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Duty To Defend Does Not Extend To Liability From “Lessor’s Risk” Due To Injury To Non-Tenants Off-Premises

February 10, 2023

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The United States District Court for the Eastern District of New York recently granted an insurer’s motion for summary judgment and declaratory judgment that it did not have a duty to defend or indemnify the defendant landlord holding that the term “lessor’s risk,” as used in insurance policies, is an unambiguous term that does not cover tort claims from non-tenants injured off the premises.

In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2023/02/Colony-Insurance-Company-v.-28-41-Steinway-LLC.pdf">Colony Insurance Company v. 28-41 Steinway, LLC</a>,</em> the Court addressed this issue on Colony’s motion for summary judgment and declaratory judgment that it did not have a duty to defend or indemnify 28-41 Steinway. This coverage dispute arose out of an underlying personal injury suit in which underlying plaintiff, Figueroa, alleged his foot was run over by an excavator while working on a project involving the sewer system at the premises, 28-41 Steinway Street, Astoria, New York.

Colony argued that it was entitled to a declaration that it owed no duty to defend or indemnify 28-41 Steinway for any damages in the underlying action because the relevant policy included a “lessor’s risk only” limitation. According to Colony, the “lessor’s risk only” limitation precludes indemnification for tort claims by non-tenants and for injuries sustained outside of the premises. 28-41 Steinway argued, <em>inter alia</em>, that the policy’s “lessor’s risk only” language was undefined and ambiguous, therefore urging the Court to construe that term in its favor and against Colony.

The Court noted that although 28-41 Steinway’s interpretation of “lessor’s risk only” may be correct based on the “purely textual meaning” of that term, the Court was required to look also to context, including “customs, practices, usages, and terminology.” The Court held that “lessor’s risk only,” as used in insurance, “has a specialized meaning that limits insurance coverage to damages sought by property tenants, or at the very least to injuries suffered on the landlord’s property.” Accordingly, based on the facts of the case, the Court granted Colony’s motion for summary judgment, holding that because it was undisputed that Figueroa was not a tenant and did not suffer an injury on the premises, the “lessor’s risk only” limitation applied to preclude coverage.

This decision confirms two important matters for insurers.  First, it holds “lessor’s risk only” is an unambiguous term with a specialized meaning. This is beneficial to insurers, as ambiguous terms are construed in favor of the non-moving party, and against the movant. Second, it reaffirms that insurance contracts are not to be interpreted solely based on their “purely textual meaning,” but in context, which includes the customs, practices, usages, and terminology as generally understood in the particular trade or business.

Thanks to Erin Gallagher for her contribution to this post.  Should you have any questions, please contact <a href="tbracken@wcmlaw.com">Tom Bracken</a>.

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