Successful application by the defendant for a summary dismissal of the landlord’s claim for damages caused by a fire because the lease contained an implied covenant to insure

Insurance law – Liability insurance – Property insurance – Fire insurance – Landlord and tenant – Covenant to insure – Summary judgments, availability – Evidence

Youn v. 1427062 Alberta Ltd. (c.o.b. Red’s Pub), [2016] A.J. No. 1125, 2016 ABQB 606, Albert Court of Queen’s Bench, October 27, 2016, Master A.R. Robertson (In Chambers)

On March 25, 2012, there was a fire in a strip mall in Carseland, Alberta. The fire started at Red’s Pub and damaged a neighbouring tenant’s food store. The landlord and the food store commenced an action against Red’s Pub and Red’s Pub applied for a summary dismissal of both claims.

The fire investigators concluded the origin of the fire was the men’s bathroom at Red’s Pub. The employee who closed Red’s Pub on the night of the fire gave conflicting evidence regarding whether she checked the men’s bathroom before she left. Red’s Pub’s policy required employees to check the bathrooms at the end of the evening. Because of the conflicting evidence provided by the employee regarding whether she checked the men’s bathroom before she left, the Court determined it could not grant summary dismissal of the food store’s claim. Accordingly, Red’s Pub’s application for a summary dismissal of the claim brought by the neighbouring food store was dismissed.

The determination of the landlord’s claim involved an assessment of the terms of the lease and whether there was an implied covenant to insure. The lease agreement was a gross lease because it required Red’s Pub to pay a base rental rate of $3,000 per month. There was no obligation on Red’s Pub to pay property taxes, a share of utilities, or any other common area costs. There was no express provision in the lease requiring Red’s Pub to obtain fire insurance and Red’s Pub did not obtain fire insurance.

There was no express provision in the lease requiring the landlord to obtain fire insurance coverage that would include the tenants as insureds. However, the lease mentioned the landlord’s fire insurance and provided that the tenant would have to pay the increased costs of it if the tenant did something to increase the premiums.

The Court found that the provisions in the lease that specifically addressed insurance issues contained within them the clear understanding that the landlord was going to obtain fire insurance, and to the extent that there was damage caused by fire, the tenant’s liability to repair was expressly excepted by the covenant to occupy which was headed “repair”. In addition, the specific provisions that required the tenant to obtain insurance did not require the tenant to obtain fire insurance. The Court found this was not an omission and reading the lease as a whole, it was consistent with the express exception for fire damage and the expectation that fire insurance was the landlord’s responsibility.

In the result, the Court found that there was an implied covenant to insure and the landlord’s action could not succeed. As a result, Red’s Pub’s application for a dismissal was granted.

This case was digested by Aaron D. Atkinson and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at aatkinson@harpergrey.com or dpilley@harpergrey.com or review their biographies at http://www.harpergrey.com.

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