The Appeals Court recently clarified commercial property owners’ right to defense and indemnity as additional insureds under their tenants’ insurance policies for accidents occurring in common areas adjacent to their properties.
In Luis Pedroso, Trustee v. The Hanover Insurance Company and Sentinel Insurance Company, Limited (“The Hanover” and “Sentinel,” respectively), the court was called upon to determine the meaning of “Leased Premises” as defined in commercial general liability policy.
The Appeals Court decision arose from an unfortunate incident where a man lost his life, and another was seriously injured while trying to free a tractor-trailer stuck in snow and ice. The accidents occurred in an alley behind a commercial rental property owned and managed by Luis Pedroso, trustee of LMP Realty Trust (the Trust”).
The estate of the decedent brought a wrongful death suit against the Trust for negligence, and the insured individual sued the Trust for his personal injuries.
After settling these lawsuits, the Trust sought a sharing of its defense and settlement costs from The Hanover Insurance Company and Sentinel Insurance Company – insurers of two tenants renting from the Trust involved in the accident.
However, both Hanover and Sentinel denied any obligation to defend or indemnify the Trust as an additional insured. Consequently, another lawsuit was filed by the Trust alleging breach of contract and unfair claim practices against both insurance companies.
In the Superior Court, judgment on the pleadings entered from the Trust on its claims for breach of contract – leading Hanover and Sentinel to appeal the decision. The Appeals Court affirmed the Superior Court ruling.
This case highlights some of the complexities associated with lease agreements and insurance policies that can lead to disputes regarding obligations for defense and indemnity based on differing interpretations of these documents.
The accident leading to lawsuits against the Trust
In 2015, Luis Pedroso, as Trustee of the LMP Realty Trust (the “Trust”), owned the commercial building at 44 Steadman Street in Lowell. The building has fourteen rental units for office, distribution, and manufacturing purposes.
One of the Trust’s tenants was North East Form Engineering (Northeast), which leased Unit 9. Another tenant was Do Can Brewery, LLC (Do Can), which leased Unit 4.
On February 6, 2015, a tractor-trailer truck making a delivery to Do Can got stuck in snow and ice on the rear driveway of the Property. Four men tried to free the truck: The truck driver, a Do Can employee, Patrick Slattery, a North East employee, Jeffrey Sperrey, and Gregg Stevens, who worked for a different lessee.
When the four men could not get the truck moving, Jeffrey Sperrey brought up his pickup truck to pull the truck free from the snow and ice. As he was doing so, Sperrey’s pickup truck accelerated in reverse into Patrick Slattery and Gregg Stevens, crushing them between the pickup truck and the tractor-trailer. The impact killed Patrick Slattery and seriously injured Gregg Stevens.
Patrick Slattery’s estate and Gregg Stevens each brought lawsuits against the Trust, the Trust’s snow contractor, Do Can, North East, and others who might have had any responsibility.
The denial of indemnity under the Trust’s leases and the $1.25 million settlement
Both North East and Do Can had signed commercial leases with the Trust that were in full force when the accident occurred on February 6, 2015.
In Paragraph 14 of the leases, each had agreed to indemnify the Trust against liability. In Paragraph 15, each tenant had contracted to maintain a commercial liability policy naming the Trust as an additional insured.
The Trust first crossclaimed against North East and Do Can for indemnity under the leases from the Slattery Estate’s and Gregg Stevens’ lawsuit.
After a summary judgment ruling and a jury-waived trial, a Superior Court judge found that neither Do Can nor North East had any duty to indemnify the Trust under their leases. The Court based its decision on the facts from a related jury trial and G.L. c. 186, § 15, a statute that voids any lease provisions that require a tenant to indemnify a landlord for the landlord’s own negligence.
After not obtaining indemnities from its tenants, the Trust ultimately settled the Slattery estate and Gregg Steven’s lawsuits in 2020. The Trust’s insurer Liberty Mutual paid $1 million to settle the Slattery estate’s lawsuit and $250,000 to settle Stevens’ lawsuit.
The Trust’s claim for coverage under the tenants’ CGL policies
Following its settlement of the Slattery and Stevens lawsuits, the Trust next claimed that it had the right to defense and indemnity under Paragraph 15 of its leases as an additional insured.
Paragraph 15, in each lease, stated, in part:
15. LESSEE’S LIABILITY INSURANCE. The LESSEE shall maintain, with respect to the leased premises, comprehensive public liability insurance in aggregate limits of not less than One Million Dollars ($1,000,000.00) per occurrence . . . insuring the LESSOR as well as the LESSEE against injury to persons or damage to the property as provided…
The Hanover issued Do Can’s the policy in force at the time of the accident, satisfying the lease’s insurance condition. The Hanover policy’s additional insured provision:
1. Additional Insured by Contract, Agreement, or Permit
Under Section II — Who is an Insured,
5. a. Any person or organization with whom you agreed, because of a written contract, written agreement, or permit to provide insurance, is an insured, but only with respect to:
(2) Premises you own, rent, lease, or occupy.
North East’s policy in effect at the time of the accident, issued by Sentinel Insurance, defined “additional insureds” as including:
c. Lessors of Land or Premises
(1) Any person or organization from whom you lease land or premises, but only with respect to liability arising out of the ownership, maintenance, or use of that part of the land or premises leased to you.
The Sentinel policy, however, also contained an exclusion for autos that stated:
This insurance does not apply to:
(g) Aircraft, Auto, or Watercraft
“Bodily injury” or “property damage” arising out of the ownership, maintenance, use, or entrustment to others of any aircraft, “auto,” or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and “loading or unloading.”
This Exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training, or monitoring of others by that insured if the “occurrence” which caused the “bodily injury” or “property damage” involved the ownership, maintenance, use, or entrustment to others of any aircraft, “auto” or watercraft that is owned or operated by or rented or loaned to any insured.
The insurers deny their insureds’ leased premises included the accident site
When presented with the Trust’s claim to reimburse its defense costs and settlement payments, both The Hanover and Sentinel denied that the Trust had coverage as an additional insured. Both insurers asserted that the rear driveway at 44 Steadman Street was not “part of the premises leased” to their respective insureds. Thus, their policies would not cover the Trust as an additional insured.
Sentinel also asserted that its “auto exclusion’ applied based on an auto causing Mr. Slattery’s death and Mr. Stevens’ personal injuries.
The Trust sues and obtains judgment on the pleadings for $1 million
Based on The Hanover and Sentinel’s denial of coverage, the Trust filed for a declaratory judgment in Superior Court.
After The Hanover and Sentinel filed their answers to the Trust’s complaint, the Trust and The Hanover each moved for judgment on the pleadings. Each argued that the complaints in the Slattery and Stevens lawsuits, the Do Can and North East leases, and the insurance policies only presented a question of law for the Court on what were the leased premises and whether Senitinel’s auto exclusion applied.
The Superior Court judge hearing the cross-motions ruled in favor of the Trust. The judge found the leases included the rear driveway as a common area that was part of the leased premises.
On Sentinel’s auto exclusion argument, the judge noted that the policy had the standard “separation of insureds” policy provision, which barred its application to the Trust. By its terms, Sentinel’s exclusion only had an application against the person claiming coverage. Sentinel could present no evidence that the Trust utilized the vehicles involved or hired or supervised the driver who caused the accident.
By agreement of the parties, judgment was entered stipulating an allocation, subject to the insurers’ appeals, where the insurers would pay two-thirds of the Trust’s defense costs of $250,000 and two-thirds of its settlement costs of $1,365,440.00.
The Appeals Court rules the leased premises included the common area where the accident occurred
On appeal, the insurers asserted that the Trust’s leases with their insureds did not include the rear alley where the accident occurred.
Therefore, they argued they had no duty to defend or indemnify the Trust since it was an additional insured:
(1) under The Hanover’s policy, only to the extent of Do Can’s, leased premises and
(2) under the Sentinel policy, only for liability arising from the ownership, maintenance, or use of North East’s leased premises.
In reaching its decision, the Court started with the identical lease provisions in the Do Can [Unit 4] and North East [Unit 9] leases defining the premises leased as:
- PARTIES . . . LESSEE hereby leases the following described premises:
- PREMISES A portion of the premises located at 44 Stedman Street, Lowell, Massachusetts, being commonly referred to as [Unit 4] [Unit 9]. . . together with the right to use in common with others entitled thereto the common areas for ingress and egress and parking.”
To the Court, “When read together, these paragraphs defined the leased premises as including the right to use the common areas for ingress and egress and parking, meaning the rear alley.”
The Court went on to state that it was “unpersuaded by the contrary arguments of the insurers. The insurers wanted the Court to read the leases as distinguishing between the terms “premises” and “leased premises.” Under the insurers’ reading, the term “premises” to include the common areas, and the term “leased premises” excluding the common areas.
The Court rejected this argument pointing out that the description of the premises is preceded by the unequivocal statement that the
“LESSEE hereby leases the following described premises.”
This statement is then followed by the definition of the premises. This statement of the leased premises the Court found to be an unambiguous definition that included the common areas in the leased premises.
The Court concludes Sentinel’s auto exclusion does not apply to the Trust’s claim
While the first part of the Court’s decision disposed of both The Hanover and Sentinel’s claims concerning the scope of the leases’ premises, the Court next addressed Sentinel’s auto exclusion argument.
This exclusion had two distinct paragraphs. The first paragraph of this exclusion denied coverage for accidents:
“arising out of the ownership, maintenance, use or entrustment to others of any…’ auto’…owned or operated by or rented or loaned to any insured.”
On this definition, the Court had no difficulty in concluding that “the allegations against [the Trust] do not fall within the automobile exclusion, as that exclusion has been interpreted under the case law.”
As to the second paragraph of the automobile exclusion, the Court examined whether the claims against the Trust alleged negligent supervision or hiring involving an automobile owned or operated by an Insured.
Here, the Court found the allegations against the Trust by Slattery’s estate charged the Trust “failed to properly clear the [p]remises of snow and ice” and that the tractor-trailer became “lodged in snow and ice on the [p]remises in the unsafe area created by [the Trust’s] negligence.”
The Court concluded that where the claims against the Trust failed to allege negligent supervision or hiring but instead alleged a failure to adequately clear snow and ice, the second paragraph of the automobile exclusion would also not apply.
The Court’s final ruling
Based on its reading and analysis of the insurers’ appeal, the final ruling of the Court was: