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Continental Casualty Co. v. Polk Bros.





Appeal from the Circuit Court of Cook County; the Hon. Thomas J. O'Brien, Judge, presiding.


Rehearing denied January 17, 1984.

The present appeal arises out of an action brought by plaintiff insurance companies as subrogees of their insured, Rand Realty & Development Company (Rand). Plaintiffs' complaint alleged that the negligent conduct of defendant Polk Brothers, Inc. (Polk), caused a fire which ultimately resulted in the destruction of a building Rand had leased to Polk. The various insurers were thereby required to pay claims on fire insurance policies held by Rand, which they then sought to recover from Polk as damages. Plaintiffs appeal from an order granting Polk's motion for summary judgment.

On appeal, the insurance companies contend that under the lease agreement executed by Polk and Rand for the premises subsequently destroyed by fire, Rand clearly has a cause of action against the lessee Polk for damages to the building occasioned by Polk's negligence. Plaintiffs argue that as subrogees of Rand they should be permitted to pursue Rand's claim against Polk. Polk argues here, as it did below, that the lease agreement, the relationship between Polk and Rand as parent corporation and wholly owned subsidiary and the insurance policies procured by Polk and Rand all reveal an intent by the parties to the lease to look only to the insurance proceeds for indemnity against fire loss. Consequently, defendant contends that the insurance companies have no subrogation claim against Polk and the trial court properly granted its motion for summary judgment. After reviewing these competing contentions and the record below, we find the trial court properly granted Polk's motion for summary judgment, and affirm.

It is axiomatic that for a right of subrogation to exist, the subrogor must possess a right which he could enforce against a third party and that the subrogee must seek to enforce the subrogor's right. (American National Bank & Trust Co. v. Weyerhaeuser Co. (7th Cir. 1982), 692 F.2d 455.) The subrogee can have no greater rights than the subrogor and can enforce only such rights as the subrogor could enforce against the third party. (William Aupperle & Sons, Inc. v. American Indemnity Co. (1979), 75 Ill. App.3d 722, 394 N.E.2d 725.) Thus, it is commonly stated that the subrogee (here the insurers) must step into the shoes of or be substituted for the subrogor (here Rand). (London & Lancashire Indemnity Co. of America v. Tindall (1941), 377 Ill. 308, 36 N.E.2d 334.) From the foregoing, it is clear that if the lease agreement executed by Rand and Polk exculpates the lessee Polk from liability for fire loss due to its own negligence, then the subrogee insurance companies will have no right of action against Polk.

Plaintiffs rely primarily on the yield-back, waiver of claims, and untenantability provisions contained in the lease to support their contention that a right of subrogation exists against Polk. The yield-back provision provides in relevant part:

"9. * * * At the termination of this lease by lapse of time or otherwise, Lessee shall return the premises and all equipment and fixtures therein in as good condition as when Lessee took possession, ordinary wear and tear excepted, failing which Lessor may restore the premises, equipment and fixtures to such condition and Lessee shall pay the cost thereof upon request."

The waiver of claims provision requires the lessee, Polk, to waive all claims against the lessor for damages to person or property sustained by lessee or any other occupant of the building. The paragraph further provides:

"6. * * * If any such damage, whether to the demised premises or to the building or any part thereof, or whether to Lessor or to other tenants in the building, result from any act or neglect of Lessee, Lessor may, at Lessor's option, repair such damage and Lessee shall upon demand by Lessor, reimburse Lessor forthwith for the total cost of such repairs. Lessee shall not be liable for any damage caused by its act or neglect if Lessor or a tenant has recovered the full amount of the damage from insurance and the insurance company has waived in writing its right of subrogation against Lessee."

Paragraph 13 of the lease agreement is the only provision in the lease dealing specifically with damage by fire and provides in relevant part:

"UNTENANTABILITY. If the premises or the Building are made wholly untenantable by fire or other casualty, Lessor may elect (a) to terminate this lease as of the date of the fire or casualty by notice to Lessee within thirty days after that date, or (b) to repair, restore or rehabilitate the Building or the premises at Lessor's expense. * * * If the demised premises shall be partially damaged by fire or other casualty without the fault or neglect of Lessee, Lessee's servants, employees, agents, visitors or licensees, the premises shall be repaired, restored or rehabilitated by and at the expense of Lessor, * * *." (Emphasis added.)

In construing these lease provisions our primary objective is to ascertain and give effect to the intent of the parties (Hartwig Transit, Inc. v. Menolascino (1983), 113 Ill. App.3d 165, 446 N.E.2d 1193) through a consideration of the instrument as a whole (One Hundred South Wacker Drive, Inc. v. Szabo Food Service, Inc. (1975), 60 Ill.2d 312, 326 N.E.2d 400). That intent must be ascertained, if possible, from the language of the lease and the words should be given their common and generally accepted meaning. (Hartwig Transit, Inc. v. Menolascino (1983), 113 Ill. App.3d 165, 168.) However, where the language is ambiguous, evidence such as the position of the parties, the surrounding circumstances existing at the time of execution and the parties' subsequent conduct may be considered in order to explain language susceptible to more than one meaning. Hartwig Transit, Inc. v. Menolascino (1983), 113 Ill. App.3d 165, 168; American National Bank & Trust Co. v. Lembessis (1969), 116 Ill. App.2d 5, 11, 253 N.E.2d 126.

• 1 Applying the above cited rules of construction, we must reject plaintiffs' contention that the terms of the lease unambiguously manifest the intent of Rand and Polk to hold Polk liable for the negligent destruction by fire of the demised premises. Both the yield-back provision contained in paragraph 9 and the waiver of claims provision of paragraph 6 give the Lessor, Rand, the right to be reimbursed for repairs it makes to the leased premises under certain circumstances, particularly where the repairs have been necessitated by the lessee's negligence. As such, these provisions cut in plaintiffs' favor inasmuch as they demonstrate an intent to hold Polk liable for some types of damage to the building. However, the language of paragraph 6 is of a general character referring to "any damage" caused by lessee's negligence. Similarly, the yield-back clause would appear to impose a general duty to return the premises in good condition excepting only ordinary wear and tear. Neither paragraph makes reference to reimbursement for damages caused by fire, whereas paragraph 13 specifically refers to this eventuality and should be determinative on the issue of the parties' intent. This approach is in accord with the well-settled rule of construction that where a document contains both general and specific provisions relating to the same subject, the specific provision is controlling. Gordon v. Dolin (1982), 105 Ill. App.3d 319, 434 N.E.2d 341.

Paragraph 13 clearly differentiates between fire damage rendering the building wholly untenantable (as occurred here) and partial damage by fire. In the former case, the lessor has the option of terminating the lease or repairing, restoring or rehabilitating the premises at the lessor's expense. In the latter case, the lessor's obligation to repair the premises only arises where the fire occurs "without the fault or neglect of the lessee." The partial damage provision is clearly inapplicable to the case at bar and plaintiffs' reliance thereon is misplaced — here, the building was totally destroyed by fire. Under these circumstances, the language of the lease does not condition lessor's duty to repair at its own expense on the lessee being free from negligence as in the case of partial damage to the premises. Furthermore, there is no provision for the lessor to recoup the cost of such repairs as appears in other sections of the lease. Rather, paragraph 13 unequivocally requires the lessor to bear the entire cost of such repairs where the premises have been rendered wholly untenantable by fire.

Since Rand agreed to repair the building at its own expense if the building was totally destroyed by fire, it is clear that the parties contemplated Rand would obtain insurance to protect against this eventuality. This construction is bolstered by provisions contained in paragraph 11 of the lease wherein Polk covenanted not to make any use of the premises which would invalidate or increase the premium cost of insurance and to pay Rand for any such increases occasioned by Polk's use of the premises. Obviously, any obligation to pay the lessor for premium increases would pertain only to insurance which the lessor would maintain. Our supreme court has construed a similar lease provision requiring the lessee to pay increases in insurance premiums caused by lessee in Stein v. Yarnall-Todd Chevrolet, Inc. (1968), 41 Ill.2d 32, 37, 241 N.E.2d 439. There, the court stated:

"`Clearly under this section of the lease it was contemplated that the lessor would carry insurance on the property and look to the insurance for compensation for any loss by fire. If the parties had intended otherwise, there would have been no reason for such provision.' United States Fire Ins. Co. v. Phil-Mar Corporation (1956), 166 Ohio St. 85, 89, 139 N.E.2d 330, 333."

Faced with a situation in which the lessor implicitly agrees to provide fire insurance, the court in Stein further recognized the basic absurdity of also placing a duty on the tenant, who in effect paid for the landlord's insurance through rental payments, to seek a separate policy to ...

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