Building Owners at Risk: Premises Liability, Insurance and Indemnification
An unfortunate trend is emerging in the area of premises liability, as more and more property owners are being sued by third parties for injuries incurred in or on the property. This is especially prevalent in residential and hospitality settings, but may also be an issue in commercial buildings.
These lawsuits are particularly troublesome because, in many cases, the owner has hired a third party to manage the property, or the property is managed and controlled by the tenant. Oftentimes, the owner has little or no day-to-day involvement with the property. Although logically, the owner should not be liable to an injured third party, such owners are sued every day.
As we have explained in previous issues of the Litigation & Counseling Alert, the first thing you should do when you have been sued is to notify your insurance company. Even though most lawsuits alleging bodily injury or property damage are covered by the standard Commercial General Liability (CGL) policy, certain situations are not and typically involve injury at the hand of an intruder.
Common Premises Liability Scenarios
Here are a few typical fact patterns where a building owner may be at risk. In the first, a residential property is equipped with security devices (such as buzzer systems, cameras and self-locking exit doors) designed to allow only residents, their guests and authorized personnel to enter the building. There may also be security personnel on site. An intruder manages to get past the security devices, security personnel or both, and enters the building to commit a crime, such as burglary. The intruder encounters several people, one of whom is a visitor, and injures that individual. The visitor sues the owner and everyone else associated with the building for bodily injury.
In the second fact pattern, the property is a place of public entertainment, such as a nightclub. The club managers hire security personnel (let’s call them bouncers) to keep out troublemakers. The bouncers do, in fact, eject an unruly patron, who later returns to settle his score. While doing so, he injures a third person, who sues the owner of the building and everyone else involved with it.
In the third fact pattern, the property is an office building. A tenant’s disgruntled former employee, customer or client returns to settle a score and, in doing so, injures several third parties, all of whom sue multiple parties, including the building’s owner.
When the owner in any one of these scenarios tenders the lawsuit to his insurer, he is horrified to learn that the insurance policy contains an assault and battery exclusion, which might read something like this:
“This insurance does not apply to damages or expenses due to ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ arising out of or resulting from:
- Assault and battery committed by any person;
- The failure to suppress or prevent assault and battery by any person;
- The failure to provide an environment safe from assault and battery or failure to warn of the dangers of the environment which could contribute to assault and battery;
- The negligent hiring, supervision or training of any person;
- The use of any force to protect persons or property whether or not the 'bodily injury' or 'property damage' was intended from the standpoint of the insured or committed by or at the direction of the insured.”
Interpreting the Facts
The question in each scenario is whether the building owner is entitled to coverage and, if not, whether he has any recourse?
In the first instance, for example, we start with the lawsuit. It may seem obvious that the intruder committed an assault or battery. If the injured party’s complaint, however, doesn’t actually allege facts that bring the intruder’s conduct within the policy’s definition (if it has one) or the legal definition of assault and battery, then the exclusion should not apply and the insurer should defend. If, however, the lawsuit does allege facts that bring the intruder’s conduct within either definition, then we look to see if there are other allegations in the lawsuit that do not constitute assault and battery (e.g., “The intruder negligently shot me in the leg!”). If there are, then the insurer must defend, although it is entitled to do so under a "reservation of rights".
If the lawsuit alleges assault and battery, and nothing else, then we must turn to the owner’s contractual agreements with the parties and entities that the owner has hired to manage the building, as well as the contracts entered into between the managers and any subcontractors, such as security companies.
Such contracts should include indemnity and insurance provisions that, at a minimum, set forth certain requirements. First, the contracts should require the downstream parties to defend, indemnify and hold the owner harmless against all loss arising out of incidents at the property unless the owner is the sole cause of such incidents. Second, the contracts should require that the downstream parties carry insurance (appropriate to the nature of their functions) and that the owner be named an “additional insured” on such insurance policies. It is also important to review the certificates of insurance for managers and vendors on an annual basis to make sure they comply with the requirements of your contracts.
This “belt and suspenders” approach will, in most cases, afford a building owner substantial protection from lawsuits arising out of situations beyond his control. If you are uncertain whether your insurance policies and contracts provide these protections, please contact your attorney for a full review of your documents