Seaco Ins. v. Barbosa

• Decision Date: 05 February 2002
• Docket Number: SJC-08567
• Citation: 435 Mass. 772
• Parties: SEACO INSURANCE COMPANY(FN1) vs. JAIME BARBOSA & another.(FN2) Docket No.:MASSACHUSETTS SUPREME COURT County: Middlesex
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

SEACO INSURANCE COMPANY¹

vs.

JAIME BARBOSA & another.²

Docket No.: SJC-08567

MASSACHUSETTS SUPREME COURT

County: Middlesex.

October 1, 2001.

February 5, 2002.

Summary: Real Property, Lease. Landlord and Tenant, Lease as contract. Contract, Lease of real estate. Insurance, Fire, Property damage, Subrogation. Subrogation.

Civil action commenced in the Superior Court Department on December 28, 1998.

The case was heard by Ralph D. Gants, J., on a motion for summary judgment.

The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.

John G. Neylon for the plaintiff.

Lawrence A. Dugan for the defendants.

Present: Marshall, C.J., Greaney, Ireland, Spina, Cowin, Sosman, & Cordy, JJ.

SPINA, J.

Seaco Insurance Company brought an action in the name of its insureds, Joaquim and Candida Barros (insureds), against Jaime and Margarida Barbosa (defendants) for negligently causing a fire that damaged a bakery that they leased from the insureds. Relying on Peterson v. Silva, 428 Mass. 751 (1999), a judge in the Superior Court granted the defendants' motion for summary judgment, holding that Seaco could not recover against them because they were implied coinsureds under the insureds' fire insurance policy with Seaco. Seaco appealed, and we transferred the case to this court on our own motion. We vacate the judgment and remand for a trial because there is a genuine issue of material fact, namely, whether the parties to the lease intended that the defendants should be liable for the fire damage they negligently caused.

1. Background. The following facts are undisputed. On February 27, 1995, the insureds and the defendants entered into a lease of a bakery located at 1598 Acushnet Avenue in New Bedford. We recite relevant excerpts from the lease.

"6. LESSEES' OBLIGATION TO REPAIR: The LESSEES shall keep the interior of the demised premises in good repair, as they are now, with the exception of major structural repairs undertaken by the LESSORS.

"7. LESSORS' OBLIGATION TO REPAIR: The LESSOR shall have the express obligation to make, promptly after the necessity arises, such repairs to the roof and structure and the exterior of the building of which the demised premises are a part, as may be necessary to keep the building in its present state of repair....

"14. DAMAGE TO PREMISES BY FIRE, CASUALTY OR BY TAKING FOR PUBLIC USE:... [I]n case the said demised premises, or any part thereof,... shall be destroyed or damaged by fire... then a just proportion of the rent hereinbefore reserved, according to the nature and extent of the... injury sustained by the demised premises... what may remain thereof shall have been put in proper condition for use and occupation with due diligence by the LESSORS at the LESSORS' sole cost and expense... PROVIDED, however, that in case said demised premises, or substantial part thereof, shall be... destroyed or substantially damaged by fire... then this Lease and the said term shall terminate at the election of the LESSORS... and if the Lease shall not be terminated as aforesaid, the LESSORS shall proceed with all expedition to restore the demised premises to its condition before said fire....

"15. INSURANCE: The LESSEES shall provide, at their sole cost and expense, public liability insurance in the amount of $250,000.00 to $500,000.00, including property damage in the amount of $100,000.00, and name the LESSORS as additional insured, and including death and personal injury, the LESSEES shall insure all of the contents owned by said LESSEES. The LESSEES shall save harmless and indemnify the LESSORS from any and all liability for any personal injuries sustained by any persons using the demised premises. The LESSORS shall insure against damage to plate glass windows at the premises. If any plate glass is damage, the LESSEES shall pay up to the amount of $250.00 on each occasion." (Emphasis added.)

The words "including property damage in the amount of $100,000.00," have a line drawn through them and the parties placed their initials in the margin.

"16. LESSEES' OBLIGATION AT THE END OF TERM:... The LESSEES shall, at the expiration of said term, peaceably yield up to the said LESSORS all and singular the demised premises in such repair as the same are in at the commencement of said term or may be put in by the said LESSORS or its representatives or assigns during the continuance thereof, reasonable wear and use thereof, and such other damage, the obligation to repair which has hereinbefore been specifically provided for in this Lease, only excepted...."

A fire damaged the property on December 2, 1997. Seaco paid $62,178.84 to the insureds under their fire insurance policy, then brought this subrogation action against the defendants, alleging that they negligently started the fire.

The defendants moved for summary judgment, arguing that, because the lease relieved them of any liability for fire damage to the property, they were implied coinsureds under the fire insurance policy, and thus entitled to summary judgment. The judge agreed, concluding that in the absence of a provision in the lease holding the defendants liable for negligently caused fire damage, they were implied coinsureds, and Seaco "cannot recover by means of subrogation against its own insured," quoting Peterson v. Silva, supra at 752, quoting Safeco Ins. Co. v. Capri, 101 Nev. 429, 431 (1985). The judge reasoned that the insureds' obligation under paragraph 14 to repair fire damage, read in conjunction with the exception in paragraph 16 for damage that they agreed to repair, evidenced the parties' intent to exclude fire damage from the defendants' obligation to yield up the property in its original condition. The judge also concluded that the requirement in paragraph 15 that the defendants maintain public liability insurance did not require them to insure the building against fire damage.³

2. Discussion. Seaco argues that Peterson v. Silva, supra, which involved residential tenancies, should not be extended to commercial tenancies because public policy considerations favor liability of commercial tenants who negligently cause fire damage to leased premises. Seaco further argues that, even if Peterson v. Silva, supra, applies to commercial tenancies, it does not apply here because the parties to the lease intended that the defendants would be liable for property damage caused by their negligence. Seaco claims that such intention is evidenced by the requirement in paragraph 15 of the lease that the defendants purchase public liability insurance, which Seaco claims includes insurance against negligently caused fire damage to the building.

In Peterson v. Silva, supra, a case involving residential tenancies, we held that, "absent an express provision in a lease establishing a tenant's liability for loss from a negligently started fire, the landlord's insurance is deemed held for the mutual benefit of both parties." Id. at 753. The holding deviated from the common-law principle that a person is liable for his own negligent acts, absent an express agreement to the contrary. See Great Atl. & Pac. Tea Co. v. Yanofsky, 380 Mass. 326, 333-334 (1980); New York, New Haven & Hartford R.R. v. Walworth Co., 340 Mass. 1, 5-6 (1959). We cited the "realities of apartment renting," specifically, "Prospective tenants ordinarily rely upon the owner of the dwelling to provide fire protection for the realty (as distinguished from personal property) absent an express agreement otherwise. Certainly it would not likely occur to a reasonably prudent tenant that the premises were without fire insurance protection or, if there was such protection, it did not inure to his benefit and that he would need to take out another fire policy to protect himself from any loss during his occupancy." Peterson v. Silva, supra at 754, quoting Sutton v. Jondahl, 532 P.2d 478, 482 (Okla. Ct. App. 1975). We also relied on R.E. Keeton, Insurance Law § 4.4(b), at 210 (1971): "Probably it is undesirable, from the point of view of public interest, that the risk of loss from a fire negligently caused by a lessee be upon the lessee rather than the lessor's insurer. Allowing the lessor's insurer to proceed against the lessee is surely contrary to expectations.... [P]erhaps [the courts] should at least adopt a rule against allowing the lessor's insurer to proceed against the lessee when lease provisions are ambiguous in this regard and the insurance policy is silent or ambiguous." Peterson v. Silva, supra at 754. If the "realities of apartment renting" and tenants' "reasonable expectations" provided the impetus for a deviation from the common law affecting residential tenants, then the doctrine of "implied co-insureds" and the principle of waiver of subrogation were joined to form the mechanism that brought about the deviation. Id. at 752-753. See 6A J.A. Appleman & S. Liebo, Insurance Law and Practice § 4055 (Supp. 2001).

Sutton v. Jondahl, supra, on which we relied in the Peterson case, involved a residential tenancy. It is the lead case in this area, and represents something of a trend that includes commercial as well as residential tenancies. The cases that follow Sutton include commercial as well as residential tenancies, and no distinction is made between the tenancies. See 6A J.A. Appleman & S. Liebo, supra.⁴ The court in Sutton reasoned that "subrogation should not be available to the [insurer] because the law considers the tenant as a co-insured of the landlord absent an express agreement... to the contrary, comparable to the permissive-user feature of automobile insurance." Id. at 482. The court also looked to the insurable interest that the landlord and the tenant each had in the premises, and the common business practice of passing insurance premium costs along to tenants when determining rental rates such that the tenant pays that portion of the premium that is attributable to the rented premises. Id.

Sutton has nearly...