When Must I Procure Insurance Covering Another For Their Negligence
Answer: When your contract obligates you to do so.
We’ve all seen the terms in our contracts, this one is particular to leases:
INSURANCE. (a) Tenant shall, at its sole cost and expense, maintain at all times with responsible insurance carriers acceptable to Landlord licensed to do business in the State of Illinois, insurance covering the premises for the mutual benefit of Landlord and Tenant as follows:
*** (v) Comprehensive General Liability Insurance, with such limits as may be reasonably requested by Landlord from time to time, but not less than a $5,000,000.00excess liability for bodily injury and property damage;
*** (c) All insurance policies shall name Landlord *** [and others] as additional insureds, as their respective interests may appear. Landlord may, by written notice to Tenant, designate other parties as additional insureds. All such insurance shall provide that:
(i) The coverage provided includes the premises;
***(iii) All losses shall be payable notwithstanding any act or negligence of Tenant or Landlord or the occupation or use of the premises for purposes more hazardous than permitted by terms of such policy.
That last part is important. In Illinois, most agreements to indemnify someone for their own negligence are void as a matter of public policy, however, agreeing to obtain insurance to cover someone’s negligence is not void. In fact, it creates an enforceable contract and if you fail to obtain it, even by way of your insurance company providing a policy that excludes it, you’ve breached the lease (or any contract with such a provision for that matter) and can be held liable for the damages that result from failing to obtain the insurance.
In Clarendon America Insurance Co. v. Prime Group Realty, Inc. (1st Dist., Doc. No. 1-08-0791 & 1985 cons.) that’s exactly what happened. The facts are that Prime Group was the lessor to an entity named Ala Carte Entertainment that ran a restaurant on the property. The lease between the two included the provision above as well as multiple provisions stating that Ala Carte was not indemnifying Prime Group for Prime’s own negligence (something caused by Prime).
A worker was injured fixing HVAC units on the roof of the building. Fixing the HVAC saw Ala Carte’s responsibility, maintaining the rest of the roof was Prime’s. After the worker sued Prime, Prime sued Ala Carte and tendered the defense of the claim to Clarendon, with whom Ala Carte had the policy that was required under the INSURANCE clause. Clarendon filed a declaratory action to have a court find that it had no duty to indemnify Prime and later agreed to defend Prime under a reservation. Prime then sued Ala Carte for breaching its contract because there was a clause in the Clarendon policy to Ala Carte that read:
Policy Change No. 8 Endorsement
If liability for injury or damage is imposed or sought to be imposed on the additional insured because of: (a) Its own acts or omissions, this insurance does not apply.
The circuit court found in favor of Ala Carte and Prime appealed. On appeal, the appellate court found that the anti-indemnity provisions of the contract (those stating that Ala Carte was not to indemnify Prime for Prime’s negligence) did not contradict the insurance provisions because Illinois law has found that you can contract to get insurance for your negligence acts even if you could not be indemnified by a party for them.
Importantly, the court also held that the Endorsement’s negation of coverage for Prime was a breach of the contract provision between Prime and Ala Carte and remanded the case for a hearing on the damages resulting from that breach.
Make sure you read the contract language and either insert or remove this language depending upon your needs… and always read the policy once you get it to make sure it is in compliance with such a provision. A little double-checking in the beginning could have saved everyone this headache later on.
