Lease Waiver of Subrogation and the Tenant's Liability Cover
Kingsway Estates owns a warehouse let to Pinewood Foods. Clause 12 of the lease says: 'The Landlord shall insure the Building against fire and the Tenant shall pay 20% of the premium. The Landlord and the Tenant agree that the Landlord's insurer shall have no right of subrogation against the Tenant in respect of any loss insured by the Landlord.' Pinewood also holds a public liability policy with Trident Insurance, which excludes liability for damage to property in the tenant's 'care, custody or control' and liability assumed under contract. A fire starts in Pinewood's fryer because an employee fails to clean it. Kingsway's insurer, Albion, pays £1.4m for building damage. Albion then sues Pinewood in subrogation. Trident denies cover. Pinewood says clause 12 protects it. Albion argues that it was not a party to the lease and is not bound by the waiver.
1. Is Albion bound by the waiver of subrogation in the lease, even though it was not a party?
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Subrogation is an equitable right. The insurer stands in the insured's shoes and takes the insured's rights subject to defences and equities that exist between the insured and the third party. A contractual waiver of subrogation granted by the insured before the loss is therefore a defence against the insurer, even though the insurer was not a party to the lease. Albion cannot have greater rights than Kingsway. Clause 12 is clear: the landlord's insurer 'shall have no right of subrogation against the Tenant' for insured loss. It is not merely a promise by the landlord not to sue; it is a waiver of the insurer's right. Albion is bound. The fact that Albion paid the claim does not create a new right. If the clause had been entered into after the loss or without the landlord's authority, the analysis might differ. Conclusion: Albion's subrogation claim fails.
2. Does Trident's public liability policy respond to Pinewood's liability, if any?
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Trident's liability policy responds only if Pinewood is legally liable. Because clause 12 defeats Albion's subrogation claim, Pinewood has no liability to Kingsway, so there is no loss to indemnify. Even if Albion could sue, the 'care, custody or control' exclusion is likely to apply: the warehouse is in Pinewood's control as tenant, and the fire damage is to property in that control. The contractual liability exclusion also bars liability assumed under contract. The employee's negligence does not create cover where an exclusion applies. Trident should therefore decline. The result leaves Pinewood uninsured for the claim, but that is the effect of the lease and the policy wording.
3. How would the analysis change if clause 12 had only required Pinewood to reimburse 20% of the premium, with no waiver of subrogation?
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If clause 12 only required Pinewood to reimburse 20% of the premium, there is no waiver of subrogation. A premium contribution clause does not, without clear words, make the landlord's insurer a co-insurer with the tenant or waive subrogation. Albion could therefore sue Pinewood in tort or contract for the negligent fire. Pinewood would be legally liable, and Trident's exclusions would still likely apply, so Pinewood would pay out of pocket. The lease might contain an indemnity from landlord to tenant, but none is stated. The key lesson is that waiver of subrogation must be express; a rent or premium contribution is not enough.