908 F.2d 974 (6th Cir. 1990), 89-5834, Tate v. Trialco Scrap, Inc.

Docket Nº:89-5834.
Citation:908 F.2d 974
Party Name:Harold TATE, Jr., Ronnie Tate, individually and doing business as Tate Fabricating Company, Plaintiffs-Appellants, v. TRIALCO SCRAP, INC., CDM Holding Corporation, doing business as Drossmet, Hartford Accident & Indemnity Company, Defendants-Appellees.
Case Date:July 16, 1990
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

Page 974

908 F.2d 974 (6th Cir. 1990)

Harold TATE, Jr., Ronnie Tate, individually and doing business as Tate Fabricating Company, Plaintiffs-Appellants,


TRIALCO SCRAP, INC., CDM Holding Corporation, doing business as Drossmet, Hartford Accident & Indemnity Company, Defendants-Appellees.

No. 89-5834.

United States Court of Appeals, Sixth Circuit

July 16, 1990

Editorial Note:

This opinion appears in the Federal reporter in a table titled "Table of Decisions Without Reported Opinions". (See FI CTA6 Rule 28 and FI CTA6 IOP 206 regarding use of unpublished opinions)

On Appeal from the United States District Court for the Middle District of Tennessee, No. 88-00593; Morton, District Judge.





Plaintiff-appellants appeal the final judgment dismissing their complaint in this diversity action for damages to real estate.


Trialco and CDM Holding Company ("CDM"), doing business as Drossmet, entered into a lease with Harold and Ronnie Tate ("Tate") to lease a building in Whitehouse, Tennessee for purposes of processing aluminium dross. Drossmet was first formed as a joint venture between Trialco and CDM. Subsequently, CDM withdrew from the joint venture. The lease required Drossmet to purchase general liability insurance, and Tate to maintain insurance coverage on the building itself. On June 12, 1987, fire caused substantial damage to the building (a total of $141,500.00). Under Tate insurance policy, $141,500.0 was paid by The Reliance Insurance Company (Tates' insurer) and the $1000.00 deductible paid by Tate. Throughout the six months it took to complete repairs, Trialco continued to pay rent under the lease.

The pertinent provisions of the lease dealing with building insurance, repair and maintenance, are as follows:

8. MAINTENANCE & OPERATIONS. Maintenance of the Building, grounds, and storage buildings shall be the responsibility of the Lessee. Any structural damage inflicted by the Lessee shall be repaired by and at the expense of the Lessee. The Lessor agrees to correct or repair defects in the building structure during the first year of this Agreement. Thereafter, repairs shall be the responsibility of the Lessee unless caused by faulty construction or defective design of the Building or the grounds.

10. LIABILITY OF LESSEE. The Lessee shall indemnify Lessor and hold Lessor harmless for all loss, damage, expense and/or penalty arising from any claim or allegations of personal injury or damage to property. In the event the Lessor sells or assigns this lease, the terms of this Agreement shall remain applicable and shall be applied and administered as written and signed by current Lessor.

11. DEFAULT. Lessee shall be in default if it fails to make monthly rental payment within ten (10) days of receiving notice of failure to pay from Lessor or if Lessee fails to maintain or insure the Building as herein provided. Upon default, Lessor shall have the right, in addition to any and all other rights it may have, to terminate this lease and take possession of the Building.

13. DESTRUCTION OF THE BUILDING. In the event the Building is damaged or destroyed through no fault or negligence of the Lessee and the Lessee's production is reduced by 30% as a result thereof, the Lessee shall be permitted to move and cease rental payments without being in default. In the event Lessee's production is not thereby reduced by 30% or Lessee elects to continue this Lease Agreement despite reduction in production by 30% or more, the rent payable under this lease shall be abated proportionately according to the floor area of the Building which is unusable by the Lessee. Such abatement shall continue for the period commencing with such damage or destruction and ending with the completion by the Lessor of such work or repair and/or construction to make the Building, or the damaged portion thereof, usable [sic] by the Lessee.

14. INSURANCE. Throughout the terms of this lease, the Lessor shall pay premiums for insurance coverage on the Building only. Any damage caused by the Lessee shall be paid for by the Lessee. The Lessee shall provide Certificate of General Liability Insurance up to $500,000.00 with one million dollar umbrella.

J.App. at 104. Final Lease, Exhibit 3 (emphasis added). This lease was adapted by Tate from a previous lease between the parties and approved by Trialco. Testimony from the parties on their intent upon entering the lease agreement is contradictory. Harold Tate, Jr. testified that his intent at the time the lease was executed was "to make sure that it was clear that anything that they tore up or anything that was destroyed by them, it was their baby." J.App. at 76. David Morris, who represented Drossmet during the lease transaction, testified that Drossmet was to provide the liability insurance and Tate was to provide insurance on the building itself, and that such insurance was for their mutual benefit. J.App. at 89-91. Tate and Reliance now seek to recover the amount expended on the building repairs.

The district court held that in the absence of any controlling decision by Tennessee courts, Tennessee would follow the majority rule which states that if the lessor carries insurance on the building as provided for in the lease, there is a presumption that such insurance is for the benefit of both the lessor and the lessee. The court dismissed both the Tate complaint and Trialco's counterclaim. This timely appeal followed.


Tate and Reliance argue that the district court erred in determining that there is no controlling Tennessee authority on the question of whether Tate's obligation to provide insurance for the building under the...

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