Gross Negligence by Additional Insured Eliminates Coverage

Additional Insured is out of Luck When Named Insured Does Nothing Wrong

Almost every commercial landlord requires the tenant to maintain liability insurance and name the landlord as an additional insured. Although an additional insured endorsement makes the landlord an “insured” of the tenant’s policy it does not cover everything.

In Pedro Moran-Alvardo v. Nevada Court Realty, LLC, EZ Donuts, T/A Dunkin’ Donuts, and Nevada Court Realty, LLC, v. EZ Donuts, Inc. and M&M Landscaping, Third-Party Defendants, and Travelers Insurance Company, DOCKET NO. A-4164-14T1, Superior Court Of New Jersey Appellate Division (March 1, 2018) the trial court required Travelers to provide defense and indemnity to a landlord even after the trial court found that the landlord was guilty of gross negligence.

FACTS

On December 24, 2008, plaintiff Pedro Moran-Alvarado slipped and fell on snow in the parking lot of a strip mall owned by Nevada Court Realty, LLC (Nevada). EZ Donuts, Inc., d/b/a Dunkin Donuts, was a commercial tenant in the mall. Nearly two years later, plaintiff filed a civil action against Nevada and EZ Donuts to recover compensatory damages for injuries he allegedly sustained as a result of this fall. Nevada filed a third-party claim against EZ Donuts for contractual indemnification and a third-party claim for insurance coverage against EZ Donuts’ insurance carrier, third-party defendant Travelers Insurance Company (Travelers).

ISSUE

The issue in this appeal concerns only the claim for contractual indemnification made by Nevada against Travelers as the insurer for EZ Donuts. This is the second time this case has been before the court with the first case refusing to support a summary judgment when evidence was not clear.

On remand, the parties agreed to stipulate: (1) to the location of the accident; and (2) that the landlord was contractually obligated to remove ice or snow in the area where plaintiff fell. Under these stipulated facts, the trial court concluded that Nevada’s failure to clear the parking lot area of snow and ice three days after the last snow fall constituted gross negligence, relieving EZ Donuts from its contractual responsibility to indemnify landlord against any claims arising from the use of the tenant’s premises.

The trial judge noted that the lease agreement indemnified Nevada for negligence, not for gross negligence or willful misconduct. According to plaintiff, the snow and ice had not been “touched.” However, the court ordered Travelers to defend Nevada.

ANALYSIS

In this appeal, Travelers challenges the trial judge’s decision finding Nevada was entitled to coverage under the additional insured policy endorsement. Stated differently, the issue is whether Travelers must provide coverage to Nevada under the additional insured endorsement, notwithstanding the court’s unchallenged finding that Nevada’s conduct amounted to gross negligence. Travelers urged the appellate court us to reverse the trial court’s order because it is irreconcilable with the trial court’s finding of gross negligence by Nevada and contravenes the appellate court’s holding in Pennsville Shopping Ctr. Corp. v. Am. Motorists Ins. Co., 315 N.J. Super. 519, 523 (App. Div. 1998), in which we held that the obligation of the tenant’s insurance company to provide coverage to a named additional insured landlord “must be . . . coextensive with the scope of [the] tenant’s own liability.”

The lease agreement obligated EZ Donuts to procure and maintain a general commercial liability policy naming Nevada as an additional insured. The Travelers policy satisfied this obligation.

The policy also expressly excluded coverage for an insured’s acts or omissions that constitute gross negligence or willful misconduct. This exclusion is stated using ordinary language and must be enforced as written. The trial court’s unchallenged finding that Nevada’s conduct amounted to gross negligence is sufficient, in and of itself, to defeat its claim for coverage with respect to plaintiff’s accident.

ZALMA OPINION

Insurance is a way of spreading the risk. So is a lease agreement that requires indemnity and for the landlord and an additional insured endorsement. Both are useful but do not give carte blanche to the landlord to act grossly negligent or conduct itself willfully. The landlord lost coverage from the tenant’s insurer because it acted willfully and was grossly negligent.


© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  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 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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