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Preferred Mutual Insurance Company v. Gonzalez

A-2920-07T1 (N.J. Super. App. Div. 2009) (Unpublished)

LEASES; INSURANCE — Where the sole finding of a court is that a tenant breached its lease by failing to name its landlord as an additional insured on the tenant’s insurance policy, such failure is not a covered loss under the tenant’s policy and the landlord may not look directly to the tenant’s insurance company for coverage.

A tenant executed a lease for premises with its own entrance onto a public sidewalk. Under the lease, the tenant had to carry liability insurance. Although the lease required the tenant to name the landlord as an additional insured, it failed to do so. The lease also required the tenant to contractually indemnify the landlord. A pedestrian slipped and fell in front of the tenant’s premises. On that date, the landlord had third-party liability insurance coverage. The landlord and tenant were both sued. The landlord demanded that the tenant assume the landlord’s defense and indemnify it against any and all losses.

A jury found the landlord liable for the victim’s injuries and held the tenant not negligent. The lower court also denied the landlord’s claim for contractual indemnification because the lease did not expressly require the tenant to indemnify its landlord for the landlord’s “sole negligence.” It did, however, hold that the tenant had breached the lease by failing to name the landlord as an additional insured. Then, after reviewing both insurance policies, the lower court ruled that the tenant’s policy would have been primary and would have covered the entire amount of the judgment against landlord. This was because the injury arose out of the business of tenant. Accordingly, it held the tenant liable to its landlord for the full amount of the verdict.

After the landlord’s insurance company satisfied the personal injury judgment, the tenant assigned all of its rights in its liability policy to the landlord and the landlord’s insurance company. The tenant’s insurance company refused to honor a demand for indemnity. The landlord’s insurance company filed a motion requesting that the tenant indemnify it for the payments it made. The lower court found that the tenant’s failure to secure insurance was not a covered loss under its policy, but ruled that under the terms of the policy the contractual liability arising out of the lease was covered. Therefore, it granted the motion and ordered the tenant’s insurance company to indemnify landlord. Tenant’s insurance company appealed and the Appellate Division reversed. It agreed with the tenant’s insurance company that the tenant’s failure to name the landlord as an additional insured was not a covered event or occurrence under the policy. Since the landlord and its insurance company were assignees of the tenant’s rights under the insurance policy, their rights were limited to the rights of the tenant-assignor and were subject to all the equities and defenses that could have been asserted against the assignor before the assignment. In other words, the Court held that the landlord and its insurance company could only recover under the tenant’s insurance policy if the tenant could recover. Thus, the Court needed to determine whether the lower court judgment was entered under the indemnification provision of the lease or because of the tenant’s failure to name the landlord as an additional insured. As its answer, the Court concluded that the landlord suffered damages equivalent to the amount of the judgment that would have been fully covered by tenant’s insurance policy. However, it opined that because the lower court order was based solely on the tenant’s failure to name the landlord as an additional insured on its insurance policy, it was not a covered loss under the policy. As a result, the Court remanded for the lower court to enter an amended order dismissing the action against the tenant’s insurance company.

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