New Jersey Appellate Division Finds in Favor of Tenant and its Insurer in Coverage Dispute Between a Tenant and Its Insurer Against the Landlord

In Lopez v. Palin Enterprises, the New Jersey Superior Court, Appellate Division, considered a tenant’s duty to defend its landlord against a personal injury suit brought by the tenant’s employee. In this insurance coverage dispute, the landlord filed a third-party action against the tenant and its insurer, Wausau, seeking primary coverage as an additional insured under the Wausau policy and contractual indemnification from the tenant. The trial court determined that Wausau was required to provide the landlord with primary coverage and that the tenant was required under the terms of the lease to indemnify the landlord for its own negligence. The tenant and Wausau appealed those respective rulings and the Appellate Division reversed the trial court’s orders, finding that the plain language of the lease and the policy required only that Wausau provide excess insurance to the landlord and did not require the tenant to indemnify the landlord for its own negligence.

On appeal, the tenant argued that it had no obligation under the lease to indemnify the landlord for the landlord’s own negligence and that, in fact, the lease specifically precluded it from doing so. The tenant additionally argued that the lease’s insurance requirements were fulfilled by the tenant procuring insurance coverage for the landlord. In its appeal, Wausau argued that the “other insurance” provisions of Wausau’s policy and the landlord’s policy required Wausau to provide excess insurance over the primary insurance issued by the landlord’s carrier and not primary coverage.

In addressing the tenant’s appeal of the contractual indemnity issue, the court focused on the indemnification provision of the lease between the parties. The lease provided that the tenant was required to indemnify the landlord against claims of personal injury, “except such claims that may be the result of the negligence of [the landlord].” Relying on New Jersey’s “bright-line rule” that requires explicit language to enforce an indemnity provision that purports to include an indemnitee’s own negligence, the court found that the lease did not express the parties’ intention that the tenant indemnify the landlord for the landlord’s negligence “in unequivocal terms.” It also determined that the lease specifically excluded such an obligation. Accordingly, the court held in favor of the tenant on the contractual indemnity issue.

With respect to Wausau’s appeal, the court examined the language of the lease, which provided that the tenant agreed to provide a comprehensive policy of liability insurance protecting the landlord “against any liability whatsoever,” and found the language to be unambiguous. In its analysis, the court pointed to the well-settled law that “claim” and “liability” are not synonymous and found that the lease did not require the tenant to obtain additional insurance for the landlord as to all claims, only as to all liability. The court next turned to the language of the insurance policies at issue and examined the “other insurance” provisions. As an additional insured under the Wausau policy, the court determined that the language of the policy stated that the landlord was entitled excess coverage unless a written agreement required primary coverage. Since the lease agreement did not specify that the insurance provided had to be primary, the court held that the Wausau policy provided excess coverage for the landlord.

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