Supermarkets Operating Co. v. Arkwright Mut. Ins. Co.

• Decision Date: 17 August 1966
• Docket Number: Civ. A. No. 36594.
• Citation: 257 F. Supp. 273
• Parties: SUPERMARKETS OPERATING COMPANY and Fairless Hills Food Company, Inc., Plaintiffs, v. ARKWRIGHT MUTUAL INSURANCE COMPANY, Defendant, and PHILADELPHIA ELECTRIC COMPANY and Atlantic Thrift Center of Fairless Hills, Inc., Third-Party Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

257 F. Supp. 273

SUPERMARKETS OPERATING COMPANY and Fairless Hills Food Company, Inc., Plaintiffs, v. ARKWRIGHT MUTUAL INSURANCE COMPANY, Defendant, and PHILADELPHIA ELECTRIC COMPANY and Atlantic Thrift Center of Fairless Hills, Inc., Third-Party Defendants.

Civ. A. No. 36594.

United States District Court E. D. Pennsylvania.

August 17, 1966.

Bernard M. Borish, Philadelphia, Pa., for plaintiffs.

George E. Beechwood, Philadelphia, Pa., for defendant.

OPINION AND ORDER

JOHN W. LORD, Jr., District Judge.

This is a suit on an insurance policy. The matter is presently before the Court on the Motion of Plaintiffs, Supermarkets Operating Company and Fairless Hills Food Company, Inc., for summary judgment pursuant to Fed.R.Civ.P. 56. The diversity of citizenship of the parties and the requisite amount in controversy are properly set forth.

On November 20, 1959 one of the plaintiffs, Fairless Hills Food Company, Inc. (hereafter referred to as Fairless), became lessee of a portion of a building known as Store Number 5 of Bargain City, U.S.A., Inc. Bargain City, Inc. was the lessor. The lease was to continue for a period of ten years, and under its terms the lessee's obligation to pay $100,000 rent annually, in monthly installments, continued notwithstanding destruction of the building occupied. In the same paragraph of the lease, however, it was also agreed that the lessee's rental obligation would be credited with the "proportionate share of any proceeds of rent insurance which the lessor may be entitled to receive." (¶ 30, Rider to Lease Agreement of November 20, 1959).

On December 18, 1962, the defendant issued an insurance policy to the plaintiffs under which the defendant agreed to compensate the plaintiffs for certain losses due to interruption of business resulting, inter alia, from destruction of the leased premises by fire. On October 4th and 5th, 1963, a fire occurred at the Bargain City location, destroying the building of which the demised premises were a part.

Under the policy the defendant, Arkwright Mutual Insurance Company, had agreed to be liable for the actual loss sustained to gross earnings, "less all charges and expenses which do not necessarily continue during the period of interruption of the production or suspension of business operations." Gross earnings are defined as "the total net sales less cost of merchandise sold, materials and supplies consumed in the operations or service rendered by the insured; plus all other earnings derived from the operation of the business."

The policy limited the defendant's liability to losses occurring during the period within which "with due diligence and dispatch the property could be repaired or replaced and made ready for normal operations. * * *" The parties have agreed that this period was nine months from the date of the fire. (Exhibit "O-1" to affidavit of Richard H. Opperman, defendant's Philadelphia District Adjustor). During this period Fairless made rental payments to its lessor, and upon payment of the commuted value of the lease was ultimately able to secure its cancellation. (Exhibit "B-1" to affidavit of Milton Perlmutter, President of Fairless Hills Food Company). In the event it is determined that the rental payments were included under the insurance contract as "necessarily continuing expenses", it has been agreed that $66,225.00 represents the recoverable amount.

The plaintiffs made demand on the defendant for the $66,225.00. (Exhibit "O-1", supra). Upon its refusal to pay this amount, the present action was instituted.

In opposition to plaintiffs' motion, the defendant offers essentially three arguments. First, it asserts that Fairless' obligation to pay rent was terminated upon destruction of the premises, and thus that the payments made thereafter were wholly voluntary and not "necessarily continuing". Second, it argues that the policy contained no mention of leases, rental obligations or related terms and, therefore, that it would be reading too much into the contract to conclude that such an obligation was within the contemplation of the parties. Finally, it is asserted that Fairless failed to carry out its obligation to have applied to its rental obligation any proceeds of rent insurance that the lessor was entitled to receive.

The only other argument advanced by the defendant is that Fairless failed to cooperate in that it refused to supply the defendant with a copy of its lease. This assertion is controverted by the plaintiffs' affidavit and exhibit (A-2), to which the defendant has not filed a response. The assertions of fact contained within the plaintiffs' affidavit will, therefore, be taken as admitted, and this argument will not be discussed further. See Rockoff v. Vitex Manufacturing Co., Ltd., 230 F.Supp. 23, 25 (D.C. Virgin Islands 1964), aff'd 342 F.2d 996 (3rd Cir. 1965).

DISCUSSION

In support of its contention that destruction of the premises terminated Fairless' obligation to pay rent, the defendant cites the case of Solomon v. Neisner Bros., Inc., 93 F.Supp. 310 (E.D. Pa.1950), aff'd 187 F.2d 735 (3rd Cir. 1951). In that case the court properly observed that "Where only an interest in part of the building is demised, upon the total destruction of the building, ordinarily the whole estate demised would be extinguished;" and the obligation to pay rent would thereby be terminated. (93 F.Supp. at p. 315) This is in keeping with the general principle that the obligation to pay rent continues only so long as there is something to which the lease might attach. Usually, this consists of the land beneath the structure. Cf. Demas v. Laskey, 358 Pa. 633, 58 A.2d 134 (1948); Sankey v. Martin, 93 Pa. Super. 389 (1928); Solomon v. Neisner Bros., Inc., supra, 93 F.Supp. at p. 314 and authorities contained therein.

This is to be distinguished from the situation where one leases a building in its entirety. Under these circumstances, it is the law of Pennsylvania—by which we are bound—that the lease includes the land beneath the building, and, in the absence of a contrary provision in the lease, the obligation to pay rent continues for the remainder of the term. See Demas v. Laskey, supra; Sankey v. Martin, supra; cf. Moving Picture Co. of America v. Scottish Union & National Ins. Co. of Edinburgh, 244 Pa. 358, 90 A. 642 (1914); Paxson & Comfort Co. v. Potter, 30 Pa.Super. 615 (1906).

Admittedly, the lease under consideration was for a portion of a building known as Store Number 5 of Bargain City, U.S.A., Inc. However, Fairless expressly covenanted to continue its rental payments, notwithstanding the destruction of the building. The Court is aware of no public or private policy which would preclude such an agreement, especially where, as here, the parties were on an equal footing, both being corporations of some substance. Moreover, there is the mitigating factor in paragraph 30 of the lease which gave Fairless the right to have its rental obligation credited with any proceeds of rent insurance that the lessor may have been entitled to receive.

This Court's examination of the authorities indicates that under these circumstances the Pennsylvania courts would find that any rights Fairless may have had under the general principles enunciated above were relinquished to the extent that they conflicted with the express terms of the lease. To this extent, the payments were not voluntary as the defendant contends. Inasmuch as the lessor would have been able to enforce his rights in an appropriate legal proceeding, the plaintiffs' expense under the lease did "necessarily continue".

However, upon examining the pleadings, affidavits, interrogatories and related materials, it is the judgment of this Court that the facts have not been sufficiently developed to permit the entry of summary judgment at this time. As it stands now, there are at least two very serious questions which prevent the Court from ruling in the plaintiffs' favor. The first concerns the intent of the parties as to whether the rental obligation was included as a recoverable continuing expense; the second involves an examination of Fairless' conduct with respect to its obligation to mitigate damages.

The Court quite agrees that where an insurance policy is ambiguous, it must ordinarily be interpreted against its author. Sykes v. Nationwide Mutual Ins. Co., 413 Pa. 640, 198 A.2d 844 (1964); Lovering v. Erie Indemnity Co., 412 Pa. 551, 195 A.2d 365 (1963); Beryllium Corp. v. American Mut. Liability Ins. Co., 223 F.2d 71, 49 A.L.R.2d 1256 (3rd Cir. 1955)....