§ 25.09 Summary

• Jurisdiction: United States
• Publication year: 2022

§ 25.09 Summary

In striving to reach a "no fault" position with respect to liability for fire damage or other casualties, landlords and tenants should be aware of the numerous steps necessary to achieve this result. Each party must realize the pitfalls of such devices as indemnification and exculpatory provisions and, especially, the ramifications of a subrogation action in the event of a casualty.

While a growing number of states have placed restrictions on unrestrained exculpation and indemnification provisions in commercial transactions, neither a tenant nor a landlord should rely upon a court overturning an exculpatory or indemnification clause in a commercial lease in order to defeat a claim for damages from the protected party. The courts and legislatures are still not uniformly clear on their interpretation of these clauses and have, in some instances, retreated from their former positions of viewing these provisions with a jaded eye.

A tenant who believes that it is automatically covered on a landlord's policy as a coinsured when the lease does not expressly provide this coverage is not entitled to any sympathy when it is later liable for fire loss. The cases are much too sparse on the point to find such comfort. If a common thread is apparent from these cases, it is that the courts may stretch their reasoning to extend fire coverage to a tenant whose negligence has caused fire damage to a building when the building is insured by the owner. However, the courts will not always do this.

While this reasoning is partially based on some experts' opinion that subrogation presents a windfall to the insurance companies, the application of coinsurance is better suited for residential leasing situations.¹ Subsequent cases may start to chip away at this notion of coinsurance in commercial leases, however, tenants should take notice and structure their insurance and casualty clauses accordingly.

Subrogation can still defeat all precautions taken by landlords and tenants in establishing a "no fault" liability scheme in their leases. Insurers can still swoop in after a casualty on a subrogation claim and recoup their losses against a negligent party. The only sure way of deflecting these actions is through (1) a waiver of subrogation clause in the lease; (2) a clear and concise waiver of direct actions or claims of landlord and tenant against each other; and (3) obtaining certificates of mutual waiver of the insurer's rights of subrogation recovery from each...