Commercial Lease Requiring Tenant to Maintain $2 Million of Insurance Coverage in a "Single Limit" Was Not the Same as Requiring this Coverage "Per Incident"

On June 27, 2022, Justice Margaret Chan of the New York County Commercial Division issued a decision in Booston LLC v. 35 West Realty Co., LLC, Index No. 654308/2019, holding that a commercial lease that required tenant to maintain $2 million of general-liability coverage in a "single limit" permitted tenant to maintain $2 million of coverage in the aggregate, rather than $2 million "per incident," explaining:

“[W]here there is an ambiguity as to the meaning of a lease prepared by the defendant, the ambiguity should be resolved in favor of the lessee” (Campos v 68 East 86th St. Owners Corp., 117 AD3d 593, 595 [1st Dept 2014][internal citation omitted]). Moreover, “it is well settled that no additional liability or requirement will be imposed on a tenant by interpretation unless it is clearly within the provisions of the instrument under which it is claimed” ( 112 West 34th St. Assocs., LLC v 112-1400 Trade Properties, LLC, 95 AD3d 529, 531 [1st Dept 2012], lv denied 20 NY3d 854 [2012][internal citation omitted]).

Furthermore, when a lease is ambiguous and susceptible to different meanings, the court may look to surrounding circumstances to determine the intent of the parties (67 Wall St. Co. v Franklin Nat. Bank, 37 NY2d 245, 248 [1975]). In this regard, “the parties’ course of performance under the contract is considered to be the “most persuasive evidence of the agreed intention of the parties” (Federal Ins. Co. v Americas Ins. Co., 258 AD2d 39, 44 [1st Dept 1999]).

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A review of New York case law indicates that “single limit,” (or “combined single limit”) is most often used in the context of automobile insurance where it means that the coverage limit applies to both bodily injury and property damage in contrast to “split limit,” which means a separate limit for bodily injury and property damage (PrudentialProp &Cas. Co. vSzeli, 83 NY2d 681, 684 [1994]; Jones v Peerless, 281AD2d 888, 888 [4th Dept 2001]). Thus, in this context, “single limit” refers to the type of losses covered by insurance as opposed to whether the insurance coverage is on per occurrence basis or for the aggregate of occurrences during a policy period.

Moreover, in the general liability context, the term “single limit” has been used together with “per occurrence,” which indicates that contrary to the defendant’s position, “single limit” is not synonymous with “per occurrence” (see e.g. Great N. Ins. Co. v Interior Constr. Corp., 7 NY3d 412, 416 [2006][lease provision obligated tenant, “at its own expense, to maintain a comprehensive general liability insurance policy naming [defendant] as an additional insured with coverage to be no less than $5 million ‘combined single limit per occurrence for bodily injury and property damage liability”][emphasis added]). And, that the provision permits an alternative for coverage “under an original policy with an umbrella,”8 does not support the defendant’s interpretation. Thus, at the very least, the Lease’s insurance provision is ambiguous as to whether the $2,000,000 coverage requirement refers to per occurrence or aggregate coverage.

To the extent the insurance requirements of the Lease are ambiguous as to whether $2,000,000 means aggregate or per occurrence, the provision must be interpreted in favor of finding that plaintiff complied with the insurance provision of the Lease by providing coverage of $1,000,000 per occurrence and $2,000,000 in aggregate coverage. And, a contrary interpretation which would require plaintiff to provide coverage of $2,000,000 per occurrence would impermissibly add to plaintiffs obligations under the Lease that were not clearly required by its terms (see 151 W. Assoc, v Printsiples Fabric Corp., 61 NY2d 732, 734 [1984][affirming court order denying landlord a judgment of ejectment based on the “uncertainty” regarding whether an agreement involving tenant’s creditors fell within the meaning of term “arrangement” in the lease’s bankruptcy clause]; 67 Wall St. Co. v Franklin Nat. Bank, 37 NY2d at 249 [construing ambiguous article of lease in lessee’s favor]).

And, significantly, the court’s interpretation is consistent with the parties’ intent based on their conduct under the Lease in that plaintiff provided insurance coverage in the amount of $1,000,000 per occurrence and $2,000,000 aggregate for five years before defendant objected (see Federal Ins. Co. v Americas Ins. Co., 258 AD2d at 44 [ “Generally speaking, the practical interpretation of a contract by the parties to it for any considerable period of time before it comes to be the subject of controversy is deemed of great, if not controlling, influence”] Kalmon Dolgin Co. v Walnut Lanes, Inc., 27 AD2d 843, 843 [2d Dept 1967][when record indicates that tenant and its predecessor paid fire insurance premiums for seven years without objection “construction of the lease [consistent with this payment]...is entitled to great weight because it was made by the parties themselves”]).

The attorneys at Schlam Stone & Dolan regularly litigate over the interpretation of commercial leases, including the insurance requirements in these leases. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions about the meaning of an insurance requirement in a commercial lease.