What is Fire Legal Liability?
Fire legal liability is defined as the "amount of damages for which an insured is legally liable because of injury to premises rented to or occupied by the insured, caused by or resulting from a covered cause . . . The cause of loss must be a fire or explosion." Insurance Services Office, Inc., Commercial General Liability Coverage Form, CG 00 01 04 13 at 21. Like other liability coverages, fire legal liability requires "personal or advertising injury" and "occurrence" as defined in the policy. Id. at 16-17. Thus, for fire legal liability to apply, the insured must face a claim alleging personal injury arising out of fire or explosion that is caused by an occurrence.
This type of insurance coverage is relevant to rented premises in two ways. First, it applies only to fire or explosion, as opposed to other categories of liability, such as robbery, employee theft, aircraft damage, or other such incidents that could damage a rented apartment building. Second, advocacy groups have lobbied for laws that limit an insured’s liability for fire legal liability. To that end, several states have passed laws that limit an "insured’s" liability and bar contribution actions against lessees driving up costs for insurance.
The parties eligible to receive payment under this coverage are "those persons for whom property damage payments are legally required because of fire legal liability of an ‘insured.’" Id. at 21. For purposes of interpreting this provision , an "insured" includes "the named insured" and "members of the named insured’s household, but only residence employees of the ‘named insured’ (lawsuits involving family members or resident employees of the named insured are covered)." Id. at 19.
A typical scenario would be a tenant leasing space for retail sales and installing significant improvements to the leased space. The tenant’s business suffers a fire loss to its inventory. Presumably, the landlord is not liable to the tenant for fire loss to the tenant’s property, but if the tenant suffers a fire loss to the premises, even if the lease agreement allocates the risk of such loss to the tenant, the tenant may be able to recover from the landlord under fire legal liability. The tenant being damaged by fire could be the business occupying space, a member of the business that is not an insured under the CGL policy, or an employee of the damaged business. Arguably, fire legal liability would not apply to parties who are insureds under the CGL policy; accordingly, a tenant that is insured under a CGL policy would not be able to recover under fire legal liability for a claim that its own insured caused.
Common Causes of Fire Damage in Rentals
Common causes of fire loss in rental properties often include:
Faulty Wiring: This accounts for over 30,000 fires each year. Faulty wiring can occur for several reasons, including frayed electrical cords, worn out or poor quality extension cords, overloaded circuits, and contact with water.
Smoking: Smoking or improperly disposing of smoking materials accounts for close to 20% of the fires in rentals. Lolling cigarettes and cigarettes placed on sofas or in places away from proper receptacles frequently lead to fires.
Careless Cooking: Cooking is responsible for 87,000 house fires each year. Grease is often the culprit.
Overheated Motor Vehicles: Overheating of cars or other motor vehicles may also be a cause of fires in rentals.
Lack of Safety Features: Failure to provide smoke alarms, sprinklers, and other fire safety features may account for thousands of fires in rental properties each year. Insurance policy provisions require that the owner must mitigate damage caused by tenant carelessness.
Maintenance: Often times the neglect of maintenance of a structure may lead to a fire. Failing to replace a roof or maintaining broken furnaces are two examples of which tenants have claimed landlords were negligent in maintaining their properties.
Landlord and Tenant Obligations
The burden of fire safety and fire loss falls on all parties involved, including insurers. In the event of fire damage to real property, landlords and tenants often look to insurance for answers. However, it is the landlord and tenant, regardless of who purchases the insurance, that bear primary responsibility for loss prevention and fire exposures.
Landlords are in a better position to control the fire exposure to a larger degree than tenants. When the relationship between the landlord and tenant is governed by an agreement, the agreement often delineates or allocates the responsibility for maintenance and repair of the premises by setting up a schedule of responsibility. Most commercial leases contain some reference to the maintenance and repair of roofs, foundations, fixtures, heating and air conditioning systems, plumbing, kitchens and other aspects of the building structure. For apartment owners, the obligations may be governed by state and federal law regarding repairs and maintenance.
For individual landlords, other property owners and apartment owners are governed by statutes that apply whether or not there are written agreements.
Common law principles and statutes with regard to landlord and tenants falls within three categories: (1) duties of landlords to tenants; (2) duties of tenants to landlords; and (3) duties of landlords to the world (third parties). The responsibilities of landlords to tenants is governed by common law as well as by statutes. A large number of statutory landlord-tenant laws focus on the relationship between the parties. Contractual obligations between a landlord and tenant may be found within the lease agreement. For example, a lease may impose upon the landlord the duty of making specific repairs, such as installing smoke detectors, cleaning, painting or even changing light bulbs. Whether or not the landlord has a legal duty and for what repairs, i.e., the roof, the heating system, sidewalks and parking facilities, will depend upon the lease agreement, the statutes and judicial interpretation.
When courts interpret statutes or leases with regard to landlords’ responsibilities to tenants, they generally allow recovery by the tenant where damage to the tenants property was caused by the landlord’s breach of applicable laws or by a failure to satisfy contractual obligations under the lease. In addition, statutes and the common law can be used by tenants when litigating a dispute with a landlord. These include statutes dealing with landlord-tenant relationships, statutes dealing with residential tenancies, the Uniform Residential Landlord and Tenant Act, the Uniform Multiple Housing Law, application of negligence principles, fair housing laws, the Federal Fair Housing Act, and other lawful consumer protection statutes. Where landlords may have a variety of obligations to tenants, and may have liability to a tenant under various legal theories, tenants generally do not have the same broad categories of obligations and liabilities.
Some statutes place the duty of routine maintenance and repair of the premises upon the tenants. In certain instances, statutes may impose upon both the tenant and the landlord responsibilities for the installation and/or the maintenance and repair of smoke detectors. While landlords may be able to transfer this liability to the tenant through the lease agreement, courts may also impose upon the landlord an independent duty to install and/or maintain or repair smoke detectors when it is determined that, as between the landlord and the tenant, the landlord is in the best position to install and/or maintain or repair the smoke detectors. Shifting or sharing responsibility for routine maintenance and repairs eliminates disputes when fire claims arise.
Insurance Coverage for Fire Liability
The issue of who is legally responsible can be murky and complicated. That is because almost all insurance for fire-related claims will have certain exclusions or limitations related to legal liability for fires in rented property. This is due to the fact that the building on fire is often owned by a different individual than the party who is physically occupying it and may be in a legal contract for rent, lease or payment to the owner for the space occupied by that party. Insurance for fire-related claims will often attempt to clarify the legal liability – whether it is by way of an exclusion or limitation.
One example of this is a "first named" clause, which is a form of subrogation waiver. Subrogation is the rights of an insurance company to go after a third party for a loss and damages for which it paid a claim. Owner’s of a building may want to know that the tenants within their building are covered by insurance for fire-related claims. Tenant’s may want to know something about the building they occupy. Many tenant’s will obtain renter’s insurance for coverage related to their own personal property for claims. However, if the tenant is responsible for damage to the rented premises, will that insurance cover the cost of repairs to the building?
The United States Court of Appeals for the Eighth Circuit addressed this issue, in Section 14-F Oakwood Associates Limited Partnership v. Great Northern Insurance Company, 440 F.3d 373 (2006) concerning the building owner’s insurance. In that case the building owner entered into a business lease with the tenant. The lease contained several clauses relating to the allocation of risk for losses from fire. It also required the tenant to obtain renter’s insurance. The tenant obtained insurance covering fire-related damage. However, the tenant’s policy contained an express exclusion for liability for "tenants liability" losses. The building owner also obtained, at its election, insurance against "loss or damage to property under contract."
During the term of the lease, the tenant accidently caused a fire that damaged the leased premises. The building owner submitted a claim for $578 , 125.60 to its insurance carrier for that loss. The building owner’s insurer determined that it would not cover the loss because it was the result of fire damage by the tenant on the premises. The building owner brought a direct action against the insurance company.
The building owner alleged that the loss, of just under $579,000, was covered under the terms of its policy. The lower court found that the policy only covered "loss or damage to property under contract." To the contrary, the building owner called for liability for property damage in the event of fire caused by the third party. That is the case because there was a distinct possibility that the property would be damaged by a fire started by an act of negligence on the part of its tenants.
The Court of Appeals stated that the policy at issue expressly called for safeguarding a certain kind of liability, namely that associated with the risks to buildings caused by the negligence of third parties.
The Court also noted that when one looks up the definition for "property damage" in the policy, it states:
"Property damage means1. Physical injury to tangible property, including all resulting loss of use of that property; or 2. Loss of use of tangible property that is not physically injured, including all resulting loss of use of that property."
It was held that there was an issue of material fact for trial, that the tenant had not waived any of its policies for insurance coverage. The final outcome of the case is not clear from the opinion, as the opinion at hand was an appeal of a decision from a lower court. It is clear, however, that both parties did have insurance protecting against liability for loss or damages of property incurred, and both made a claim to the respective carriers. Both appeared to be honest, and objected to the behavior of the other’s carrier. That is to say, the attorneys in the appellate courts exposed the problems with both insurers, and one side, or both, could continue their case to trial.
Regardless of what happens in this present case, companies that own, manage or have control over property need to be mindful of these issues.
Litigation Procedures and Claims Process
If damage has been caused to a rented property by a fire, or indeed by any cause, the parties responsible must pay for that damage. The responsibility may be with the owner of the property, the tenant of the property or both. The question will be addressed in this section, but first it is worth noting that in respect of rented premises that are workplace and buildings covered by the Defective Premises Act 1972 it is possible for employees injured by defective premises to sue in contract rather than tort, although a finding of fault is still required.
Where the damage to the premises is not otherwise covered by an insurance policy, in order to settle a claim, the party in loss must pursue a legal claim based on negligence. Determining who can be held liable can become a matter of litigation. Care must be taken when choosing against whom to proceed, not least as there may be issues relating to contributory negligence or whether a waiver of liability arises from legal documents signed by the parties.
Once the correct party or parties have been determined, the claimant will need to prove that that party owed them a duty, that duty was breached, that breach caused damage and that damage was not too remote. As well as needing to show a breach of duty the claimant must also show that they were not to blame for the damage that has occurred. Where both sides to the complaint have been negligent there may be an apportionment of liability and damages. The claimant, having established breach of duty and resulting damage must then establish causation, that is that the loss suffered by the claimant is attributable to the breach of that duty. This may require expert evidence, particularly in the case of fire damage, in which case the costs of the claim may mount up quickly.
Prior to proceeding with legal claims it is worth exploring alternative methods of settlement. Mediation is a popular option in fire claims.
Avoiding Fire Risks
There are many steps that can be taken, both by landlords and tenants, to prevent fires. Landlords can ensure that all electrical wiring in the premises was done by a registered electrician, and that all gas installations were done according to the relevant regulations. In addition, the landlord can ensure that the tenant regularly cleans its premises. However, it is often preferable for the landlord to use a general leasing rule requiring the tenant to keep its portion of the premises "in good order and condition". This allows the landlord to adopt a more flexible approach to maintenance and repair. The landlord must also be made aware that the tenant has an obligation to notify it of any defects with regard to the premises. In turn , this will allow the landlord to conduct regular inspections of the premises to ascertain if there are any defects in the premises. The tenant may also take proactive steps to prevent fires, such as appointing a safety officer to inspect the premises on a regular basis. In addition, the tenant should ensure that all electrical installations are done by registered electricians and conduct fire drills on a regular basis. It is essential for the tenant not to overload electrical circuits.