Tate v. Trialco Scrap, Inc.

• Decision Date: 16 July 1990
• Docket Number: No. 89-5834,89-5834
• Parties: Unpublished Disposition NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. 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.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 974

908 F.2d 974

Unpublished Disposition

NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit.

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.

No. 89-5834.

United States Court of Appeals, Sixth Circuit.

July 16, 1990.

Before NATHANIEL R. JONES, KRUPANSKY and DAVID A. NELSON, Circuit Judges.

PER CURIAM.

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

I.

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.

Tate and Reliance originally filed their complaint in the Chancery Court for Robertson County, Tennessee against Trialco Scrap, CDM, and Hartford Accident and Indemnity Company ("Hartford"). At the time of the fire, Hartford provided certain insurance coverage to Trialco in connection with the Drossmet operation. On July 17, 1988, the complaint was removed to United States District Court for the Middle District of Tennessee. Trialco, CDM and Hartford filed motions for summary judgment upon completion of discovery. The district court granted only Hartford's motion for summary judgment. CDM was voluntarily dismissed by Tate and Reliance due to questions of diversity jurisdiction. Judge Morton conducted a bench trial on April 24, 1989 both on the original complaint and Trialco's counterclaim. On June 15, 1989, the court entered an order dismissing the complaint and counterclaim.

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.

II.

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 lease accrues both to the benefit of the lessor and lessee. They cite to Anderson v. Miller, 96 Tenn. 35, 33 S.W. 615 (1896) in which a landlord's fire insurance company was permitted to recover from a tenant responsible for a fire loss, and Miller v. Russell, 674 S.W.2d 290 (Tenn.App.1983) in which the court held that a named loss payee is an insured under the policy and that "no right of subrogation exists where the wrongdoer is also an insured under the same policy.' " Id. at 291 (citation omitted). The district court stated:

[T]he court certainly finds no fault with the general proposition that an insurance company may not seek subrogation against an insured.... [T]hat principle in itself, however, says nothing about whether under the facts of this case, the defendants may be considered an implied coinsured under Reliance's policy. If the defendants are implied coinsureds, then, of course judgment must be entered in their favor.

J.App. at 22. However, the district court correctly determined that neither Anderson nor Miller are on point as to the nature of Tate's obligation under the lease agreement, and whether Trialco is relieved of the responsibility for negligent destruction of the leased premises. J.App. at 21-22. The district court found that the lease in the instant case contained two critical components:

First, the lease on more than one occasion speaks of the lessee being responsible for damage inflicted by the lessee ... [T]his will be deemed generally as the repair obligation. Second, the lease requires the lessor to purchase insurance coverage on the building. Obviously, the first provision seems to hold the tenant responsible under the present situation, and the second seems to relieve the tenant of this burden.... [N]either Anderson nor Miller offer any guidance for resolving this kind of problem.

J.App. at 23.

Because the Tennessee Supreme Court has not addressed the issue in controversy in the instant case, the district court was forced discern what the Tennessee Supreme Court would do, and to make a decision from "all available data, including the decisional law of the state's lower courts, restatements of law, law review commentaries, and decisions from other jurisdictions on the majority rule." Grantham and Mann Inc. v. American Safety Products, Inc., 831 F.2d 596, 608 (6th Cir.1987). We overturn a district court's conclusions on questions of state law only if they are "clearly wrong". Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir.1980).

The district court discussed at length Evco Corp. v. Ross, 528 S.W.2d 20 (Tenn.1975) as the most relevant Tennessee division. In Evco, the Tennessee Supreme Court held that a lease rendered the lessor responsible for restoration of a structure damaged by fire, and noted that the lessor had "expressly covenanted with the tenant that [the lessor] would carry fire insurance for any damage to the building during the term of the lease, and simultaneously agreed to make all major repairs." Id. at 24. The district court reasoned that although the repair obligations in Evco were opposite those in the instant lease, the Evco court relied heavily on the provision obligating the lessor to carry fire insurance. The district court also examined St. Paul Surplus Lines v. Bishop's Gate Insurance Co., 725 S.W.2d 948 (Tenn.App.1986) in which the insurance and repair components of the lease were the opposite of Evco. In St. Paul...