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.
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