Lessee Who Does Not Buy Required Liability Insurance for Lessor Loses
Commercial leases, as a matter of course, require the lessee to obtain liability insurance in favor of the lessor. The insurance condition is usually a condition precedent and failure to acquire the insurance is a breach of the lease.
In A.M. Express Freight, Inc. v. Lumer Associates, LLC, and Travelers Property Casualty Company Of America, Mark Beck And Absolute Coverage LLC, Superior Court of New Jersey, Appellate Division Docket No. A-0895-15T3, 2017 WL 510519, (2/8/17) A.M. Express Freight, Inc. appealed from the September 18, 2015 Law Division order, which granted summary judgment to defendant Lumer Associates, LLC and dismissed the complaint with prejudice because the plaintiff was in breach of its obligation to obtain liability insurance for the lessor..
Plaintiff is a trucking and logistics company that transports and ships goods for its customers. On June 11, 2012, plaintiff leased Unit 3 in a commercial facility owned by defendant, where it stored non-perishable food products for its customers. Plaintiff stored the goods on pallets that were stacked to the usable height of the premises, and used motorized equipment to unload, store, and load the goods.
The lease contained a provision requiring plaintiff to indemnify and hold defendant harmless “from … any and all claims and liability for … any cause or reason whatsoever arising out of or by reason of the occupancy by [plaintiff] and the conduct of [plaintiff’s] business.” The lease required plaintiff to obtain “[c]omprehensive general liability insurance, including property damage, with a broad form of contractual liability endorsement, protecting and indemnifying … Landlord … against any and all claims for damage to … property, or for loss of … property occurring in or about the Premises or arising out of the ownership, maintenance, use or occupancy thereof of from any of the matters in this Lease against which Tenant is required to indemnify Landlord.”
The lease also contained a “waiver of subrogation rights” clause whereby plaintiff waived all rights of recovery against defendant for “any loss, damages or injury of any nature whatsoever” to property for which plaintiff was insured.
On May 20, 2013, the concrete slab floor of Unit 3 collapsed, allegedly causing plaintiff damages, including the destruction of customers’ goods stored in the unit. Plaintiff filed a complaint, alleging that defendant failed to deliver a secure location for storage of the goods, and failed to properly inspect, maintain, remedy, and repair any defects in the premises.
There was no dispute that plaintiff failed to obtain the required insurance. Defendant filed a motion for summary judgment, arguing, in part, that plaintiff was not entitled to damages because it breached the lease provision requiring it to obtain insurance.
The motion judge granted summary judgment and dismissed the complaint with prejudice, finding, in part, that the lease provision requiring plaintiff to obtain insurance was clear and unambiguous; the provision required plaintiff to obtain insurance for the loss that occurred here; and plaintiff breached the lease by failing to obtain insurance. This appeal followed.
If there is no genuine issue of material fact, the court must then decide whether the trial court correctly interpreted the law. The appellate court reviews the motion for summary judgment anew and accords no deference to the trial judge’s conclusions on issues of law.
Under New Jersey law a lease is like any other written contract. Where the terms of a contract are clear and unambiguous, the courts must enforce those terms as written. A party who fails to perform a lease provision has breached the lease.
Here, plaintiff contracted to provide liability insurance coverage for defendant. Plaintiff conceded before the trial court that the lease provision requiring it to obtain insurance was clear and unambiguous; it breached that provision; its insurance carrier would have paid the damages it sustained; and it had no right of subrogation for the claim.
Because plaintiff breached the lease, it was liable to provide defendant with the benefits defendant would have received had plaintiff obtained liability insurance coverage. That defendant had its own liability insurance policy did not operate to absolve plaintiff from the consequence of failing to comply with its contractual obligations under the lease.
The breach of the lease controlled what happened. Although the lessor may have been liable for the injuries incurred by the plaintiff there would have been no law suit if the plaintiff had acquired the insurance for the lessor. It did not and therefore there was no insurance to pay the plaintiff for the lessor’s negligence. By breaching the lease the plaintiff lessee hurt itself.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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