Seattle First Nat. Bank v. Mitchell

• Decision Date: 25 August 1997
• Docket Number: No. 36827-3-I
• Citation: 942 P.2d 1022,87 Wn.App. 448
• Court: Washington Court of Appeals
• Parties: SEATTLE FIRST NATIONAL BANK, a National Banking Corporation, Cross-Respondents, Triad Pier 70, LLC, Appellants, v. David A. MITCHELL, Mark T. Mitchell, Defendants, and Entertainment Associates, Inc., a Washington Corporation, Respondent/Cross-Appellants.

Page 448

87 Wn.App. 448

942 P.2d 1022

SEATTLE FIRST NATIONAL BANK, a National Banking CorporationCross-RespondentsTriad Pier 70, LLC, Appellants, v.David A. MITCHELL, Mark T. Mitchell, Defendants and Entertainment Associates, Inc., a Washington CorporationRespondent/Cross-Appellants.

No. 36827-3-I.

Court of Appeals of Washington, Division 1.

Aug. 25, 1997.

Andrew James Kinstler; William Hickman, Reed McClure, Seattle, for Respondent.

BAKER, Chief Judge.

Seattle First National Bank (SFNB) owned Pier 70.Its predecessor leased premises on Pier 70 to David and Mark Mitchell(Mitchell), who subleased it to Entertainment Associates, Inc.(EAI).¹SFNB obtained fire insurance on the premises, choosing the policy and its terms and, pursuant to the lease, passing the cost on to the tenants, including EAI.

A fire damaged the premises.When EAI refused to pay for repairs costing less than the deductible under SFNB's fire insurance policy, SFNB brought this commercial unlawful detainer action.Arguing that SFNB was self-insured for the amount of the deductible and that SFNB waived claims against it for insured fire losses in the lease's subrogation waiver, EAI obtained summary judgment against SFNB.However, the trial court denied EAI's request for attorney fees.

In this appeal, we are asked to determine whether (1) SFNB was self-insured for the amount of the deductible 2) a loss within the deductible was a covered loss such that the subrogation waiver relieved EAI of liability, and (3) attorney fees for the prevailing party were mandatory under the lease.SFNB obtained the fire insurance, chose the deductible, and passed the costs on to EAI under the lease.Based upon these facts, we hold that any loss within the deductible was an insured loss for which the subrogation waiver relieved EAI of liability.²In addition, the lease contains a mandatory attorney fee provision for the prevailing party, which cannot be waived.We therefore hold that the trial court erred in not awarding EAI attorney fees, and we reverse and remand for calculation of attorney fees below and on appeal.

FACTS

The original 1979 lease was a standard form lease.The adjustment to the minimum rent in lease paragraph 7B provided that the tenant would pay the landlord to obtain fire insurance based upon the percentage of total floor space occupied by the tenant.³The adjustment provision was amended to limit the tenants' liability for repairs to the pilings and all major structures.⁴The subrogation provision in lease paragraph 15 waived the right of recovery between the landlord and tenant for losses covered by fire insurance.⁵

The landlord agreed to repair fire damage, reducing the rent only if the tenant was not at fault.Lease paragraph 11 addressed the general responsibility for repair, allocating that responsibility between the landlord and the tenant.⁶Lease paragraph 30(xv) contained a mandatory provision for attorney fees to the prevailing party in any dispute arising from the lease.EAI's sublease adopted these provisions, and enlarged the leased premises to include an outdoor patio.

SFNB obtained fire insurance for the premises under a Bank of America master policy.SFNB chose the policy deductible of $100,000 based upon the risk that it could absorb.The tenants were not informed of the deductible amount because the lease required no notice.SFNB could have obtained coverage for the deductible, but it did not.

A fire caused by a discarded cigarette of unknown origin occurred in the deck below the patio, damaging the deck and portions of the pier beneath the patio.EAI completed interior repairs, but did not repair or pay for repairs to the deck beneath the patio.SFNB completed the deck and pier repairs for $33,991.

SFNB then filed an unlawful detainer action, alleging that EAI had breached the lease by refusing to pay for the repairs.SFNB argued that the lease required the tenant to pay for repairs necessitated by its use of the premises and structural repairs necessitated by its negligent acts or omissions.SFNB maintained that the repairs were not major structural repairs for which it would be responsible.EAI denied any breach and sought attorney fees.

EAI moved for summary judgment, arguing inter alia that the lease required SFNB to pay for this type of damage because it was covered under the fire insurance policy.The trial court orally granted EAI's summary judgment.SFNB sought reconsideration, arguing that the subrogation clause was inapplicable because a loss for less than the deductible was not a covered loss.

SFNB also challenged EAI's request for attorney fees, arguing that the subrogation waiver precluded a fee award because EAI was being represented by its insurance company under its comprehensive liability policy for property damage.EAI maintained that the subrogation waiver applied only to property insurance, and did not prevent its liability insurer from seeking attorney fees.The trial court denied reconsideration, and entered a written order granting summary judgment and denying EAI's request for attorney fees.

ANALYSIS

SFNB argues that fact questions exist as to whether EAI's negligence contributed to the cause of the fire.If the repairs were necessitated by EAI's negligence, the lease required EAI to pay for the repairs.SFNB further argues that it had no duty to obtain fire insurance, and even if it did have such a duty, the subrogation waiver did not relieve the tenant of liability for damages within the deductible of the fire policy because such damages were not covered losses.

We interpret the lease by ascertaining the parties' intent based upon the contract as a whole.⁷We derive the parties' intent from the contract terms based upon the context in which it was formed.⁸The context rule cannot, however, be used to vary the terms of the contract.⁹Without examining the extrinsic evidence presented here, we determine the parties' intent from the lease terms and their actions under the lease.

We conclude that the lease required SFNB to obtain fire insurance.Even if we accepted SFNB's interpretation that obtaining fire insurance was optional under the lease, we would conclude that it was reasonable for the tenants to infer from SFNB's actions that the premises were insured for fire damage.It is undisputed that SFNB obtained fire insurance.The lease provides that a portion of EAI's rent based upon its floor space was to be used to pay the insurance premiums, and the premium cost was passed through to EAI.

The lease contains a subrogation provision in which SFNB and EAI waive their "rights of recovery against each other for any loss insured by fire, extended coverage and other property insurance policies existing for the benefit of the respective parties."The lease further required EAI to return the premises in good condition, except for damage beyond its reasonable control, and to repair damage to the structural parts of the building caused by the act, neglect, fault, or omission of EAI, its agents, and its invitees.

Based upon the lease terms and SFNB's acts in procuring the fire insurance, EAI argues that (1) it had no duty to repair fire damage that was covered under SFNB's policy, (2) SFNB was self-insured for fire loss within the deductible that it chose, and (3) SFNB waived any claims against EAI arising from the insured fire loss in the subrogation provision.We agree.

SFNB's fire insurance policy covered damages to the area affected by the fire.The question here is whether a loss covered by the general policy terms becomes an uninsured loss because it falls within the deductible.

No Washington case has addressed whether a loss within a deductible is an insured loss in a commercial lease.One authority on leases has explained, however, that the party obligated to obtain the insurance should be liable for the deductible:

A deductible policy of insurance is a policy issued for a reduced premium, in consideration for which the insurer pays a loss only to the extent that the loss exceeds a specified deductible sum.This makes the insured a self-insurer for the deductible.If a party to a lease who is obligated to effect insurance of some nature that insures another party obtains a deductible policy, that party should be made liable for the amount of the deduction.[¹⁰

SFNB obtained fire insurance and controlled the terms of the insurance policy, including the deductible.We conclude that SFNB was self-insured for the amount of the deductible that it chose, and is precluded from asserting that any loss for less than the deductible is not an insured loss.

Washington cases addressing other lease provisions that relieve tenants from liability for their reasonable reliance on a landlord's obligation to obtain fire insurance support this reasoning.When a tenant reasonably expected that fire insurance coverage was to be provided by the landlord, our court has denied subrogation.¹¹Moreover, a tenant was held to have reasonably believed it was covered under a landlord's fire insurance policy for negligently started fires when (1) the tenant knew the landlord carried fire insurance and the lease exempted the tenant from liability fire damage, and (2) the landlord did not notify the tenant that it needed another policy to cover its interests.¹²

Similarly here, EAI could reasonably expect not only that SFNB would provide adequate fire insurance coverage, but also that SFNB was liable under such coverage for the amount of the deductible that it chose, absent an agreement to the contrary.This lease contained no contrary agreement.

Moreover, we disagree that the subrogation waiver does not apply because the deductible is an amount that would not be paid by SFNB's insurer.¹³The subrogation waiver here contains both a waiver of subrogation and of "rights to recover against each other for any loss insured by fire".This provision waives any other right to...