Excess or Primary Insurance? Make Sure Your Contract Specifies.

A New Jersey appellate court ruled in Lopez v. Palin Enterprises, Associated, No. A-0886-17T4 (N.J. App. Div. December 5, 2018) that a tenant’s insurance policy was not the primary coverage for an injury to its employee which occurred within its leased premises.

The defendant in the case, Palin Enterprises, Associated (“Palin”) owned a commercial building and leased a portion of it to Agile Trade-Show Furnishings, Inc. (“Agile”). Agile employed the plaintiff, Teodoro Lopez (“Lopez”).  Lopez was injured using a freight elevator located within the leased premises and sued Palin for damages.  Palin tendered the defense to Agile’s insurance company, Wausau Insurance (“Wausau”), arguing that the Wausau policy was the primary insurance coverage for Lopez’s claim.  Palin was named as an additional insured under the Wausau policy.  The Wausau policy provided “[t]his insurance shall be excess over any other insurance available to the additional insured whether such insurance is on an excess, contingent or primary basis, unless you are obligated under a written agreement to provide liability insurance for that additional insured on any other basis. In that event, this policy will apply solely on the basis required by such written agreement.”

The lease between Palin and Agile required Agile to procure “a comprehensive policy of liability insurance protecting [Palin] . . . against any liability whatsoever, occasioned by any occurrence on or about the Demised Premises.”  The lease did not require such policy to be the primary liability coverage for such occurrences.   The Court found that Wausau was not required to defend the Lopez lawsuit as its coverage is not to all claims, only as to all liability.  The Court ruled that due to the failure of the lease to specify that Agile’s liability insurance policy must be primary, per the terms of the Wausau policy it provides excess coverage and Palin’s liability insurance policy provides the primary coverage.

This case underscores the necessity of carefully drafting indemnity and insurance provisions in contracts to properly allocate risks between the parties thereto, specify the types of insurance each party must carry to cover such risks, and designate the insurance which is primary or excess.