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Fireman's Fund Insurance Co. v. Sizzler USA Real Property

December 18, 2008


APPEAL from a judgment of the Superior Court of Los Angeles County. Lee Smalley Edmon, Judge. Affirmed. (Los Angeles County Super. Ct. Nos. BC334988 c/w BC283969).

The opinion of the court was delivered by: Cooper, P. J.


Plaintiff, Fireman's Fund Insurance Company, appeals from a judgment in favor of defendant, Sizzler USA Real Property, Inc., following a court trial of plaintiff's complaint for subrogation, by which plaintiff sought to recover amounts it paid to indemnify its insured, Santa Monica Collection LLP (SMC), in a premises liability case. The ultimate question presented is whether a subrogation waiver in the leases between SMC and defendant barred plaintiff's claim. The trial court held that it did. We agree, and affirm the judgment.


SMC owns a shopping center located at Fairfax Avenue and Santa Monica Boulevard, in West Hollywood. Defendant is a tenant of space in the center, entitled also to nonexclusive use of its parking area. Defendant and SMC are successor parties to two effectively identical leases (covering adjacent units), originally entered into between the organizers of SMC and a related "Sizzler" corporation, which prepared the leases.

The leases each contain the following provisions regarding liability. Under paragraph 17, "LIABILITY INSURANCE," defendant as tenant is obligated to maintain liability insurance, for claims against it for bodily injury and property damage occurring about the leased premises, "with a minimum combined single limit of" $1 million. "Tenant shall have Landlord named as an additional insured on each policy." Paragraph 19, "INDEMNITY," provides that "Tenant will indemnify and save Landlord harmless from any loss, cost or expense... and from any liability... on account of any damage to person or property occurring upon or about the Premises... arising out of any failure of Tenant to perform and comply in any respect with any of the requirements and provisions of this Lease." Finally, paragraph 20, "RELEASE AND WAIVER OF SUBROGATION," provides: "The parties release each other and their respective authorized representatives from any claims for damage to any person or property of either Landlord or Tenant... about the Premises that are caused by or result from risks insured against under any insurance policies carried by the parties...." Second, "The parties further agree that neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy and each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any covered damage."

In addition, paragraph 13 gave defendant tenant the right to assign or sublet, "provided, however, that Tenant shall remain liable for... the performance of all the obligations of Tenant" under the leases. In August 1993, defendant did sublease the premises, to a nightclub known as Sky Sushi.

On September 13, 2002, Heroico Aguiluz, a patron at Sky Sushi, was attacked and stabbed, in the premises parking area, by several men who had first accosted and threatened him inside the club. Sky Sushi security guards had escorted the assailants out, at which point they told Aguiluz they would "shank" him. The guards later escorted Aguiluz and his girlfriend downstairs to the valet parking stand in the parking area, but they did nothing to protect Aguiluz, although they had given him the impression they would.

Aguiluz commenced suit on account of his injuries. His first amended complaint named SMC, among others, as a defendant. SMC sought indemnification (and defense) from defendant. Defendant directed SMC to defendant's insurance, with Federal Insurance Company (Federal). The applicable policy, however, provided only $750,000 coverage, after a self-insured retention of $250,000. Moreover, SMC had not been named as an additional insured on the policy.

SMC turned the case over to plaintiff, its own liability insurer. Plaintiff tendered the defense to Federal, which initially declined because SMC was not an additional insured, and because the claim allegedly did not arise from nonperformance of the lease by defendant, as required by the lease's indemnity provision. Subsequently, after considering a policy provision that treated lessors as insureds, Federal informed plaintiff it would defend SMC, under reservation of rights, after its defense and settlement costs exceeded $250,000. Federal later took the position that defense costs did not count toward that retained amount.

Plaintiff proceeded to defend SMC, and settled Aguiluz's suit. Plaintiff expended $300,000 in settlement and $84,101 for defense costs. Plaintiff then commenced this action, to recover what it had paid, and also attorney fees under a provision of the leases allowing them to the prevailing party in an action to enforce the leases or recover damages by reason of a default under them.

At trial, in addition to the facts stated above, plaintiff showed that in March 2003 the West Hollywood Planning Commission had found Sky Sushi's operation to be a nuisance and that its conditional use permit had been fraudulently obtained. These findings were based on sheriff's department reports--not admitted at trial for their truth--that Sky Sushi's security guards were not licensed as required; some had ignored crimes committed in their presence; and there had been numerous criminal incidents at the club or outside it. Sky Sushi had appealed the revocation of its permit to the city council, which in June 2003 affirmed, again finding that the club's operation had created a nuisance, for much the same reasons as the planning commission had cited.

In opposition to defendant's contention that subrogation was barred by the subrogation waiver in paragraph 19 of the leases, plaintiff asserted that (1) defendant's failure to obtain liability insurance fully covering SMC for $1 million constituted both nonperformance of a condition precedent to the subrogation waiver and a failure of consideration for it. Plaintiff also argued that defendant, through Sky Sushi's conduct, had violated two other lease obligations, proscribing nuisance on the premises and requiring acquisition of certain permits. Those violations had given rise to the Aguiluz litigation, and defendant had been responsible under the lease to indemnify SMC for the case. Defendant's failure to perform also excused the subrogation waiver.

The court ruled for defendant. In its statement of decision, the court held that the subrogation waiver operated, as part of a mutual release, so long as the risk was covered by insurance, whether the tenant's or (as here) landlord's insurance. The waiver applied to insured risks, whereas the leases' indemnity provision applied to uninsured liabilities. Moreover, the consideration supporting the subrogation waiver was the same as covered the other provisions of the leases, namely the parties' promises "and other good and valuable consideration," as the leases recited. The statement of decision did not directly opine about plaintiff's claims of lease violations regarding permits and nuisance, although in its tentative decision the ...

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