Owner's Insurer Not Entitled to Reimbursement from Tenant

A lease's insurance clause required the owner to get fire insurance coverage for the building, including a waiver of subrogation (preventing the owner's insurer from stepping into the owner's shoes and suing the tenant for reimbursement). The lease also required the tenant to get insurance coverage for its property in the space, including a waiver of subrogation. After a fire damaged the tenant's space, the owner's insurer paid the owner's claim and then sued the tenant for reimbursement. The insurer claimed that, under the lease's indemnification provision, the tenant had to reimburse the owner (and so the owner's insurer) for any loss caused by the fire. The tenant asked the court to dismiss the insurer's lawsuit.

A Michigan appeals court dismissed the insurer's lawsuit. Under the terms of the insurance clause, each party agreed to insure, at its own expense, its own property against loss by fire, noted the court. That reflected the parties' intention “to look only to insurance to recover for loss due to fire, thereby relieving each from liability” and avoiding subrogation exposure, said the court. So the owner couldn't recover from the tenant any losses—including fire-related losses—that it had agreed to cover with insurance. And because the owner couldn't recover those losses from the tenant, neither could the insurer. The court then noted that the indemnification provision was intended to require the tenant to reimburse the owner only if it had to pay damages to third parties, which wasn't the case here [Hastings Mutual Insurance Co. v. Bradford Teeple].