Deleting Macy's Self-Insured Retention Retroactively in New York.

   A Commercial Lease of real property in New York City contained a Self-Insured Retention that led to litigation between the landlord and the tenant.  The landlord is Weatherly 39th Street, LLC.  The tenant is Macy's.  The case is Federated Retail Holdings, Inc.  v. Weatherly 39th Street, LLC, 2011 WL 1438785 (N.Y. Sup. Ct., New York County, April 11, 2011)(authorized password required to access Westlaw).

   Although the Self-Insured Retention clause was at issue in this case, it is not to be found in the Court's opinion.  The case was about whether Macy's successfully deleted the Self-Insured Retention, sufficient to "cure" its alleged Default under its lease by retroactively eliminating the clause.

   Here is how Macy's landlord came to issue not one, but at least three Notices of Default accusing Macy's of being in default under its commercial lease and also providing Macy's with a way to "cure" its alleged default in this regard.

   "One provision of that lease required the tenant, Macy's, to acquire commercial general liability insurance for set amounts of coverage."  Id. at *1.  Macy's acquired both primary and umbrella CGL Coverage, but with Self-Insured Retention clauses on all its CGL Policies.  Macy's landlord was apparently unmoved by the possibility that Macy's could handle it.

   This caused Macy's landlord to issue the first Notice of Default.  "[A]ccording to Weatherly [Macy's landlord, this] violated the terms of the lease because it left the tenant [Macy's] personally liable for one million dollars of any potential claim."  Id.

   Macy's obtained "fronting" primary CGL Policies which removed the Self-Insured Retention.  It apparently did not think to obtain new umbrella CGL policies or endorsements, because the umbrellas were apparently left alone.  This caused the landlord to send a second Notice of Default.  In this new document, however, the landlord gave Macy's a way "out" of the alleged default:  It wrote to Macy's, as quoted by the Court in this case, that the default "'can be cured by your providing to Weatherly retroactive insurance coverage eliminating the self-insurance aspects and aggregates and naming Weatherly as a named insured.'"  Id. 

   Macy's then obtained endorsements from its different Insurance Companies deleting the Self-Insured Retention on all of Macy's CGL Policies.  Macy's primary CGL carrier was Liberty Mutual.  Macy's umbrella CGL carrier was AIG ("Chartis" or National Union).  The Self-Insured Retention was deleted, "retroactively, for all claims made during the period in which the policies were in effect."  Id. at *2.  In addition, Macy's "averred" in a way not specifically identified in this Opinion "that it is not aware of any such loss".  Id. at *3.

   The landlord's response was to notify Macy's, again, "that Macy's had failed to remove the self-insured retention default under the lease and, therefore, Weatherly elected to terminate the lease ...."  Id. at *2.  In response, Macy's filed suit and requested the Court to declare that Macy's affirmatively cured the alleged default and so lease termination was not available to its landlord here.  "Hence, the issue for resolution is whether a self-insured retention provision may be removed retroactively from an existing insurance policy by endorsement."  Id.

   There did not seem to be an issue about whether Macy's and its CGL Insurance Companies could remove the Self-Insured Retention.  The only questions were whether the Self-Insured Retention could be removed retroactively, and whether that was properly done in this case.

   The Court ruled, first, that Macy's CGL Policies were "occurrence" policies in fact and under New York law.  This ruling meant that they were capable of being amended retroactively to the date on which the Policy was originally issued.  It also declared that the Macy's Policies provided Coverage based on an occurrence during the policy period, regardless of when a liability claim might be made against Macy's on account of that occurrence.  A "retroactive date" is the effective date of any Policy, as applicable here.  This is to be distinguished from a "claims-made" policy in which the underlying claim against Macy's would have been made during the policy period arising out of otherwise covered "'incidents, acts or omissions'" taking place virtually at any time.  See id. at *4.

   That left the question whether the Self-Insured Retention on Macy's particular CGL policies in this case was properly deleted retroactively.  The Court in this case answered in the affirmative:

 [I]n the instant matter, Macy's always had insurance, and merely amended their existing policies to provide for greater insurance.

 * * *

   The endorsements acquired by Macy's in 2010 are amendments to their existing occurrence policies, not new occurrence policies, and, consequently, the effective date of coverage begins on the effective date of the policy.

 Id. at *5 - *6.

    Consequently, following these rulings, Macy's motion was granted.  The Court in this case declared that Macy's cured the alleged "Self-Insured Retention clause" default under its lease, and that Macy's landlord may not terminate Macy's lease on that ground.  Id. at *6.

 This case has a tortuous legal history including at least one prior appeal and the known loss "doctrine".

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