Monday, July 6, 2009

"For the Mutual Benefit" Language of Commercial Lease Found to Trigger Blanket Additional Insured Coverage in Favor of Landlord

Kassis v. Ohio Cas. Ins. Co.
(Ct. Apps., decided 6/25/2009)

Landlords often require their tenants to carry certain insurance coverages -- sometimes to the benefit of just the tenant, and sometimes to protect the landlord directly, as well.  Such insurance requirements are usually found in the lease, and provisions concerning first- and third-party insurances vary widely.  The responsibility of interpreting such provisions, if unclear and contested, is the courts'.  This is such a case.

In a 3-2 decision issued back in May 2008, the Fourth Department found in favor of Ohio Casualty and ruled that its insured's landlord was not an additional insured under the tenant's CGL policy.  The three-justice majority ruled that the tenant was not "required to name" the landlord as an additional insured because the parties' lease only required insurance "for the mutual benefit of" both the tenant and the landlord.

The Court of Appeals has now REVERSED that decision and reinstated the motion court's judgment in favor of the landlord.

Kassis leased property to Superior Sign.  Under the lease, Superior Sign was obligated to pay for snow removal services and to "indemnify, defend, and hold harmless Landlord from any and all damages, costs, expenses, and liabilities for anything arising out of the occupancy of the Premises caused by Tenant or its agents and from any loss or damage arising out of the acts of Tenant or its agents or the failure of Tenant to comply with the terms and conditions" of the lease.  The lease further provided that Superior Sign, "at its sole cost and expense and for the mutual benefit of Landlord and Tenant, shall maintain a general liability policy ... providing coverage against claims for bodily injury, personal injury and property damage" in specified aggregate and per occurrence coverage limit amounts.

Superior Sign obtained a commercial general liability (CGL) insurance policy from Ohio Casualty. The policy contained a blanket additional insured endorsement that extended coverage to "any person or organization whom [the named insured is] required to name as an additional insured on this policy under a written contract or agreement."

A Superior Sign employee slipped on snow and ice on the leased property and sued Kassis.  Ohio Casualty disclaimed on the ground that the policy, which named only Superior Sign, did not afford Kassis additional insured coverage.  Kassis and Superior Sign commenced this action seeking a declaration that Ohio Casualty was obligated to defend and indemnify Kassis in the underlying action.

Writing for the unanimous court, Chief Judge Lippman utlized other of the lease's insurance requirements to construe the "for the mutual benefit" language:
The intent and meaning of the term "mutual benefit" in the provision becomes clear when juxtaposed with the language of the other insurance provisions of the lease. The lease expressly contemplates that both Kassis and Superior Sign will enjoy fire insurance, and the lease further provides in an "Additional Insurance" provision that Superior Sign may obtain certain types of insurance coverage just for itself. With respect to fire insurance, Kassis, "at Tenant's sole cost and expense," is to "keep the Premises insured for the benefit of the parties against loss or damage by fire," and fire insurance "may be written either under separate policies in Landlord's name or combined with other coverages acquired by Tenant." As for the additional insurance provision, it specifies that Superior Sign, "at its sole cost and expense, may maintain insurance coverage for its benefit on Tenant's leasehold improvements and Tenant's personal property in such amounts as Tenant deems appropriate with Tenant assuming the risk of any co-insurance." The additional insurance provision also expressly permits Superior Sign to "effect for its own account any insurance not required by the provisions of this Lease, including business interruption insurance or insurance covering Tenant's equipment and personal property." Plainly, where a disparity in coverage as between insureds was contemplated — i.e., where the insurance to be procured was not for the insureds' "mutual benefit" — it was expressly noted.

It is therefore clear that Superior Sign was obligated under the lease to procure the same level of general liability insurance coverage for Kassis as it obtained for itself, and because of that, Kassis falls within the policy's additional insured provision. Because Kassis is considered an additional insured, Ohio Casualty is obligated to defend him in the underlying personal injury action and, if appropriate, indemnify him as an additional insured in accordance with the policy.
Under the Court of Appeals' decision, if a commercial lease contains "for the mutual benefit of" language and the tenant's policy includes a blanket additional insured endorsement or provision, the landlord may enjoy CGL coverage as an additional insured.

1 comment:

DLev said...

Blanket additional insured endorsements that are triggered "when required by contract" requires a claim adjuster to interpret a contract other than the insurance policy. As a matter of logic, a tenant's liability policy can be mutually beneficial to the landlord and tenant without the landlord being an additional insured. So there is a difference between a lease that requires a tenant to purchase a mutually beneficial liabilty policy and a lease that requires a tenant to purchase a liability policy on which the landlord is an additional insured. It would not be at all surprising, however, for a tenant to testify that he understood the phrase "for the mutual benefit" to mean that the landlord required additional insured status. A claim adjuster is not in the best position to determine what the parties to the lease intended.

The opinion quotes from Pecker Iron Works "'Additional insured' is a recognized term in insurance contracts," and "the well-understood meaning of the term is an entity enjoying the same protection as the named insured" I don't believe that is true at all. A named insured has much broader protection than an additional insured. Every lawyer representing an insurance company on an additional insured issue should include a footnote in every brief pointing out the over-breadth of that statement.