The Financial Suite

A landlord is required to pay for damages that fall below the deductible of required insurance.

June 3, 2010,

The Claimant was the owner of an apartment building and leased the apartments to individual lessees pursuant to 99 year leases.  A water leak from the Defendant’s apartment caused damage to several apartments.  At issue was whether the Defendant was liable to pay the cost of repairs, as this amount was less than the deductible under the insurance which the Claimant was required to obtain pursuant to the terms of the lease and which otherwise would have covered the loss had the cost of repair exceeded the deductible.

 

Under the terms of the lease, the Defendant was obligated to repair and maintain her suite, except with respect to damage insured against by the Claimant.  The Claimant was required to keep the building insured against loss or damage caused by certain risks and, in compliance with that obligation, had purchased an “all risk” policy, which included the risk of flood.  The Claimant argued that since the cost of repairs could not be recovered under the insurance policy, the loss was not an insured loss and therefore, the Defendant was liable for the cost of repairs.

 

The Court relied on Lincoln Canada Services LP v. First Gulf Design Build Inc., [2007] O.J. No. 4167, in which it was held that:

 

34.       …Once a party has agreed to obtain insurance, the amount of that deductible is a matter between the party and its insurer and should not change the allocation of risk as between the parties to the lease. Many factors affect the amount of the deductible and the other party should not be in a position of having its exposure fluctuate depending on the size of the deductible.

 

35.       To hold otherwise would create great uncertainty for a landlord or tenant. It would never really know what its exposure for a negligent act might be. It would always need to know what the deductible was in the other party’s insurance policy. That would not accord with commercial reality. Once the parties have agreed on insurance for a specified loss, the matter should end there.

 

The Court concluded that the covenant to insure in a lease is determinative unless some other provision modifies the covenant.  If the risk of a loss falling within the deductible is to be passed to a lessee who causes the loss, this must be set out in express wording in the lease.  The lease in this case did not include a term requiring the tenant to insure nor was there a term setting out the circumstances under which the risk of a deductible amount would pass substantially or wholly to a particular lessee.

 

In the result, the Court held that even if the damage was caused by the negligence of the Defendant, the damage was caused by a risk that the Claimant had covenanted to insure against under the terms of lease.  Absent express provisions of the lease, the Defendant could not be held liable to indemnify the Claimant for the cost of repairs falling within the insurance deductible.

 

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