Liberty Village Associates v. West American Insurance Company

308 N.J. Super. 393, 706 A.2d 206 (App. Div. 1998)
  • Opinion Date: February 18, 1998

LEASES; INDEMNIFICATION; INSURANCE—Where a landlord is named as an additional insured under a liability insurance policy that covers incidents arising “out of the use of” its tenant’s premises, it is covered for an accident injuring its tenant’s customer while going to or from the leased premises even if the accident did not take place on the leased premises.

An insurance policy given by a commercial tenant in favor of its landlord named the landlord as an additional insured but, “only with respect to liability arising out of the ownership, maintenance or use” of the premises leased to the tenant. On a snowy day, a prospective customer of the tenant slipped and fell on the sidewalk just before reaching the tenant’s covered entrance. It was clear that the accident occurred outside of the tenant’s premises, but in an area where the tenant’s employees regularly provided maintenance and snow and ice removal. The landlord and the tenant’s insurance company jointly settled the claim, but submitted a motion for summary judgment seeking to determine whether the landlord was entitled to the benefit of the tenant’s insurance coverage. The parties also agreed that the prevailing party would apply to the court for payment of attorney’s fees by the losing party. The lower court found that the tenant’s insurance policy covered the landlord because the injury arose from the use of the tenant’s premises. However, it denied the request for counsel fees, without comment. The insurance company appealed the judgment holding it responsible for the full cost of the settlement, and the landlord appealed the denial of counsel fees.

The Appellate Division cited Franklin Mutual Insurance Co. v. Sec. Indem. Insurance Co., 275 N.J. Super. 335 (App. Div. 1994), finding no significant difference between it and the instant case, other than the fact that in Franklin the injured party had just left the premises while in this case the injured party was approaching the premises. (The Court found this distinction immaterial). In both cases the policy language was identical, the injury occurred outside of the leased premises, and the incident was something originating from or growing out of the use of the leased premises. In Franklin, the Appellate Division held that the additional insured coverage was not limited to an occurrence within the premises, but applied more generally to an occurrence, “arising out of the use of” the premises and that, “there need only be shown a substantial nexus between the occurrence and the use of the leased premises for coverage to attach.” In a similar decision two years later, the Appellate Division stated that, “where the landlord can trace the risk creating its liability directly to the tenant’s presence, it is not unreasonable for the landlord to expect coverage, inasmuch as it can be truly said that the accident originated from, or grew out of, the use of the leased premises.” Harrah’s Atlantic City, Inc. v. Harleysville Insurance Co., 288 N.J. Super. 152, 158-159 (App. Div. 1996). Just as the earlier courts found a substantial nexus in both of those cases, the Appellate Division found such a nexus in this case too, and held that the injury fell within the scope of protection afforded the landlord as an additional insured under the tenant’s insurance policy.

Although the normal rule requires each litigant to pay its own counsel fees, R. 4:42-9(a)(6) sets forth that suits seeking coverage under a liability insurance policy are an exception to that rule. The theory is that a party covered by an insurance policy is entitled to its full protection, undiluted by a need to pay counsel fees. The Court found it impossible to review the lower court’s attorney’s fees determination in the absence of any reasons for its conclusion, and remanded this issue to the Law Division.