A tenant who is sued by his or her landlord for non-compliance with his or her lease may not be covered by a tenant’s insurance policy

Insurer’s motion for dismissal of a third party claim against it was allowed. The insured’s claim for indemnity was premature and was struck out. The claim against the insured, a tenant, by the landlord, did not trigger the duty to defend. The landlord’s claim clearly arose in respect to the tenant’s actions and omissions with respect to non-compliance with the lease and was excluded under the policy. The allegations in the claim could not be so broadly read as supporting an allegation of negligence that would trigger the duty to defend.

Sandringham Holdings Ltd. v. Shoeless Joe’s Enterprises Inc., April 21, 2010, Ontario Superior Court of Justice, B.A. Allen J.

Plaintiff landlord brought claim against the defendant tenant in relation to a sewer back up on the leased premises. The claim alleged various acts of non-compliance with the lease on the premises occupied by the tenant. The main allegations consisted of a claim that the tenant neglected or refused to repair damage to the tenant’s work and improvements in accordance with the terms of the lease, that the tenant failed to maintain insurance in the name of the landlord, and that the tenant unilaterally and without notice reduced the insurance coverage to less than the full replacement value .

The tenant issued a third party claim against its insurer seeking an order that the insurer defend and indemnify it in respect of the main action.  The insurer brought a motion for summary judgment for the claim to be struck out on the basis that the policy does not cover allegations in respect of a failure to adequately insure the property of other persons. That is, the policy specifically excludes from coverage liability assumed in a contract for property that is owned, rented, or occupied by the insured. The tenant argued that the allegations, if looked at broadly, fell within coverage. The tenant relied on the well known principle that it is the “substance” of the claim and not the “legal labels” used that determies whether coverage is triggered. Therefore, the tenant argued that although the allegations against the tenant sounded in breach of the lease, if broadly interpreted, they supported a claim in negligence for property damage that triggered the insurer’s obligation to defend.

The court first dismissed the tenant’s claim for indemnity, finding that it had been brought prematurely. The duty to idemnify can only be determined after the facts in the underlying case have been proven at trial.

Next, the court addressed the duty to defend. It commented that the policy consisted of coverage for four types of liability: A. Bodily Injury and Property Damage Liability; B. Personal Injury Liability; C. Medical Payments; and  D. Tenant’s Legal Liability. It went on to say that the tenant’s argument appeared to mix up the various coverages and exclusions and omitted to refer to various exclusions. For instance, under coverage A, there were exclusions “a” to “t”. The tenant only referred to exclusion “b” which excluded from coverage liability assumed under a contract or agreement. An exception under exclusion “b” is “an insured contract”. The tenant omitted to cite exclusion “h” which excluded coverage for “property you own or rent”. Exclusion “h” was critical since it excluded leased premises from coverage.  The tenant also referred to the Tenant’s Legal Liability Broad Form which modified coverage D by expanding coverage from applying only to damage caused by fire to covering “property damgage”. The tenant did not cite exclusions “a” to “i” under coverage D. However, under coverage D, exclusion “B” excluded assumption of liability in contract, and contained no exception for “an insured contract” (or a lease) as is the case with Coveage A. The court therefore held that the tenant “did not succeed in showing that a tenant’s liability for breach of the terms of a lease agreement is covered” under the policy.

This case was digested by Natasha D. Morley and edited by David W. Pilley of Harper Grey LLP.

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