Don't Try to Use Insurance Clause to Evade Obligation to Indemnify Tenant

Most commercial leases contain an indemnification clause specifying whether and for what amount of money a tenant and owner must indemnify one another when they are sued. A lease may also include an insurance procurement clause that requires the owner and tenant to insure specific areas of the property. However, you shouldn't argue that, regardless of the terms in the indemnification clause, you are not required to indemnify your tenant for accidents that occur in the areas that the tenant is responsible for insuring. That is what one New York building owner recently—and unsuccessfully—did to try to get off the hook for negligence.

In that case, a customer sued the owner and its grocery store tenant after he slipped and fell on a substantial puddle of water in the store. The customer alleged that the puddle had accumulated on the floor due to the building's leaky roof, which the owner had failed to maintain. The tenant and owner sued each other for indemnification, to recover the amount they would have to pay the customer if he prevailed in his lawsuit. The building owner claimed that its insurance procurement clause, which required the owner to maintain public liability insurance for the common areas and the tenant to maintain public liability insurance for the store, excused it from indemnifying its tenant for accidents in the areas for which the tenant was obligated to procure insurance—even if the owner had been negligent. The owner asked the court for a judgment in its favor.

The court denied the owner's request, agreeing with the tenant's argument that the lease did not provide indemnification for the owner's own negligence. It noted that a lease would be construed to provide indemnification to a party for its own negligence only if it showed an “unmistakable intent to indemnify.” Here, rather than showing an unmistakable intent that the owner be indemnified for its own negligence, the indemnification provisions specifically provided for the opposite result—that each party remain directly liable for its own negligence.

The court pointed out that in the lease, claims “caused by the acts or omissions of the owner” were excluded from the tenant's indemnity obligation to the owner. The court said that it was apparent from the lease terms that the tenant and owner intended that the tenant be liable for all claims arising from incidents within the store—unless they had been caused by the owner's negligence—and that the owner be liable for all claims arising from incidents in the common areas—unless they had been caused by the tenant's negligence.

For its part, the owner argued that, taken together, the indemnification provisions and the insurance procurement clause showed an intention for the tenant to be liable for all accidents occurring within the store—regardless of fault, and extending even to those caused by the owner's own negligence—and for the owner to be liable for all accidents occurring in the common areas. The owner also argued that the existence of the insurance procurement clause was alone sufficient to require the tenant to indemnify it for claims arising from its own negligence.

The court disagreed. It said that because the insurance procurement clause did not specify how liability would be apportioned between the tenant and owner, it was insufficient to refute the indemnification provisions' clearly expressed intent that the owner should remain liable for its own negligence [Husted v. The Price Chopper, Inc. and Century Group I, LLC, January 2010].