Daily Development for
Wednesday, January 13, 2000
By: Patrick A. Randolph,
Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu
LANDLORD AND TENANT; INSURANCE; SUBROGATION: Waiver of subrogation
provision in a lease for damage to the "property owned" by the
respective landlord/tenant parties releases tenant from liability for fire
damage to the leased premises of adjacent tenants in the same building caused
by a fire negligently occasioned by a tenant within its leased premises.
Disabled Veterans Trust,
C. v. Porterfield Construction, Inc., 996 S.W.2d 548 (Mo. Ct. App. 1999).
The court used both a
plain language interpretation of the mutual waiver of subrogation provision to
find that when there was a waiver of damage claims for "fire or other
casualty" to "property owned" by landlord, the parties intended
the waiver to apply to the landlord's entire building, not just to the leased
premises. The waiver of subrogation provision was therefore held to waive
landlord's right to recover against the tenant who started a welding fire for
those resulting fire damages to other parts of the landlord's premises when
those damages were covered by insurance.
Comment 1: In fact, it was
CNA Insurance company that was proceeding as a subrogated party to the half
million dollars in damages it had paid to the landlord. In light of the plain
language of the agreement (in the view of the court) why did CNA waste its
money taking this appeal?
The answer may lie in the
authority the court indicates that the plaintiffs cited here. Millican of
Washington, Inc., v. Wienker Carpet Service, Inc., 44 Wash.App. 409, 722 P.2d
861 (1986); Hardware Mutual Insurance Company of Minnesota v. C.A. Snyder,
Inc., 242 F.2d 64 (3 rd Cir.1957); U.S. Fidelity & Guaranty Co. v. Let's
Frame It, Inc., 759 P.2d 819 (Colo.App.1988); AgraByProducts, Inc. v. Agway,
Inc., 347 N.W.2d 142 (N.D.1984).
The court merely refers to this authority, and makes no effort to distinguish
or explain it. All of the cases make the distinction the insurer argued for
here between the leased premises and other premises owned by the landlord. But
only the first case Millican involved a waiver of claims at all similar to the
case involved here. The next two cases involve clauses dealing with the return
of the property free from damage "except caused by fire" or
"except caused by accident." In such cases the intent of the parties
to limit the waiver impact to the premises thus returned is more obvious. The
last case involved an implied waiver of subrogation based upon the lessee's obligation
to pay for insurance for the landlord's benefit. The implication to be drawn
was quite appropriately limited to the policy the lessee was required to
provide for the leased premises only.
Millicam, which involves a
mutual waiver of claims by landlord and tenant, does seem to be on point, but,
as is to be expected, is based upon a thorough analysis of all parts of the
lease, and since the language in the Millicam lease is quite different from the
one at hand, it was not difficult for the Missouri court to set it aside. There
was no use of the term "property owned," which the court in the
instant case found to be the dispositive language.
Comment 2: Now, warned by
this case, future landlords can craft clauses that draw the distinction between
the leased premises and the overall premises in their mutual waiver clauses. But
in deciding whether to draw the distinction, what should the "real
life" practice be?
First, of course, it
should be what the insurance companies are willing to tolerate without increase
in premium.
Then we should look to the
question of whether the lessee has a legitimate claim that the monies lessee is
paying to landlord in fact are being used to pay for the insurance on the
balance of the landlord's premises. In a shopping center or office building
situation, of course, it is likely that the lessees are paying for the
landlord's overall insurance, and not just for the insurance of the leased
premises.
And then, finally, there
is raw economic power. If the tenant is desirable, and waiver of subrogation
for the balance of the premises won't mess up the insurance premiums, the
tenant ought to get the waiver, assuming the tenant's lawyer is sophisticated
enough to draft such language into the deal.
Readers are urged to respond, comment, and argue with the daily
development or the editor's comments about it.
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