The British Columbia Court of Appeal held that the landlord (in a subrogated action by its insurer) was precluded by the terms of the lease from advancing a claim for fire damage against the tenant. The landlord had a covenant to insure the property. The tenant, who had contributed premiums to that insurance, was entitled to the benefit of that insurance.

North Newton Warehouses Ltd. v. Alliance Woodcraft Manufacturing Inc., [2005] B.C.J. No. 1243, British Columbia Court of Appeal

Under the lease, the landlord had covenanted to take out and maintain insurance against all risks of physical loss or damage to the building. The landlord obtained the insurance and the tenant contributed to the premiums. A fire caused substantial damage to the building. The landlord alleged that the tenant or its employees negligently caused the fire. The action involved a subrogated claim brought by the landlord’s insurer against the tenant to recover amounts it paid to the landlord for damage caused by the fire. The tenant applied pursuant to Rule 33 for a declaration that the landlord was precluded by the terms of the lease from advancing the claim. The chambers judge dismissed the application.

The British Columbia Court of Appeal, in allowing the appeal, held that the landlord was precluded by the terms of the lease from advancing the claim. Where a landlord has a covenant to insure, the tenant should benefit from it unless there is something inconsistent with such a result contained in the lease document. The fact that no insurable interest was given to the tenant under the landlord’s policy was not determinative. The Court of Appeal noted that as a matter of policy, it makes little business sense for a landlord to covenant to insure and for a tenant to pay the premiums if the tenant is not to derive some benefit from the insurance.

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