Tenant on Hook for Failure to Obtain Insurance

Facts: A restaurant customer was injured when he tripped and fell on a defective sidewalk abutting the restaurant. The property on which the restaurant was located was owned by a realty company that leased the space to it under a lease agreement and a rider to the lease agreement.

The lease required the restaurant to make all nonstructural repairs to the sidewalks on the property. Under the terms in the rider, the restaurant was responsible for structural repairs to the premises that arose from its negligence or misconduct or from a breach of any obligation to be performed by it under the lease.

The rider also specifically identified the restaurant's responsibilities regarding floors and sidewalks on the property. It obligated the restaurant to keep the sidewalk in front of it extending 18 inches into the street free and clean of snow, ice, dirt, debris, and other foreign matter. The restaurant was solely responsible for the cost.

The indemnification provision in the rider required the restaurant to indemnify the realty company for claims arising from, relating to, or in connection with the restaurant's: (1) “use or occupancy of the Property or the conduct of business in or management of the Property or any work or thing whatsoever done or any condition created in or about the Property during the term of this lease; (2) any act or omission of the Restaurant; and (3) any default in the performance or observance of any of the terms, provisions, conditions, or covenants of this lease on the restaurant's part to be observed or performed.”

Additionally, the rider's insurance procurement provision required the restaurant to obtain insurance in the realty company's name—independent of the restaurant's management of the property, acts or omissions, or defaults on requirements of the lease. However, the restaurant failed to obtain that insurance.

The customer sued the restaurant and the realty company for negligence, prompting the realty company to sue the restaurant for negligence and indemnification for the costs of the lawsuit. The restaurant asked the court for a ruling in its favor without a trial, dismissing both lawsuits.

The court denied the restaurant's request that both lawsuits be dismissed; it granted the realty company's request only to the extent that the restaurant was liable for all damages, including costs that arose from its failure to procure insurance for the realty company. The restaurant appealed.

Decision: The appeals court upheld in part and reversed in part the judgment in the realty company's favor.

Reasoning: On appeal, the restaurant contended that the court incorrectly held that the measure of damages to the realty company was “all damages, including the costs of defending the lawsuit,” based upon the restaurant's failure to list it as an additional insured. Instead, the restaurant asserted that the realty company was entitled to only the full cost of insurance to it, including premiums paid and any out-of-pocket costs incidental to obtaining the insurance that might have been incurred.

The restaurant also argued that because there was no evidence that the defect was caused by its negligence or misconduct, it should not have been responsible for indemnifying the realty company under the lease and rider.

The appeals court agreed, finding that the restaurant had established that the lease and rider did not shift responsibility from the realty company to it for the structurally defective concrete slab on the sidewalk. Moreover, the realty company had not proven that the condition of the sidewalk was due to the restaurant's negligence.

Therefore, the restaurant was not responsible for indemnifying the realty company for the claims that were premised on the indemnification provision of the rider. However, the appeals court ruled that the restaurant was liable to the realty company for all damages that resulted from the restaurant's undisputed failure to obtain insurance in the realty company's name—not simply the full cost of obtaining insurance.

• Cucinotta v. the City of New York, et al., Northside Realty Corp., and Meriken Ltd., December 2009