acceleration of all future rents constitutes an unlawful penalty. Therefore, we remit for a hearing, limited to that issue.

Real property owner, plaintiff 172 Van Duzer Realty Corp. (Van Duzer), and tenant, defendant Globe Alumni Student Assistance Association, Inc. (Association), entered into a one-year commercial rental lease agreement. The lease provided that defendant Globe Institute of Technology, Inc. (Globe) would use the property as a dormitory for Globe’s for-profit educational institution. Prior to the end of the one-year term, Van Duzer and the Association extended the lease for a nine-year period, and Globe signed a guarantee that it would be jointly and severally liable for the Association’s obligations under the lease. Van Duzer and the Association also executed a Student Dormitory Restrictive Declaration (Declaration) with the New York City Department of Buildings indicating, among other things, that the premises would be used solely as a student dormitory.

Several months after executing the lease extension, Van Duzer sent the Association a notice to cure for failure to maintain the premises in good order, citing several violations issued by the New York City Environmental Control Board, and demanding action be taken within a month’s time. The Association failed to cure, and instead vacated the premises and ceased paying rent as of February 2008. Van Duzer terminated the lease, effective March 24, 2008, with notice to the Association, and commenced an action to recover possession and past due rent. In August 2008, Civil Court awarded Van Duzer possession of the premises with a zero dollar money judgment.

In September 2009, Van Duzer commenced the present action against defendants for rent arrears and an amount equal to the future remaining rent owed on the lease. Van Duzer thereafter moved for summary judgment based on an acceleration clause in the leasehold agreement which provides that upon the tenant’s default the landowner may terminate the lease, repossess the premises, and “shall be entitled to recover, as liquidated damages, a sum of money equal to the total of . . . the balance of the rent for the remainder of the term.” The provision also states that “[i]n the event of Lease termination Tenant shall continue to be obligated to pay rent and additional rent for the entire Term as though th[e] Lease had not been terminated.”

Defendants objected to summary judgment, contending Van Duzer could not collect under the acceleration clause once it terminated the lease and retook possession of the property. Defendants also asserted that res judicata barred Van Duzer’s damages claims because it could have obtained damages in the prior Civil Court action. Alternatively, defendants requested discovery in order to establish the lack of proportionality between Van Duzer’s claimed damages and probable loss. Van Duzer counter argued that it had difficulty finding new tenants because the premises was subject to the Declaration’s student dormitory-use limitation. With regard to the res judicata claim, Van Duzer alleged that Civil Court lacked jurisdiction to award damages based on the acceleration clause.

Supreme Court granted Van Duzer summary judgment on liability, finding the parties had clearly agreed that upon termination of the lease the Association would be liable for rent, and referred the matter to a Special Referee to determine damages. The court denied defendants’ request for discovery, concluding that under New York law the landowner was entitled to collect full rent due under the lease with no obligation or duty to relet, or attempt to relet, the abandoned premises in order to minimize damages. Thereafter, upon the parties’ stipulation, the court entered judgment for Van Duzer in the amount of $1,488,604.66, consisting of the rent remaining due under the lease, reduced by the amount of rent Van Duzer was able to collect by reletting the premises between August 2008 until February 2011, plus interest.

The First Department affirmed, concluding Van Duzer made a prima facie showing of entitlement to accelerated rent under the terms of the lease, and defendants failed to raise a triable issue of fact as to whether the liquidated damages constituted an unenforceable penalty (102 AD3d 543 [2013]). The court also rejected defendants’ res judicata claim finding such damages were unavailable in the Civil Court summary proceeding.

On appeal to us, defendants reassert their res judicata argument and their challenges to the validity of the acceleration clause, claiming what amounts to a per se rule barring accelerated rent as damages when the landowner holds rightful possession of the property. We conclude that defendants’ arguments are unpersuasive except for their contention that they were entitled to a hearing on their claim that the acceleration clause constitutes a penalty.

As an initial matter, we reject defendants’ res judicata argument because the Civil Court was without authority to address a claim for the balance of rent due under the acceleration clause in Van Duzer’s holdover proceeding (NY City Civ Ct Act § 204; see also Ross Realty v V & A Fabricators, Inc., 42 AD3d 246 [2d Dept 2007]; Marketplace v Smith, 181 Misc 2d 440, 442-443 [Henrietta Just Ct, Monroe County 1999]). Thus, Van Duzer was not barred from pursuing damages for defendants’ breach.

Turning to defendants’ other arguments, defendants claim that Van Duzer is barred from collecting unpaid future rents pursuant to the acceleration clause because under this Court’s decision in Fifty States Mgt. Corp. v Pioneer Auto Parks (46 NY2d 573 [1979]), a landowner cannot claim accelerated rental payments when the landlord terminates the lease and retakes possession. Defendants’ reliance on Fifty States is misplaced because the acceleration clause in that case was “intended to secure the tenant’s obligation to” pay rent in the context of an ongoing leasehold, and the clause set the damages for a breach of that obligation (Fifty States Mgt. Corp., 46 NY2d at 578). The Court concluded that a lease term providing for accelerated rent upon a tenant’s default in rent payment, as a condition of the tenant’s continued possession of the property, is enforceable absent a claim of “fraud, exploitive overreaching or unconscionable conduct” (id. at 577). Here, defendants do not argue that they want to be put back in possession. Moreover, Van Duzer sought damages in accordance with the acceleration clause after terminating the lease, once defendants defaulted and breached their leasehold obligations to maintain the property and pay rent. Thus, unlike the landowner in Fifty States, Van Duzer is not seeking to deploy the acceleration clause in the course of a continuing leasehold for purposes of ensuring the tenant’s compliance with a material provision of the lease.

Nor can defendants challenge the validity of the acceleration clause based on this Court’s recognition in Fifty States that, “where a lease provides for acceleration as a result of a breach of any of its terms, however trivial or inconsequential, such a provision is likely to be considered an unconscionable penalty and will not be enforced by a court of equity” (id. at 577; see also Seidlitz v Auerbach, 230 NY 167, 173 [1920] [holding a lease provision providing for forfeiture of tenant’s $7,500 deposit for breach of any one of several covenants of varying importance an unenforceable penalty]; 884 W. End Ave. Corp. v Pearlman, 201 App Div 12 [1st Dept 1922] [holding a lease provision which entitled the landlord to accelerated rent for any one of a number of trivial breaches an unenforceable penalty], affd 234 NY 589 [1922]). That rule addresses, in part, the inequities of damages disproportionate to the losses incurred as a result of a tenant’s collateral or minor breach (Fifty States Mgt. Corp., 46 NY2d at 577-578). That rule continues in force, but is inapplicable to defendants, who committed material breaches of the lease by ceasing all rental payments as of February 2008 and simultaneously abandoning the premises.

To the extent defendants suggest that a landowner should be subject to a duty to mitigate, we previously rejected this argument in Holy Props. v Cole Prods. (87 NY2d 130 [1995]). In that case the Court stated that once a tenant abandons the property prior to expiration of the lease, a “landlord [is] within its rights under New York law to do nothing and collect the full rent due under the lease” (id. at 134, citing Becar v Flues, 64 NY 518 [1876], Underhill v Collins, 132 NY 269 [1892], and Matter of Hevenor, 144 NY 271 [1895]). The Court adhered to this established approach, and stated that parties in business transactions depend on the certainty of settled rules, “in real property more than any other area of the law, where established precedents are not lightly to be set aside” (Holy Props., 87 NY2d at 134). We see no reason to reverse course in defendants’ case, in particular where, as in Holy Props., the parties here freely agreed to bind defendants to pay rent after termination of the landlord-tenant relationship (id. at 134, citing International Publs. v Matchabelli, 260 NY 451, 454 [1933], Mann v Munch Brewery, 225 NY 189, 194 [1919], and Hall v Gould, 13 NY 127, 133-134 [1855]).

Defendants argue, in the alternative, that the liquidated damages as future rent provided for under the acceleration clause are grossly disproportionate to Van Duzer’s actual losses, and therefore constitute an unenforceable penalty. Defendants are correct that an acceleration clause is subject to judicial scrutiny based on a challenge that it is nothing more than a means by which to exact a penalty otherwise proscribed by the law.

As a general matter parties are free to agree to a liquidated damages clause “provided that the clause is neither unconscionable nor contrary to public policy” (Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420, 424 [1977], citing Mosler Safe Co. v Maiden Lane Safe Deposit Co., 199 NY 479, 485 [1910]). Liquidated damages that constitute a penalty, however, violate public policy, and are unenforceable (Truck Rent-A-Ctr., 41 NY2d at 424, citing City of Rye v Public Serv. Mut. Ins. Co., 34 NY2d 470, 472-473 [1974]). A provision which requires damages “grossly disproportionate to the amount of actual damages provides for [a] penalty and is unenforceable” (Truck Rent-A-Ctr., 41 NY2d at 424).

Whether a provision in an agreement is “an enforceable liquidation of damages or an unenforceable penalty is a question of law, giving due consideration to the nature of the contract and the circumstances” (JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 379 [2005], citing Mosler Safe Co., 199 NY at 485; Leasing Serv. Corp. v Justice, 673 F2d 70, 74 [2d Cir 1982]). “The burden is on the party seeking to avoid liquidated damages ... to show that the stated liquidated damages are, in fact, a penalty” (JMD Holding Corp., 4 NY3d at 380, citing P. J. Carlin Constr. Co. v City of New York, 59 AD2d 847 [1st Dept 1977]; Wechsler v Hunt Health Sys., Ltd., 330 F Supp 2d 383, 413 [SD NY 2004]). Where a party establishes a penalty, the proper recovery is the amount of actual damages established by the party (JMD Holding Corp., 4 NY3d at 380 [“ Tf the (liquidated damages) clause is rejected as being a penalty, the recovery is limited to actual damages proven’ ”], quoting Brecher v Laikin, 430 F Supp 103, 106 [SD NY 1977]).

Defendants claim that because the acceleration clause permits Van Duzer to hold possession and immediately collect all rent due, the damages are grossly disproportionate to the landowner’s actual damages. They contend this is a windfall that allows Van Duzer to double dip — get the full rent now and hold the property. On its face this argument is compelling because arguably the ability to obtain all future rent due in one lump sum, undiscounted to present-day value, and also enjoy uninterrupted possession of the property provides the landowner with more than the compensation attendant to the losses flowing from the breach — even though such compensation is the recognized purpose of a liquidated damages provision (Truck Rent-A-Ctr., 41 NY2d at 423; see JMD Holding Corp., 4 NY3d at 382; Benderson v Poss, 142 AD2d 937, 938 [4th Dept 1988]; Gotlieb v Taco Bell Corp., 871 F Supp 147, 155 [ED NY 1994]). Although the acceleration clause in Fifty States was held enforceable, that case is distinguishable from the instant case because there the landlord did not get to keep the property.

On the record before us it appears that the court below limited the damages hearing before the Special Referee to whether the landowner relet the premises. This was error. Defendants should have had the opportunity to present evidence that the undiscounted accelerated rent amount is disproportionate to Van Duzer’s actual losses, notwithstanding that the landowner had possession, and no obligation to mitigate.

Accordingly, the order of the Appellate Division should be modified, without costs, by remitting to Supreme Court for further proceedings in accordance with this opinion and, as so modified, affirmed.

Chief Judge Lippman and Judges Read, Smith and Pigott concur; Judge Abdus-Salaam dissents and votes to affirm for reasons stated in the memorandum at the Appellate Division (102 AD3d 543 [2013]).

Order modified, without costs, and case remitted to Supreme Court, New York County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed.

       The parties concede that this provision permits the landowner to demand immediate payment of all future rent outstanding under the lease, rather than a right to payment as the rent becomes due. We, therefore, treat the clause as requiring rent to be paid in one lump payment, rather than in monthly installments, as would otherwise be required by the lease.