New Jersey Insurance Blog

Leases of real property often require the tenant to obtain liability insurance covering the premises and to name the landlord as an additional insured under the policy.  The extent to which the landlord is entitled to coverage depends, at least in the first instance, on the particular language in the tenant’s policy.  A typical additional insured endorsement provides coverage to a landlord for liability “arising out of” the ownership, use, or maintenance of the premises by the tenant.

The phrase “arising out of” has been given expansive meaning by New Jersey courts.  When a tenant’s policy contains such language, a landlord will be entitled to coverage as an additional insured if the conduct at issue “originates from,” “grows out of,” or has a “substantial nexus to” the tenant’s acts or omissions.  See Flomerfelt v. Cardiello, 202 N.J. 432, 451-54 (2010).  Recently, however, the New Jersey Appellate Division went a step further and held that a landlord was entitled to coverage as an additional insured even though a third-party’s injuries had no real connection to the tenant’s use of the leased premises.

In that case, Killeen v. Jenson & Mitchell, Inc., 2017 WL 1632645 (App. Div. May 2, 2017), the court held that a landlord was entitled to coverage as an additional insured in connection with injuries sustained by a firefighter when he fell through a glass panel on the roof of the premises leased by the tenant.  The firefighter was responding to a fire at a neighboring property that was not leased by the tenant-insured.  The firefighter climbed on the roof of the leased property to access the neighboring property.  There is no indication that the tenant caused or in any way contributed to the fire.

The lease required the tenant to obtain liability insurance and name the landlord as an additional insured under the policy.  The lease agreement also contained mutual indemnification clauses, requiring the landlord and the tenant to indemnify each other for liability arising out of their respective negligence.  The lease specifically provided, however, that the landlord was responsible for repairs to, and maintenance of, the roof.

The insurance policy obtained by the insured provided:

WHO IS AN INSURED . . . is amended to include as an insured any person or organization . . . with whom you have agreed in a written contract, executed prior to loss, to name as an additional insured, but only with respect to liability arising out of the ownership, maintenance or use of that part of any premises leased to [the tenant] . . . .

Id. at *2.

The firefighter sued both the landlord and tenant alleging negligent maintenance of the property.  The landlord filed a third-party complaint against the tenant’s insurer, seeking coverage under the policy.  Both the landlord and the insurer moved for summary judgment.  The trial court ruled in favor of the insurer, noting that the lease required the landlord to maintain the roof.  The Appellate Division reversed, finding that the roof was part of the leased premises.

As the court correctly noted, as a general rule, when an insurance policy is clear and unambiguous, extrinsic evidence, such as a lease agreement, should not be considered.  Id. at *4 (“The extent of coverage in an unambiguous insurance policy is determined by the relevant policy terms, not the terms of an underlying contract, in this case the lease, that mandates insurance coverage”).  In Killeen, however, there was an issue as to whether the tenant was responsible for the “maintenance” of the roof.  That issue could not be resolved without reference to the lease.  In that regard, this case was similar to Pennsville Shopping Center Corporation v. American Motorists Insurance Company, 315 N.J. Super. 519 (App. Div. 1998), certif. denied, 157 N.J. 647 (1999), a case in which the court did consider the terms of the lease.

The Killeen court attempted to distinguish the Pennsville case on the basis that the policy in Pennsville was “unclear.”  However, the Pennsville court never determined that the policy language was unclear.   Indeed, the policy language is not even quoted in the opinion.  More important, the Pennsville court held that it was appropriate to consider extrinsic evidence regardless of whether the policy language was clear or unclear:

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. . . . 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 a liability for which the landlord has assumed sole responsibility and has agreed to indemnify the tenant.  The indemnification rights of plaintiff carrier can rise no higher than the rights of its insured.

315 N.J. Super. at 523.  It is hard to reconcile this language with the court’s holding in Killeen.

As to whether the tenant “used” the roof, there is no question that a roof was necessary for the tenant to conduct its operations.  However, the tenant’s “use” of the roof in no way caused or contributed to the firefighter’s injuries.  In other words, the firefighter’s injuries did not “arise out of” the use of the roof by the tenant.  Nonetheless, according to the court:

Here, the roof was integral to the leased premises and the accident was “a reasonable incident or consequence of the use of the leased premises.”

Id. at *5.  Had the firefighter been injured while fighting a fire that started on the leased premises, or while physically within the space occupied by the tenant, the issue may have been different.  Given the facts at issue, however, it cannot be said that the firefighter’s injuries “originated from,” “grew out of,” or had a “substantial nexus to” the tenant’s acts or omissions.

In reaching its decision, the court relied on three other decisions in which a customer of a tenant was injured after leaving the tenant’s business premises.  The court noted that in the first case, “although the accident did not occur within the leased premises, it occurred from the use of the premises leased by the tenant because there was a relationship between the occurrence and the use of the premises leased by the tenant.”  Id. at *5 (discussing Franklin Mut. Ins. Co. v. Security Indem. Ins. Co., 275 N.J. Super. 335 (App. Div.), certif. denied, 139 N.J. 185 (1994)).  In the second case, coverage was found to exist because “the landlord [could] trace the risk creating its liability directly to the tenant’s business presence.”  Id. (quoting Harrah’s Atlantic City, Inc. v. Harleysville Ins. Co., 288 N.J. Super. 152, 158-59 (App. Div. 1996)).  In this third case, the “accident . . . occurred off the tenant’s premises, but close to the premises, and involved a prospective customer approaching the tenant’s store.”  Id. at *6 (discussing Liberty Village Assoc. v. West American Ins. Co., 308 N.J. Super. 393 (App. Div. 1998)).

In Killeen there was no relationship between the occurrence and the use of the premises leased by the tenant, the risk creating the landlord’s liability (i.e., the failure to maintain the roof) could not be traced to the tenant’s business presence, and the injured party was not a prospective customer.  Thus, the cases relied on by the court are distinguishable.

The Killeen court arguably stretched the “arising out of” language beyond its intended meaning.  There was no dispute that the tenant was not responsible for the maintenance of the roof and the firefighter’s presence on the roof had no real nexus to the tenant’s use of the premises.  Based on the court’s holding, it is hard to envision a case in which a landlord will not be found to be an additional insured under such language.

© William D. Wilson and NJInsuranceBlog.com, 2017.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.

For over 100 years, it has been well established under New Jersey law that an insurance broker owes a duty to the insured, its client, to act in good faith and with reasonable skill in performing its services.  That duty, however, is not unlimited.  For instance, absent a “special relationship,” an insurance broker has no duty to recommend that its client purchase higher limits of coverage or even advise its client that such limits are available.  See Wang v. Allstate Ins. Co., 125 N.J. 2, 11-12 (1991).  That principle recently was reaffirmed by the New Jersey Appellate Division in C.S. Osborne & Co. v. Charter Oak Fire Insurance Co., 2017 WL 1548796 (App. Div. May 1, 2017).

The insured in that case, a family-owned business that manufactured tools used for leatherwork and upholstery, among other things, had manufacturing facilities in Harrison, New Jersey, and St. Louis, Missouri.  The insured had a twelve-year relationship with Bollinger, Inc., its insurance broker.  Over that time, the broker would unilaterally review the insured’s coverage and make recommendations.  For instance, the broker had made suggestions about purchasing coverage for terrorism, employment practices, earthquake, product recall, pollution liability, directors and officers liability, among other things.

The insured’s property insurance policy, which was in effect on the date that Superstorm Sandy hit New Jersey, contained a “water” exclusion, although it also provided $1 million in flood coverage.  In connection with the renewal of the prior year’s policy, the broker informed the insured:

Higher limits or sub-limits may be available so please advise us if you are interested in higher limits options so that we may secure quotations for your consideration.

However, the broker did not specifically recommend that higher limits should be purchased; it left that decision to the insured.

As a result of Superstorm Sandy, the insured’s New Jersey facility sustained significant flood damage in excess of the $1 million flood limit.  The insured subsequently sued its broker, arguing that the broker should have recommended a higher flood limit.  The insured retained an expert who “opined that because elevations were low with a river nearby, a discussion about flooding should have occurred” between the insured and the broker.  Id. at *2.

The trial judge grated summary judgment in favor of the broker, and that decision was affirmed on appeal.  Despite the  twelve-year relationship between the parties, the court found that there was no “special relationship” that would have given rise to a duty to recommend higher coverage limits.  In order for a special relationship to be found, an insured must establish “something more” than a traditional broker-client relationship.  See, e.g., Triarsi v. BSC Group Services, LLC, 422 N.J. Super. 104, 116-17 (App. Div. 2011).  Reasonable reliance by the insured on the broker’s recommendations may give rise to such a relationship.  In Osborne, however, the court found that “Bollinger never told plaintiff anything that would reasonably cause plaintiff to rely on his quotes as recommendations for the proper amount of insurance coverage.”  Id. at *6.  The court went on to note:

Bollinger’s insurance proposal also clearly informed plaintiff of its ability to offer more insurance coverage.  Bollinger did not have any more information than plaintiff, and nothing in the record shows Bollinger acted to cause plaintiff to rely on it to recommend the proper amount of insurance coverage.

Id. at *6.

While insureds may be surprised to learn that their broker has no duty to recommend appropriate levels of insurance coverage, the Osborne decision, in and of itself, is not surprising.  As noted, over twenty-five years ago the New Jersey Supreme Court held that a broker does not owe such a duty to its client.  One possible way for an insured to get around this is simply for the insured to inform the broker that it is seeking the “best available coverage.  See Harrington v. Hartan Brokerage, Inc., 2014 WL 2957756, *8 (N.J. Super. Ct. App. Div. July 2, 2014) (court held that “by asking for the ‘best available’ insurance, the insured put the agent on notice that he was relying on the agent’s expertise to obtain the desired coverage”).

© William D. Wilson and NJInsuranceBlog.com, 2017.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.