Duty to Indemnify vs. Duty to Defend under Lease Agreement
Bass Pro Outdoor v. Harrisburg Mall Ltd., 2023 WL 3615155 (Pa. Super.) (unreported), allocatur granted Feb. 21, 2024, appeal docket 34 WAP 2024
This case centers on the interpretation of a lease between Bass Pro Outdoor (Tenant) and Harrisburg Mall Limited Partnership (Landlord) that required the Mall to indemnify Bass Pro for any “expense, including reasonable attorneys’ fees” arising from Bass Pro’s use of a common parking lot.
Superior Court summarized the factual background as follows:
In 2003, Tenant entered into a lease agreement (“Lease”) with Feldman Lubert Adler Harrisburg LP for a retail location in the Harrisburg Mall. In June 2012, Landlord acquired the Harrisburg Mall and assumed the rights and responsibilities set forth in the Lease.
The Lease includes a “General Definitions” section which defines the “Common Areas” as including, inter alia, parking areas and facilities. Lease, 9/30/03, at § 1.3(a). Pursuant to the Lease, Landlord’s maintenance obligations extended to all parking lots. Id. at 6.1(c). Landlord agreed to maintain the Common Areas, at its sole cost and expense, in good and safe condition. Id. at § 6.1(a).
Critical to our analysis is that the Lease contained an indemnification provision, which provided that Landlord must indemnify Tenant for, inter alia, any lawsuit arising from the maintenance of the Common Areas:
Notwithstanding anything to the contrary contained herein, except for the negligent acts of Tenant, Landlord agrees to indemnify and hold Tenant harmless with respect to any and all claims, actions, injuries, damages, liability, costs and expense, including reasonable attorney’s fees, arising with respect to the possession, use, occupancy, management, repair, maintenance or control of the Common Areas[.]
Id. at § 6.1(c). This provision, however, relieves the Landlord from the obligation to indemnify Tenant if the claim arises from the negligent “acts” of Tenant. Id.
The Johnson Action
On July 11, 2017, Janet and Dale Johnson filed a Complaint against Tenant and other defendants, but not Landlord, alleging that Mrs. Johnson tripped and fell over a piece of rebar protruding from pavement while walking through the parking lot outside of Tenant’s Harrisburg Mall location. Mrs. Johnson asserted, inter alia, that Tenant was negligent in failing to properly maintain the public parking lot area and in failing to “notify the appropriate entity and/or individuals responsible for repairing and/or correcting any hazardous condition or defect located in the public parking area[.]” Johnson Complaint, 7/11/17, at ¶ 27(c).
Following discovery, Tenant filed a Motion for Summary Judgment asserting that the Johnsons had not provided any evidence, beyond mere speculation, of the location where Mrs. Johnson fell, let alone the existence of a dangerous condition at the location. Thus, Tenant concluded that because the Johnsons could not prove that a specific, dangerous condition had caused Mrs. Johnson’s fall, they had not presented a prima facie negligence claim.
The trial court agreed, granted Tenant’s Motion for Summary Judgment, and dismissed the Johnson’s claims against Tenant. At no point during the Johnson Action did the plaintiffs establish that Tenant engaged in negligent “acts.”
The Instant Action
On October 19, 2018, Tenant filed a Complaint against Landlord, asserting claims for Breach of Contract and Negligence and seeking to enforce the indemnification provision of the Lease.1 Tenant alleged that it was entitled to, inter alia, reimbursement of its costs of defense from the Johnson Action.
Following completion of discovery, Tenant filed a Motion for Summary Judgment seeking judgment as a matter of law against Landlord. Tenant asserted that the record demonstrated that Landlord breached its Lease with Tenant by refusing to indemnify it for the costs of defense of the Johnson Action.
Landlord responded with its own Cross-Motion for Summary Judgment. Landlord argued that it was not obligated to indemnify Tenant because the Johnsons had alleged that Tenant had been negligent and the indemnification provision in the Lease did not apply to claims of negligent “acts” of Tenant. Response, 3/4/22, at 7 (quoting Lease at § 6.1(c)).
The trial court entered an order denying Tenant’s motion. The court concluded that because the Johnson plaintiffs had alleged that Tenant was negligent in failing to notify Landlord of the need for parking lot repairs, this alleged negligence relieved Landlord of its obligation to indemnify Tenant. Using the same reasoning, the trial court granted Landlord’s Cross-Motion for Summary Judgment.
Slip op. at 1-4.
Superior Court held that the trial court erred in interpreting the indemnification provision as relieving Landlord from its obligation to indemnify Tenant for the cost of defense in the Johnson action because the Lease only relieves Landlord from the duty to indemnify Tenant when Tenant has engaged in negligent acts. Superior Court concluded:
The Lease clearly and unambiguously relieves Landlord from its indemnification obligation only when Tenant actually engages in negligent “acts.” It does not cover claims alleging negligent “acts.” To accept the trial court’s interpretation of this provision requires us to re-write this provision to relieve Landlord from its obligation to indemnify when a party alleges that the Tenant was negligent. We cannot and will not do so.
Following our review, we find that there was no evidence that Tenant engaged in negligent acts. At best, the Johnsons merely alleged that Tenant did so. This finding is supported by the trial court’s determination that the Johnsons failed to establish that Tenant was negligent and dismissal of the Johnsons’ negligence claims against Tenant.
As stated above, pursuant to the clear and unambiguous language of the Lease, an allegation of Tenant’s negligence, without more, is not sufficient to relieve Landlord of its indemnification obligation. Rather, the Lease requires that Tenant engaged in a negligent “act.” Because there is no evidence that Tenant engaged in a negligent “act,” the Lease obligates Landlord to indemnify Tenant for its costs of defense for the Johnson Action. The trial court, therefore, erred in reaching a contrary conclusion.
Slip op. at 7-8.
In dissent, Judge Olson explained that she would find that Landlord was not required to reimburse Tenant for the costs it incurred in defending against the Johnson Action, therefore, the Landlord is entitled to summary judgment as a matter of law. Noting that a “duty to defend is separate from and broader than the duty to indemnify,” Judge Olson observed:
Pursuant to the terms of the Lease, Landlord and Tenant agreed that Landlord would indemnify and hold Tenant harmless for, inter alia, damages awarded in a cause of action arising out of a third party’s use of the mall’s common areas except when the damages are the result of Tenant’s negligent act. Id. at *7, citing Lease § 6.1(c). By its clear and unambiguous terms, the Lease contained only a duty to indemnify and did not specifically set forth an agreement that Landlord would defend Tenant in such a cause of action involving the common areas. As such, I cannot agree that Landlord was required to reimburse Tenant for the cost of defense in the underlying Johnson Action, which ultimately concluded without an award for damages when the trial court granted Tenant’s motion for summary judgment and dismissed the Johnsons’ complaint.
Dissent slip op. at 2-3. The dissent concluded that:
the clear and unambiguous language of the Lease required Landlord “to indemnify and hold Tenant harmless” with respect to a damage award stemming from injuries sustained by a third party while using the common areas. The clear and unambiguous language of the Lease also required Landlord to indemnify Tenant for the costs and expenses, including reasonable attorneys’ fees, that Tenant incurred when the damage award to the third party stemmed from injuries sustained through use of the common areas. As such, if Mrs. Johnson were entitled to an award of damages because of her fall and it was established that her fall was related to Tenant’s use, occupancy, or possession of a common area, then Landlord would be required to indemnify Tenant for the damage award, including Tenant’s expenses in defending the underlying cause of action, so long as the damage award was not predicated upon Tenant’s negligent conduct.
The Lease, however, did not contain a specific duty on the part of Landlord to defend Tenant in the event of a third-party cause of action. See id. Thus, Landlord, pursuant to the terms of the Lease, neither retained nor assumed a duty to defend a third-party cause of action in which it might be responsible for a damage award. Similarly, Tenant, pursuant to the terms of the Lease, did not require Landlord to defend Tenant in a cause of action arising from a third party’s use of a common area. Lastly, Landlord’s duty to indemnify Tenant for the expenses Tenant incurred in defending against the third-party cause of action was only triggered if the Johnsons had been awarded damages for injuries Mrs. Johnson sustained while using a common area and said damages did not arise from Tenant’s negligent acts. Because the underlying cause of action did not result in a damage award to the Johnsons, Landlord’s duty to indemnify Tenant for its legal expenses did not accrue.
Dissent slip op. at 4-6 (emphasis in original).
The Pennsylvania Supreme Court granted allocatur as to the following issue:
Whether the Superior Court conflated the duty to indemnify with the duty to defend in interpreting a lease that required a landlord to indemnify a tenant for any “expense, including reasonable attorneys’ fees” arising from tenant’s use of a common parking lot?
For more information, contact Kevin McKeon or Dennis Whitaker.