Insurance is an Important Part of Every Commercial Lease

Two Cases Confirm the Importance of Insurance

I admire New York appellate courts because they write opinions that are truly brief, concise, and state the law without fluff or attempts to look wise when a simple paragraph will do.

The following two cases cover attempts by plaintiffs, who failed to acquire the required insurance, to prevent the breach of lease and eviction of the plaintiffs.

Prince Fashions, Inc.

In Prince Fashions, Inc. v. 60G 542 Broadway Owner, LLC, — N.Y.S.3d —-, 2017 WL 1378563, Supreme Court, Appellate Division, First Department, New York 2017 N.Y. Slip Op. 02918 (April 18, 2017) the property owner issued a notice of default to plaintiff that stated that plaintiff had breached its obligations to defendant under the terms of the lease by failing to “maintain general public liability insurance [policies] … in favor of Landlord and Tenant against claims … occurring in or upon the [Retail] [P]remises” and by failing to deliver such policies to defendant.

The landlord defendant represented to the Appellate Court, uncontroverted by plaintiff, that immediately following the trial court’s denial of plaintiff’s motion, on July 1, 2016, defendant served a notice of lease cancellation on plaintiff terminating the lease effective July 5, 2016 and commenced a holdover proceeding against plaintiff. Although plaintiff had the opportunity to seek injunctive relief from either the trial court or the appellate court until the cure period expired, it failed to do so.

Because plaintiff’s lease was terminated, and a holdover proceeding had been commenced, appellate relief is barred since there was no temporary restraining order in place at the time that the notice of termination was served, the notice was validly served and the lease was terminated. Once the lease was terminated in accordance with its terms, the court lacked the power to revive it.

The default alleged is incurable for several reasons: First, the period in question involves commercial general liability (CGL) insurance policies for the periods 2014–2015 and 2015–2016; Second, these policies were all obtained by, and named, plaintiff’s subtenants as the insureds, but did not name defendant as a certificate holder or additional insured; and third, the evidence plaintiff proffers as to one of the 2014–2015 policies evinces that no party, not even defendant’s predecessor, was named as an additional insured.

These policies would not, nor could they, cure the default. They were not “in favor” of defendant. A New York landlord is not required to accept a subtenant’s performance in lieu of tenant’s. A lease is a contract and the parties must fulfill the conditions of the contract.

Further, the policy obtained by plaintiff after receiving the notice of default on March 4, 2016, and covering the policy period March 10, 2016 to March 10, 2017, cannot cure the default. The fact that plaintiff obtained this prospective CGL insurance coverage cannot retrospectively cure the default arising from plaintiff’s failure to have continuously maintained insurance coverage in the landlord’s favor as required by its commercial lease.

Because plaintiff’s evident failure to obtain insurance naming defendant as an additional insured constitutes an incurable default there were no options available to the court other than to affirm the default and termination of the lease.

Rui Qin Chen Juan

In Rui Qin Chen Juan v. 213 West 28 LLC, — N.Y.S.3d —-, 2017 N.Y. Slip Op. 02926, 2017 WL 1378434, Supreme Court, Appellate Division, First Department (April 18, 2017) decided the same day as the Prince Fashions, Inc. case with similar issues, the Appellate court concluded that a motion court properly denied the tenant plaintiffs’ motion for an injunction because the sole source of support for the motion was the English language affidavit of the non-English-speaking Rui Qin Chen Juan, which is inadmissible for want of a translator’s affidavit. Plaintiffs, therefore, provided no factual support for the motion.

The appellate court concluded that plaintiffs were clearly in default regarding provisions in the lease requiring insurance coverage. Most significantly, they failed to obtain continuous insurance coverage for the entire lease term.

It is undisputed that there were two gaps in insurance coverage. The failure to obtain insurance is a material breach that may not be cured by the purchase of prospective insurance, as such insurance does not protect defendant owner against the unknown universe of any claims arising during the period of no insurance coverage nor was the defendant obligated to exercise its option of securing insurance on plaintiffs’ behalf


Almost every commercial lease has a requirement that the lessee buy a CGL insurance policy naming the landlord as insured. It is a condition precedent to the lease agreement. When, as in these two cases, the lessee fails to acquire the required insurance, the lease agreement is breached and cannot be insured since insurance purchased late is not retrospective. In short and sweet decisions the appellate court affirmed the effort of the landlord to evict the defaulting plaintiffs.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests 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 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 theLEGEND-TROPHY-2 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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