Named Insured’s Liability Found Irrelevant to Additional Insured’s Coverage Under a Landlords and Lessors Additional Insured Endorsement

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In Truck Ins. Exchange v. AMCO Ins. Co. (No. B298798, filed 10/26/20), a California appeals court held that even though the named insured restaurant-lessee was found not liable for premises liability to injured restaurant patrons, the respective liability of the named and additional insured was irrelevant to the landlord-lessor’s coverage for injuries “arising out of” the lessee’s “use” of the premises under a landlords, managers or lessors of premises additional insured endorsement on the lessee’s general liability policy.

In Truck v. AMCO, restaurant patrons were injured when a vehicle crashed into the restaurant while they were dining. The landlord was aware of a similar accident that happened several years before, but the current lessee operating the restaurant was not. The patrons sued the lessee, alleging negligence and premises liability for failing to take precautionary measures and safeguard the patrons. On learning of the prior incident, the patrons added the landlord, alleging that it should have protected the property from a recurrence by reinforcing the door and installing bollards by the street.

The landlord was insured by Truck Insurance Exchange, the lessee was insured by AMCO, and each insurer defended its own insured. Truck also tendered the landlord’s defense and indemnity to the lessee’s insurer AMCO, based on indemnity and insurance provisions in the lease. However, AMCO denied Truck’s tender, stating that: “[The lessee] had no responsibility for the existence or lack of existence of bollards on the property, and has no responsibility for a vehicle losing control on the street and crashing into the restaurant. This loss did not arise out of our client’s use or occupancy of the premises.”

Both the landlord and the lessee filed motions for summary judgment in the patrons’ lawsuit. The court granted the lessee’s motion, finding that the accident was not foreseeable, there was no evidence that the lessee had knowledge of the earlier incident, and the lease stated that the lessee could not alter the premises without landlord consent. But the court denied the landlord’s motion, finding that the landlord had knowledge of the prior accident and therefore had “moral blame for not doing anything to prevent a similar accident from occurring.” Truck settled the action for $785,000.

Truck then filed an action against AMCO for equitable subrogation, equitable indemnification, equitable contribution, and declaratory relief. Truck alleged that the lessee’s AMCO policy included an additional insured endorsement stating: “Any person or organization from whom you [the lessee] lease premises is an additional insured, but only with respect to their liability arising out of your use of that part of the premises leased to you.” Truck alleged that its claims “arise out of the [the lessee’s] use of the Property as the plaintiffs in the [underlying] Action would not have been injured but for [the lessee’s] use of the Property as a restaurant, and their presence on the Property as invitees of [the lessee] and patrons of [the restaurant].”  Truck alleged damages in the amount paid to settle the patrons’ action, $785,000, as well as the cost of defending the action, $52,368.15. Truck also sought its costs and attorney fees.

The court tried the issue on stipulated facts. Truck argued that AMCO had improperly “equate[d] ‘arising out of the use’ of the Property with ‘arising out of the liability of the named insured.’ The two are not coextensive.” And “if AMCO meant for the liability of its named insured to be the controlling limitation on coverage for the additional insureds, it should have clearly so stated.” AMCO argued that the landlord’s liability did not arise out of the lessee’s “use” of the premises but, rather, liability arose from the landlord’s knowledge of the prior accident and negligent reconstruction of the property – liability was entirely premised on knowledge and actions that were taken years before the lessee ever occupied the premises.

The trial court agreed with Truck, awarding $418,684, 50% of the defense and indemnity paid by Truck. The court said that equitable contribution need not turn on comparative liability of the respective insureds, and that the “arising out of use” issue was obvious: “The lawsuits by the injured patrons arose out of their being patrons of the restaurant leased from the landlords…. The claims against both the restaurant and the landlords arose out of the use of the premises.”

The appeals court affirmed. The court cited the rule that equitable contribution “arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others.” (Citing Maryland Cas. Co. v. Nationwide Mutual Ins. Co. (2000) 81 Cal.App.4th 1082, 1089.) As to “arising out of use,” the Truck v. AMCO court stated that “California courts have consistently given a broad interpretation to the terms ‘arising out of’ or ‘arising from’ in various kinds of insurance provisions. It is settled that this language does not import any particular standard of causation or theory of liability into an insurance policy. Rather, it broadly links a factual situation with the event creating liability, and connotes only a minimal causal connection or incidental relationship.” (Citing Acceptance Ins. Co. v. Syufy Enterprises (1999) 69 Cal.App.4th 321, 328 (Syufy).)

The Truck v. AMCO court rejected AMCO’s argument that mere presence at the “situs” was insufficient based on Kramer v. State Farm Fire and Cas. Co. (1999) 76 Cal.App.4th 332, stating: “[T]he comparison is not apt.” In Kramer, State Farm provided homeowners’ insurance on premises where the insured molested children, and his wife was sued for negligent supervision. The question there was whether the molestations arose out of the ownership, maintenance, or use of the insured premises, and the court had noted that with respect to insurance policies on vehicles, there was a “general principle that injury … does not arise from the ‘ownership, maintenance, or use’ of a vehicle absent a showing that the use of the vehicle contributed in some way to the injury, beyond merely serving as the situs for the activity.” The Kramer court “distinguish[ed] between an injury which is sufficiently causally related to the ‘use’ of residential property to warrant coverage, and a noncovered injury in which the premises merely serve as a situs.” And the Kramer court concluded: “[T]he covered residences in this case were merely two of several locations at which the Kramers had custody and control of the children. The required causal connection between the use of those particular premises and the tortious activity causing the injury therefore was lacking.”

However, the Truck v. AMCO court stated: “Here, by contrast, there is the requisite minimal causal connection between the property and the injuries. The [patrons] were on the premises as customers of [the lessee]. Thus, [the lessee’s] ‘use’ of the premises was the reason [they] were present when the car accident occurred. Moreover, the [patrons’] theory of liability against the [landlord] was that the property itself was dangerous, in that the [landlord] knew that a car could crash into the building but failed to take steps to prevent harm from such an event. These facts are sufficient to link the ‘factual situation with the event creating liability,’ establishing the requisite “minimal causal connection or incidental relationship.” (Quoting Syufy, supra, 69 Cal.App.4th at p. 328.)

The Truck v. AMCO court went on to reject a “predominating cause/substantial factor test” as being applied only in auto policy cases, and specifically distinguished from general liability insurance.

The Truck v. AMCO court then approved the trial court’s reasoning that the additional insured endorsement does not rely on the relative liabilities of the parties: “As the court in Syufy observed, ‘Insurance companies are free to, and commonly have, issued additional insured endorsements that specifically limit coverage to situations in which the additional insured is faced with vicarious liability for negligent conduct by the named insured. [] We believe the better view is that when an insurer chooses not to use such clearly limited language in an additional insured clause, but instead grants coverage for liability ‘arising out of’ the named insured’s work, the additional insured is covered without regard to whether injury was caused by the named insured or the additional insured.” (Quoting Syufy, supra, 69 Cal.App.4th at p. 330.) As a result, the Truck v. AMCO court found that issues of res judicata or collateral estoppel did not apply.

Finally, the Truck v. AMCO court found that AMCO had forfeited any allocation argument based on the relative policy limits, by not raising it in the trial court. AMCO argued against the 50-50 allocation based on the fact that Truck had $2 million in limits, versus AMCO’s $1 million, claiming instead that the split should have been 2/3 – 1/3. But the court stated that “[s]uch arguments raised for the first time on appeal are generally deemed forfeited.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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