A landlord may not be able to sue their tenant for a fire loss
When a landlord leases property to a tenant, the lease typically stipulates that the tenant pay for, or obtain, fire insurance. If a fire occurs and the landlord recovers property damage under the fire insurance policy, neither the insurer nor the landlord can sue the tenant for damages. For a more detailed discussion of this issue see the Law of the Land blog.
Alberta Importers and Distributors (1993) Inc. v. Phoenix Marble Ltd.,  A.J. No. 510 Alberta Court of Appeal .D. Hunt, R.L. Berger and C.D. O’Brien, JJ.A. May 14, 2008
The respondent tenant admitted to negligence in the handling and storage of flammable chemicals which caused a fire and resulting damage to the appellant landlord’s premises. The landlord’s property insurer paid the landlord for its insured losses and commenced a subrogated action in the name of the landlord (and two other insured tenants) against the tenant to recover the insured losses.
The lease required the tenant to pay a proportionate share of “all premiums with respect to insurance (including expenses relating to replacement value appraisal or evaluation and estimated deductibles) to be placed by the landlord for fire . . . and a replacement cost endorsement to the full insurable value of the building and improvements and equipment thereon . . . “. The landlord obtained such insurance and the tenant paid his proportionate share of the premium.
At trial the court held that the landlord’s subrogated claim could not proceed on the basis that the agreement that the tenant would pay its proportionate share of the property insurance premiums implied that the landlord had assumed the risk of loss. The tenant, the court held, was entitled to the benefit of payments it was obliged to make under the lease pertaining to fire insurance.
On appeal, the court held that the relevant inquiry was into who bore the risk of loss by fire. The court held that the lease allocates risk as between the landlord and the tenant. The Supreme Court of Canada has held that where the tenant pays a portion of the premium of the landlord’s insurance, the landlord bears the risk of loss of fire from the tenant’s negligence and the landlord has to look to its insurer for recovery of the loss by fire.
The issue in this case was that the lease also required the tenant to obtain a general liability policy which, the tenant argued, protected the landlord from any third party claims for damage for bodily injury or property damage sustained by such third parties but nothing more. In reviewing the lease, the court found that it clearly obligated the landlord to purchase fire insurance. The court found that the tenant’s obligation to acquire liability insurance was compatible with the landlord’s express and implied covenant to acquire property insurance and did not shift liability for damage by fire from the landlord to the tenant. In the result, the trial judge’s conclusion that the subrogated claim could not proceed against the landlord was upheld.
This case was originally summarized by Cameron D. Elder and originally edited by David W. Pilley.
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