Daily Development forFriday, April 9, 1999

LANDLORD/TENANT; TENANT'S LIABILITY FOR LANDLORD'S CONDUCT; INSURANCE: A scope of a tenant's undertaking to name its landlord as an additional insured is to be read as coextensive with the scope of the tenant's own liability.

Pennsville Shopping Center Corporation v. American Motorists Insurance Company, 315 N.J. Super. 519, 719 A.2d 182 (App. Div. 1998).

A supermarket's customer fell in the shopping center parking lot when her shopping cart went into a pothole. The landlord's insurance company and the tenant's insurance company then argued as to which of them was required to provide coverage. The lease required the tenant to indemnify its landlord from loss or liability for damages "occurring on the demised premises except [for those] due to Landlord's negligence" and to name its landlord as an additional insured on its liability policy. The lease also required the landlord to indemnify its tenant from loss or liability for damages "resulting from Landlord's failure to carry out repairs or maintenance of the common areas required of it by this Lease." The landlord had the obligation to maintain the parking lot in good working order, repair, and condition and the personal injury resulted from the landlord's failure to carry out those duties.

Neither the lower court nor the Appellate Division considered it important that the injured customer was a patron of the supermarket who was leaving the supermarket when the accident happened. Irrespective of the language of the tenant's insurance policy covering the landlord as additional insured, the tenant could not be seen to be providing any indemnification to its landlord for damage sustained because of a condition for which the tenant bore no responsibility at all and which the parties had expressly agreed in their lease was the sole responsibility of the landlord. The tenant's undertaking to name its landlord as an additional insured was read to be coextensive with the scope of the tenant's own liability. "While it is axiomatic that policies of insurance are to be construed in favor of the insured and that interpretations of policy language favoring coverage are preferred, the question whether a party is insured at all may be a separate matter susceptible of resolution by reference to any relevant matter" such as the lease agreement.

Comment: The landlord apparently had insured its own risks here and also required the tenant to name the landlord as an additional insured on tenant's insurance policy, but then the parties indemnified one another against their respective negligence. Was this really the best way to minimize insurance costs for both parties? Accidents happen. Insurance is designed to address that reality. What difference does it make whose employee is the source of the accident? If, in one policy, the tenant could have obtained insurance that covered injuries in the parking lot regardless of the cause of the loss, and could have included the landlord as an additional insured, shouldn't the parties have drafted their documents to achieve that result.

It may be that the arrangement proposed above would not have been practical in this case because of the landlord's concerns about other liability issues unrelated to its business with tenant. The lesson is not that any one solution is appropriate, but rather that parties should address their lease drafting with the objective of minimizing the overall cost of insuring against risk, and this means avoiding potential double coverage, which in many cases evaporates anyway because of clauses in the policies exculpating the insurer for losses covered by other insurance.

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