Are landlords additional insureds under tenants’ liability policies?
Three court rulings set precedents on landlord-tenant liability in additional insured endorsement coverage cases.
In the realm of additional insured endorsement coverage cases, in the landlord-tenant context, litigants often refer to rival lines of cases: Harrah’s v. Harleysville Ins. Co. and Pennsville Shopping Center Corp. v. American Motorists Ins. Co.
Additional insured liability precedent set in Harrah’s case
In Harrah’s, the injured party, Sharon Lovitz, shopped at a store called Talk of the Walk (TOW), which was a tenant who operated a store in the Harrah’s Marina Hotel & Casino. After completing shopping, Lovitz left the store, walked through the hotel, and then exited the hotel. As she was crossing a city street to access the Harrah’s parking garage, she was struck by an automobile operated by a Harrah’s valet.
Harrah’s was an additional insured on the liability policy issued to the tenant, TOW by Harleysville. The Harleysville endorsement afforded coverage to Harrah’s “only with respect to liability arising out of the… use of that part of the premises leased to [TOW] and shown in the Schedule.”
Harrah’s sought coverage under the tenant’s policy and the court interpreted the “arising out of” language to require a “substantial nexus” between the liability and the tenant’s business. The court found a substantial nexus between the occurrence and the tenant’s business because Lovitz had come to the premises to shop at TOW. Therefore, “Harrah’s liability arose out of the risk generated by TOW’s business on the premises.”
Notably, the court observed that “the landlord is simply attempting to insure against the risk of liability generated by the business about to be conducted by the tenant, and place the cost of insuring that risk on the tenant. There is no prohibition in law or public policy against such a contract.”
The Harrah’s court also stated that such a conclusion was not inconsistent with the court’s conclusion in a prior appeal that Harrah’s was not entitled to contractual indemnification from TOW under the lease, explaining “entirely different principles of law apply to the interpretation of an indemnification agreement as opposed to an insurance policy.”
‘Arising out of’ language sets a particular precedent
In the recent Gateway decision, an employee of ExamWorks, a tenant in a commercial office building owned by Gateway, was injured when she slipped on ice while walking from her parked car to the front door of the building while on her way to work. In a prior related lawsuit, the injured employee sued ExamWorks, Gateway, and the snow removal contractor. The injured employee settled with Gateway and the contractor; the court granted summary judgment to ExamWorks (presumably based on the workers’ compensation bar).
Thereafter, Gateway brought a declaratory action against Travelers Insurance Company, the liability insurer for the tenant, ExamWorks. Gateway sought coverage under the additional insured endorsement of the Travelers policy. While there was no dispute that Gateway was in fact an additional insured under the Travelers endorsement, the issue was whether the coverage afforded under the endorsement was triggered under the facts of the case.
The language of the endorsement covering an “owner, manager or lessor” was typical for a business owner’s policy, the operative language being that coverage is afforded “only with respect to liability … that arises out of the ownership, maintenance or use of that part of the premises leased to [the named insured, tenant].”
In ruling in favor of Gateway, the Appellate Division relied on Harrah’s, focusing on the “arising out of” language. The court found a substantial nexus between the incident and the tenant’s business because the plaintiff was on her way to work in the tenant’s business at the time of the fall. The court rejected Travelers’ contention that Pennsville was controlling and dictated a finding of no coverage under the additional insured endorsement. While the rejection of Pennsville was appropriate, the Gateway court’s rationale for doing so was highly suspect.
Similar cases, different rulings
In Pennsville, a shopper tripped and injured herself in a parking lot of a strip mall as she was on her way to the tenant’s store and brought suit against the owner of the mall, Pennsville Shopping Center Corp. (Pennsville). Pennsville thereafter sought coverage under the tenant’s liability policy (issued by American Motorists Insurance Co.) as an additional insured on the policy.
The subject lease, while requiring the tenant to make the landlord an additional insured on its policy, also obligated the landlord to maintain the parking lot area and further required the landlord to the defendant and indemnify the tenant for liability arising from an accident in the parking lot.
In a reported decision, the Appellate Division held in favor of American Motorists, finding no entitlement to coverage for Pennsville in spite of its status as an additional insured on the policy.
Specifically, the court stated, “Absent an express and unambiguous contractual undertaking to do so, a tenant cannot logically be seen to be providing insurance to a landlord in respect of liability for which the landlord has assumed sole responsibility and has agreed to indemnify the tenant.”
The Gateway court attempted to explain the discrepancy between Pennsville and the Harrah’s line of cases by surmising that the Pennsville court must have found the American Motorists’ additional insured endorsement to have been ambiguous and this justified and/or necessitated reliance on an external document, the lease.
That effort to reconcile Pennsville with Harrah’s appears to lack merit.
What sets these case decisions apart? Language, courts say
First, the Pennsville court neither quotes, paraphrases, nor even mentions the language of the additional insured endorsement, and certainly makes no suggestion that the language is ambiguous, which would be a prerequisite to the court going outside the document.
Undoubtedly, the court would have expressly laid out such an analysis if that was its intention.
Second, the Pennsville court expressly states that the language of the endorsement is entirely irrelevant to its holding:
Manifestly, irrespective of the language of provisions of tenant’s insurance policy covering landlord as an additional insured, tenant could not be seen to be providing any indemnification to landlord for damages sustained because of a condition for which tenant bore no responsibility at all and which, to the contrary, the parties had expressly agreed in their lease was the sole responsibility of landlord.
Third, the Pennsville court uses the “nexus” terminology — which is borne of the “arising out of” language — suggesting that the endorsement language was akin to the Harrah’s endorsement.
One key deciding factor on landlord’s responsibility
What distinguishes Pennsville from the Harrah’s line of cases is one unique fact.
While a landlord is typically responsible to maintain the common areas, it is unusual for a lease to contain a provision requiring the landlord to defend and indemnify a tenant for incidents occurring in the common areas.
As can be seen in the above-quoted language from Pennsville, the court found it incongruous that a landlord would be entitled to insurance coverage from the tenant’s carrier and, at the same time, be obligated to defend and indemnify the tenant. The Pennsville rationale is seemingly at odds with the well-recognized tenets of contract and, particularly, insurance policy interpretation.
This shortcoming is illustrated by the Gateway court’s awkward effort to justify and/or explain the Pennsville holding by assuming the Pennsville court was dealing with an ambiguity in the subject insurance policy when there is no indication that was the case, other than the supposition that there must have been an ambiguity since otherwise there would have been no justification for the court’s analysis.
In either event, if we assume that the insurance policy was not ambiguous, i.e., akin to the language of the Harrah’s line of cases, then the Pennsville holding must be considered to have little merit. And if we assume that the insurance policy in Pennsville was, in fact, ambiguous, then that even further isolates Pennsville because, in such case, Pennsville’s application would require the presence of two unique facts: (1) an ambiguous additional insured endorsement, which is highly unlikely given the common forms used in the insurance industry, and (2) a lease requiring the landlord to indemnify the tenant.
As such, Pennsville largely exists on its own island, not the first in a line of cases, but instead an obscure data point. Decided in 1998, Pennsville immediately drew much attention as a counterweight to Harrah’s. But in over 20 years since, Pennsville has never been cited in any published opinion for the purpose of finding no coverage afforded under an additional insured endorsement. Conversely, Harrah’s has been relied upon numerous times in published and unpublished cases in the intervening years.
William Bloom is certified by the New Jersey Supreme Court as a civil trial attorney and a partner at Methfessel & Werbel in Edison, where he handles high exposure general liability defense matters.
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