Uren v. Dakota Dust-Tex, Inc.

Decision Date14 May 2002
Docket NumberNo. 20010205.,20010205.
Citation2002 ND 81,643 N.W.2d 678
PartiesPaul UREN, Plaintiff and Appellant, v. DAKOTA DUST-TEX, INC., Defendant and Appellee.
CourtNorth Dakota Supreme Court

Randall J. Bakke (argued) and Michael J. Hagburg (on brief), Smith Bakke Hovland & Oppegard, Bismarck, ND, for plaintiff and appellant.

Steven A. Storslee (argued) and Chris A. Edison (on brief), Storslee Law Firm, P.C., Bismarck, ND, for defendant and appellee.

MARING, Justice.

[¶ 1] Paul Uren has appealed from a summary judgment dismissing his action against Dakota Dust-Tex, Inc. ("Dakota") for damages resulting from a fire in a building leased to Dakota by Uren. We conclude that (1) Dakota was an implied co-insured under Uren's property insurance policy and subrogation was therefore barred; (2) Dakota was not liable for lost rents; (3) Dakota was not liable for Uren's insurance deductible and travel expenses to view the damaged building; and (4) an attorney's travel expenses to attend a pretrial product inspection were not recoverable as costs or disbursements. Accordingly, we affirm in part, reverse in part, and remand for entry of an amended judgment in accordance with this opinion.

I

[¶ 2] Dakota operates a commercial laundry in a building it leases from Uren. On October 5, 1998, the building was extensively damaged by fire. Uren alleges the fire resulted from spontaneous combustion of towels which a Dakota employee had placed in a laundry cart without allowing an adequate cool-down period.

[¶ 3] Uren had purchased property insurance on the building from Heritage Mutual Insurance Company ("Heritage"). Uren's policy with Heritage provided replacement cost coverage and coverage for lost rents. Heritage paid Uren more than $160,000 for the cost to repair the building and for lost rents.

[¶ 4] Heritage brought this subrogation action in Uren's name against Dakota, alleging Dakota had negligently caused the fire which damaged the building. Uren also sought to recover $2000 in uninsured losses from Dakota. Dakota moved for summary judgment, alleging it was an implied co-insured under Uren's property insurance policy and that Heritage was therefore barred from seeking subrogation. The district court granted summary judgment dismissing Uren's complaint, and Uren appealed.

II

[¶ 5] Uren argues the district court erred in concluding that Dakota was an implied co-insured under Uren's property insurance policy and that a subrogation action was therefore barred.

[¶ 6] We addressed this issue in Community Credit Union v. Homelvig, 487 N.W.2d 602 (N.D.1992). The Homelvigs leased a house from Community Credit Union and, after a fire caused significant damage to the house, Community Credit Union's insurer paid under its policy. The insurer then brought a subrogation action alleging the Homelvigs had negligently caused the fire. Agreeing with "[t]he great majority of courts which have addressed this issue," we held that, "absent an express agreement to the contrary, a tenant is an implied co-insured under the landlord's insurance policy and the insurer may not seek subrogation against the tenant." Id. at 603, 605.

[¶ 7] Uren argues that the following provisions in his lease with Dakota constitute "an express agreement to the contrary," taking this case out of the Homelvig rule:

HOLD HARMLESS:
The Lessee agrees to indemnify and save the Lessor harmless against any and all claims, damages, costs and expenses, including reasonable attorney fees arising out of or connected with the conduct or management of the business conducted by the Lessee on the demised premises....
....
LIABILITY INSURANCE:
The Lessee agrees to take out public liability insurance covering the demised premises. Said policy or policies shall be for an amount of at least Five Hundred Thousand Dollars ($500,000.00), for death or injury to one or more persons, plus Twenty-Five Thousand Dollars ($25,000.00) property damage, which said policy or policies of insurance shall name the Lessor as additional insureds thereunder. Lessee further agrees to maintain the same at Lessee's sole cost and expense in full force and effect, during the entire term of this lease or any renewal hereof.

Uren argues the first provision makes Dakota responsible for all damages to the building, and the second provision required Dakota to procure insurance naming Uren as an insured to cover damage to the building.

[¶ 8] We do not believe these provisions express a clear, unambiguous intent to make Dakota liable for damages to the building or an intent that Dakota not be considered a co-insured under Uren's property insurance policy. The first provision is a standard hold harmless clause, which this Court has construed as "a promise to protect and defend the indemnitee from all claims of third parties." Bridston v. Dover Corp., 352 N.W.2d 194, 197 (N.D.1984)

(emphasis added); see also Olander Contracting Co. v. Gail Wachter Investments, 643 N.W.2d 29, 2002 ND 65, ¶ 16; St. Paul Fire and Marine Ins. Co. v. Amerada Hess Corp., 275 N.W.2d 304, 308 (N.D.1979). It is not a clear, express agreement that Dakota would not be considered a co-insured under Uren's property insurance.

[¶ 9] Uren has also misconstrued the provision requiring Dakota to procure liability insurance and name Uren as an additional insured. Uren argues the clear purpose of the insurance clause was to require Dakota to purchase insurance to protect the building. Uren asserted "Dakota was also required to name Uren as an additional insured under the policy" and "[t]hus, the subject insurance policy was to provide direct coverage to Uren for property damages sustained by Uren."

[¶ 10] The insurance clause in the lease did not require Dakota to purchase property insurance on the building, but only required Dakota to purchase liability insurance and name Uren as an additional insured. Naming Uren as an insured under a liability policy would not provide protection for Uren's building, but would only protect Uren from liability claims of third parties. Naming Uren as an additional insured did not create a "loss payable clause" to protect Uren's building. See Barsness v. General Diesel & Equip. Co., 422 N.W.2d 819, 826 (N.D.1988)

. Our prior cases indicate that when a lease contains a hold harmless clause and a clause requiring the tenant to purchase liability insurance naming the landlord as an additional insured, the only purpose for such an insurance provision is "to protect [the landlord] from the consequences of its own negligent acts." Rupp v. American Crystal Sugar Co., 465 N.W.2d 614, 617 (N.D. 1991); Vanderhoof v. Gravel Products, Inc., 404 N.W.2d 485, 492 (N.D.1987); Bridston, 352 N.W.2d at 197.

[¶ 11] Furthermore, we note the insurance clause required Dakota to purchase liability insurance with coverage of property damage in the amount of $25,000. If the parties had intended this insurance to provide coverage for damage to the building, they certainly would have provided for a greater amount of coverage. This insurance was clearly intended to provide coverage only for Dakota's or Uren's liability for property of third parties damaged in the course of Dakota's business.

[¶ 12] If there were any doubt about the parties' intent regarding Uren's right to subrogation from Dakota, that doubt is erased by the following provision in the lease:

REPAIRS:
The Lessee shall take good care of the interior in order to preserve the demised premises in a good and orderly condition and shall make, as and when needed, all repairs to the interior of the demised premises ...; provided, however, that repairs made necessary by reason of any cause or peril included within the coverage of Lessor's policy of property insurance shall be made by the Lessor to the extent of such insurance coverage. [Emphasis added].

This clause unambiguously demonstrates the parties intended Uren would purchase property insurance covering the building, they would look to that insurance to cover any insured loss, and Dakota would be absolved of liability for any such loss.

[¶ 13] We conclude the lease contains no express agreement indicating Dakota should not be considered an implied co-insured under Uren's property insurance policy, and the Homelvig rule therefore applies. Accordingly, Heritage may not seek subrogation against Dakota.

III

[¶ 14] Uren argues that Dakota should be liable for lost rents caused by the fire, relying upon the following provision in the parties' lease:

DESTRUCTION OF PREMISES:
In case the building shall be at any time wholly or partially destroyed by fire or other unavoidable casualties, so that the leased premises shall be unfit for occupation or use, or in the event this building is wholly or partially destroyed by any cause whatsoever, excepting destruction caused by the willful act or misconduct of the Lessee, its agents or employees, this Lease shall terminate unless the Lessor shall give notice in writing within thirty (30) days of the happening of such occurrence of his intention to rebuild or repair. In the event such notice is given, this Lease shall remain in full force and effect with the rent to be abated or prorated (if partially destroyed) during the time required for rebuilding or repair.

[¶ 15] The fire in this case damaged only part of the building. Uren decided to repair the building and, in accordance with the above lease provision, timely notified Dakota. Dakota continued occupying the undamaged portion of the building, and Uren accepted prorated rental payments from Dakota under the above lease provision. Uren's policy with Heritage provided coverage for lost rents, and Heritage paid Uren for the prorated rents lost while the building was being repaired.

[¶ 16] Uren now claims Dakota was not entitled to prorate its rent under the lease because Dakota caused the fire. However, because Uren has recovered his lost rents under his property insurance, any claim for lost rents is through subrogation. Because we have...

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