Protecting Freedom of Contract in the Allocation of Liability Risks in Real Estate Leases
This case raised an issue of first impression in the appellate courts of the Commonwealth. The case concerned Massachusetts General Laws c. 186, § 15, which voids any provision in a real estate lease purporting to obligate a tenant to indemnify its landlord for losses incurred as a result of the landlord’s own negligence. The issue presented was whether this statute would also void a lease provision requiring a tenant merely to pay for including the landlord as an additional insured on the tenant’s liability policy if, as a result, the landlord was insured for its own negligence.
The case arose when a doctor renting commercial space in an office park paid a small additional sum to add her landlord to her policy. When a patient of the doctor was injured in a slip and fall accident in the parking lot and sued both the doctor and the landlord, the doctor’s carrier filed a declaratory judgment action seeking a determination that it owed the landlord no duty of coverage for any negligence of the landlord in causing the injuries. On summary judgment, the Superior Court agreed with the carrier that by requiring the doctor to pay the premium for adding the landlord to her policy, the lease shifted the cost of the landlord’s negligence to the tenant in violation of § 15. The SJC took the case on direct appellate review and solicited amicus briefs.
With co-amici NAIOP Massachusetts and the Real Estate Bar Association for Massachusetts, NELF argued that the trial court’s judgment should be vacated. Making a lengthy review of legal authorities in other jurisdictions, NELF argued that the court should make the distinction between an obligation to purchase insurance and an obligation to indemnify. In particular, NELF set out at length the clear legal and conceptual distinction between an indemnification arising in landlord-tenant relations and the scope of insurance coverage available to additional insureds under a policy. Citing the public policy favoring the use of insurance to guarantee that the means exist to compensate injured third parties, NELF noted that insurance payments in such cases as this compensate the allegedly injured patient and do not indemnify the landlord for the latter’s costs and expenses. Finally, NELF also argued that the Superior Court’s expansive reading of § 15 interferes with the right of commercial parties to allocate risk and the costs of insuring risk freely between themselves.
In a decision that clearly showed the influence NELF’s brief, the SJC vacated the trial court’s judgment. Relying on the same out-of-state cases as NELF had discussed, the SJC expressed its agreement with its sister high courts concerning the distinction between a promise to indemnify and a promise to procure insurance. As NELF had also urged, the court recognized that the landlord’s specific legal status as an additional insured was a crucial factor in the outcome.
This case raised an issue of first impression in the appellate courts of the Commonwealth. The case concerned Massachusetts General Laws c. 186, § 15, which voids any provision in a real estate lease purporting to obligate a tenant to indemnify its landlord for losses incurred as a result of the landlord’s own negligence. The issue presented was whether this statute would also void a lease provision requiring a tenant merely to pay for including the landlord as an additional insured on the tenant’s liability policy if, as a result, the landlord was insured for its own negligence.
The case arose when a doctor renting commercial space in an office park paid a small additional sum to add her landlord to her policy. When a patient of the doctor was injured in a slip and fall accident in the parking lot and sued both the doctor and the landlord, the doctor’s carrier filed a declaratory judgment action seeking a determination that it owed the landlord no duty of coverage for any negligence of the landlord in causing the injuries. On summary judgment, the Superior Court agreed with the carrier that by requiring the doctor to pay the premium for adding the landlord to her policy, the lease shifted the cost of the landlord’s negligence to the tenant in violation of § 15. The SJC took the case on direct appellate review and solicited amicus briefs.
With co-amici NAIOP Massachusetts and the Real Estate Bar Association for Massachusetts, NELF argued that the trial court’s judgment should be vacated. Making a lengthy review of legal authorities in other jurisdictions, NELF argued that the court should make the distinction between an obligation to purchase insurance and an obligation to indemnify. In particular, NELF set out at length the clear legal and conceptual distinction between an indemnification arising in landlord-tenant relations and the scope of insurance coverage available to additional insureds under a policy. Citing the public policy favoring the use of insurance to guarantee that the means exist to compensate injured third parties, NELF noted that insurance payments in such cases as this compensate the allegedly injured patient and do not indemnify the landlord for the latter’s costs and expenses. Finally, NELF also argued that the Superior Court’s expansive reading of § 15 interferes with the right of commercial parties to allocate risk and the costs of insuring risk freely between themselves.
In a decision that clearly showed the influence NELF’s brief, the SJC vacated the trial court’s judgment. Relying on the same out-of-state cases as NELF had discussed, the SJC expressed its agreement with its sister high courts concerning the distinction between a promise to indemnify and a promise to procure insurance. As NELF had also urged, the court recognized that the landlord’s specific legal status as an additional insured was a crucial factor in the outcome.
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