CGL Policy Cannot Be Retroactively Applied in a Claim for Breach of a Lease Agreement
April 24, 2017
The Supreme Court, New York County decided that even if a person obtains CGL insurance coverage, that coverage cannot retrospectively cure a default arising from the now insured's failure to have continuously-maintained insurance coverage in the landlord's favor as required by its commercial lease. The case is Prince Fashions, Inc. v. 60 G 542 Broadway Owner, LLC, No. 3298N, 2017 WL 1378563 (N.Y. App. Div. Apr. 18, 2017).
In the original case, 60G 542 Broadway Owner, LLC, the landlord, brought a suit against Prince Fashions, tenant, for ejectment and for back rent. Prince countersued against Broadway arising out of the same lease.
Broadway delivered a notice of default stating that Prince had breached its obligations to Broadway under the terms of the lease by failing to “maintain general public liability policies in favor of Landlord and Tenant against claims occurring in or upon the premises” and by failing to deliver the policies to Broadway. Prince attempted to obtain a policy that fit all of the parameters after they were notified by the default by Broadway.
The court stated that the default was incurable for many reasons. The CGL policies that were in place were obtained by Prince's subtenants, who were also the named insureds, and none of the policies listed Broadway, or Broadway's predecessor, as an additional insured. These policies did not cure the default because they were not “in favor” of the defendant and because a landlord was not required to accept a subtenant's performance in place of a tenants, according to New York law.
Prince obtained a CGL policy on March 10 after receiving notice of the default on March 4. The court determined that a CGL policy does not retroactively cure a default caused by a failure to maintain insurance coverage in the favor of Broadway, as required by the commercial lease agreed to by both parties.
Editor's Note: The ruling in this case—a CGL policy that is purchased after notice of default is given does not apply retroactively to a period of time where an insurance policy was not in place as was required by the lease between the landlord and tenant—exemplifies the importance of maintaining an insurance policy when contractually obligated to maintain that insurance policy. Any breach of contract is a potential cause of action, including a failure to procure an insurance policy in favor of the landlord if that is a provision of the lease agreement. In order to prevent a breach of contract action, it is prudent for both parties to comply with the stipulations in the lease agreement.