Insurance – CGL – Landlord/Tenant – Strip Mall – Fitness Center – Tort/Negligence – Personal Injury – Duties to Defend & Indemnify

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Starr Indemnity & Liability Co. v. JCW Holdings, LLC (Lawyers Weekly No. 002-134-14, 16 pp.) (R. Bryan Harwell, J.) 4:12-cv-03271; D.S.C.

Holding: Even though the same person owns both the defendant-landlord and a tenant-fitness center in the landlord’s strip mall, the plaintiff insured only the landlord and not the tenant. Nevertheless, since there was no written lease, and since a fitness center customer alleges that he was injured because of unsafe conditions at the fitness center, plaintiff has a duty to defend the customer’s state-court lawsuit.

Plaintiff’s motion for summary judgment is granted in part and denied in part. The fitness center is not an insured under plaintiff’s policy. The customer may not recover pursuant to an amalgamation theory. However, plaintiff has a duty to defend the underlying lawsuit. Plaintiff’s motion is denied without prejudice as to its duty to indemnify.

Although defendant Jason Weatherford, who owns both the landlord and the fitness center, made conflicting statements about his insurance expectations, the record shows that only the landlord is covered by plaintiff’s policy.

First, the landlord and the fitness center were legally distinct entities. Moreover, the fitness center was not a named insured on the policy.

The coverage sought in the insurance application was “Lessor’s Risk,” and the business description for the insured was a “strip mall,” not a gym. The fitness center was merely listed on the application as one of several tenants of the building.

Jason was informed during the application process that the fitness center would need a separate policy of insurance. He admits that he declined coverage because he could not afford it. He explained that the fitness center intended to rely on its hold harmless or waiver agreements to protect itself from liability.

Although the underwriting information described a “health and fitness facility,” this was necessary for underwriting purposes so the insurance company would know the type of property covered and could estimate an accurate replacement cost. The mere fact that the types of businesses run by the landlord’s various tenants were listed on the policy does not mean that plaintiff intended to provide liability coverage for each of those separate business operations.

There may have been some degree of commingling funds between the landlord and the fitness center, but this falls short of establishing a genuine issue of fact as to whether the landlord was actually operating a gym.

Plaintiff’s policy does not provide coverage to the fitness center.

The policy was intended to insure the business of a commercial landlord alone. Therefore, the policy only covers the allegations asserted against the defendant-landlord as a commercial landlord, and only covers Jason in relation to his involvement as a member and/or manager of the landlord.

Nevertheless, the duty to defend is broader than the duty to indemnify.

The underlying complaint alleges that the customer “slipped off [a] pull up bar and fell, causing his head to strike an unpadded brick or concrete wall adjacent to the pull up bar.” Moreover, it alleges that the defendants were negligent in “creating and/or allowing a dangerous and defective condition to exist at Defendants’ premises.”

The underlying action can be construed to sufficiently allege a lessor-liability claim against the landlord. It alleges that the landlord owns the property where the injury occurred, and that it created and/or allowed a dangerous and defective condition on its premises by failing to pad the brick or concrete walls.

In the absence of an agreement to the contrary, a lessor surrenders possession and control of the land to the lessee. After the premises are surrendered in good condition, the lessor is typically not responsible for hazardous conditions which thereafter develop or are created by the lessee.

Although the fitness center and the landlord had an unwritten lease agreement, it is unclear which entity was presumed to have control over the maintenance of the leased premises.

Similarly, there is also a genuine issue of fact as to whether the alleged hazardous condition was created by the lessee or lessor. Jason testified at one point during his deposition that the fitness center “upfit” the premises and determined the floor plan and placing of equipment. However, at another place in his deposition he indicated that the landlord provided the money to purchase the gym and for maintenance and upkeep of the gym.

Although coverage is only present for this narrow issue, an insurer whose duty to defend has been triggered by a lawsuit against the insured is not justified in refusing to defend the entire case. The duty to indemnify will solely involve the landlord’s ultimate liability, or lack thereof, as a commercial landlord.

Motion granted in part and denied in part.