Tenant Not Liable to Owner's Insurer for Fire Damage

A lease had a “yield-up” clause that required the tenant, at the end of the lease, to return the space to the owner “in good condition, damage by fire and other casualty only excepted.” One of the tenant's agents carelessly caused a fire in the space. The owner's insurer paid the owner $213,847 for the resulting property damage. The insurer then filed a subrogation action against the tenant—that is, the owner's insurer stepped into the owner's shoes and sued the tenant for reimbursement.

A Massachusetts court dismissed the insurer's subrogation action. For the insurer to get reimbursed, the tenant must have been liable to the owner for the fire damage. But that wasn't the case. The yield-up clause specifically contained a fire damage exception. The court noted that in Massachusetts, a tenant isn't liable to an owner for damage excepted in a yield-up clause, even if the tenant negligently caused the damage. Also, the lease didn't require the tenant to get fire insurance. And even though the owner was merely the prior owner's assignee and hadn't signed the lease, it had reviewed the lease and chosen not to delete the fire damage exception, the court said. Also, the owner didn't require the tenant to get a fire insurance policy at any time during the three years before the fire occurred [Horgan v. Montachusett Addiction Council, Inc.].