The Ancient “But For” Test Controls Coverage Dispute

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Additional Insured Endorsement Insures Lessor for Slip and Fall in Parking Lot Serving Property Leased

When the use of the property as a gas station / convenience store depended on customers’ ability to ingress and egress through the attached parking lot – even though the lessees’ lease did not extend to the parking lot where the plaintiff fell but for the use of the parking lot the gas station/convenience store could not operate. In Republic Franklin Insurance Company, a/s/o Paul H. Lamb, t/a Lamb’s Auto Service Coatesville Shell v. Brethren Mutual Insurance Company, No. 20-1431, United States Court Of Appeals For The Third Circuit (October 6, 2020) was asked to determine whether coverage applied for the additional insured even though the lessees policy did not include the parking lot.

FACTS

When a customer slipped-and-fell in a gas station parking lot in Honey Brook, Pennsylvania an insurance coverage dispute was submitted to the Third Circuit. The owner insured the properties through Republic Franklin Insurance Company. Lamb leased the gas station – but not the parking lot – to Dharmesh and Popat Bhalala, who co-owned Shree Ram Enterprises, LLC, which operated the gas station and associated convenience store. Shree Ram insured the gas station / convenience store through a policy with Brethren Mutual Insurance Company. That policy included an endorsement naming Lamb as an additional insured, subject to a critical limitation: Lamb was covered only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to Shree Ram.

After both insurers (protecting their insureds and agreeing to resolve the coverage dispute later) agreed to pay for the slip-and-fall injuries, Republic Franklin sued Brethren Mutual for reimbursement of its $175,000 payment to the injured customer on Lamb’s behalf. Republic Franklin claimed that Brethren Mutual owed that sum due to Lamb’s status as an additional insured on Shree Ram’s policy and Republic Franklin’s motion was granted.

ANALYSIS

The sole issue concerned the scope of coverage provided by the additional insured endorsement. In relevant part, that document provides coverage for liability arising out of the use of the leased premises, which Shree Ram operated as a gas station / convenience store. Under Pennsylvania law the phrase “arising out of” means causally connected with, not proximately caused by, and but for causation, i.e., a cause and result relationship, is enough to satisfy this provision. With that understanding, the question becomes whether the use of the leased premises was a “but for” cause of the customer’s slip-and-fall.

The customer slipped and fell in the parking lot after exiting the store. And while not every incidental factor that arguably contributes to an accident is a “but for” cause in the legal sense the customer’s patronage of the store and her egress to the parking lot share more than an incidental causal nexus.

Because the customer would not have slipped in the parking lot but for her patronage of the gas station and store, her injuries arose out of the use of the leased premises. Therefore, the Third Circuit concluded that the incident falls within the coverage provided by the additional insured endorsement, and the District Court’s judgment in favor of Republic Franklin was affirmed.

ZALMA OPINION

A lease of a gas station and convenience store without a parking lot is useless to the lessee. The fact that the parking lot existed and that the lessor did not demand the operator of the gas station to pay rent for it, understanding that it was used for the customers of the convenience store, and since the injury would not have occurred but for the existence of and use of the convenience store. Republic Franklin should be honored for protecting the insured and then, after the insureds were protected, seeking reimbursement and resolution of the coverage dispute.


© 2020 – Barry Zalma

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 52 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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