INTERPRETING AMBIGUOUS CONTRACT PROVISION IN LEASE

In this case, both parties submitted affidavits of "expert testimony" of how the contract/lease should be interpreted.

BOOSTON LLC v. 35 W. REALTY CO., LLC, 2022 NY Slip Op 32021 - NY: Supreme Court June 27, 2022:

"Discussion

"The proponent of a motion for summary judgment must establish that there are no material issues of fact in dispute and that it is entitled to summary judgment as a matter of law" (Mazurke v Metropolitan Museum of Art, 27 AD3d 227, 228 [1st Dept 2006]). Once a movant makes such a showing, the burden shifts to the opposing party to produce evidentiary proof sufficient to raise an issue of fact (CitiFinancial Co (DE) v McKinney, 27 AD3d 224, 226 [1st Dept 2006]).

A failure to comply with insurance requirements constitutes an incurable and material breach of a lease (Rui Qin Chen Juan v 213 West 28 LLC, 149 AD3d 539 [1st Dept 2017]). At issue here, however, is whether plaintiff complied with the insurance requirements of the Lease, which depends on the interpretation of the relevant Lease provisions.

"It is settled that the interpretation of provisions of a lease are governed by the same rules of construction applicable to other agreements... and in those instances where the intent of the parties is clear and unambiguous from the language employed on the face of the agreement, the interpretation of the document is a matter of law solely for the court" (Horwitz v 1025 Fifth Ave. Inc, 34 AD3d 248, 249 [1st Dept 2006] [internal citations omitted]). A Lease must be read as a whole to give effect to the intent of the parties as expressed therein (Hook Superx, Inc. v Ciampa N Co., 2 AD3d 587, 589 [2d Dept 2003]). Moreover, while an expert may be permitted to explain technical or scientific terms, the court will not consider expert opinion as to the meaning of contractual provisions (Good Hill Master Fund L.P. v Deutsche Bank, 146 AD3d 632, 637 [1st Dept 2017] [finding that trial court properly precluded expert opinion to assist in interpreting section of default credit swap agreements]; Colon v Rent-A-Car Center, Inc., 276 AD2d 58, 61 [1st Dept 2000] [noting that experts are not permitted "to offer opinion as to the legal obligations of parties under a contract"]).

"[W]here there is an ambiguity as to the meaning of a lease prepared by the defendant, the ambiguity should be resolved in favor of the lessee" (Campos v 68 East 86th St. Owners Corp., 117 AD3d 593, 595 [1st Dept 2014] [internal citation omitted]). Moreover, "it is well settled that no additional liability or requirement will be imposed on a tenant by interpretation unless it is clearly within the provisions of the instrument under which it is claimed" (112 West 34th St. Assocs., LLC v 112-1400 Trade Properties, LLC, 95 AD3d 529, 531 [1st Dept 2012], lv denied 20 NY3d 854 [2012] [internal citation omitted]). Furthermore, when a lease is ambiguous and susceptible to different meanings, the court may look to surrounding circumstances to determine the intent of the parties (67 Wall St. Co. v Franklin Nat. Bank, 37 NY2d 245, 248 [1975]). In this regard, "the parties' course of performance under the contract is considered to be the "most persuasive evidence of the agreed intention of the parties" (Federal Ins. Co. v Americas Ins. Co., 258 AD2d 39, 44 [1st Dept 1999]).

Here, with respect to insurance coverage, the Lease states that plaintiff shall provide "[p]ublic liability coverage^[7] against claims for bodily injury or death in amount of $2,000,000.00 in a single limit or under an original policy with an umbrella" (NYSCEF #151, Lease Rider, Art. 9, at 11). It is undisputed that from 2014 to 2019, plaintiff provided general liability insurance coverage of $1,000,000 per occurrence and an aggregate coverage of $2,000,000 and named the defendant as an additional insured. The determination of whether the coverage furnished satisfies plaintiff's obligations under the Lease primarily turns on whether the term "single limit" as used in this provision means "per occurrence" as opposed to in aggregate. In this regard, the Lease does not contain any definition of "single limit," nor is it otherwise clear from other provisions of the Lease or the Rider what the term "single limit" means.

A review of New York case law indicates that "single limit," (or "combined single limit") is most often used in the context of automobile insurance where it means that the coverage limit applies to both bodily injury and property damage in contrast to "split limit," which means a separate limit for bodily injury and property damage (Prudential Prop & Cas. Co. v Szeli, 83 NY2d 681, 684 [1994]; Jones v Peerless, 281 AD2d 888, 888 [4th Dept 2001]). Thus, in this context, "single limit" refers to the type of losses covered by insurance as opposed to whether the insurance coverage is on per occurrence basis or for the aggregate of occurrences during a policy period. Moreover, in the general liability context, the term "single limit" has been used together with "per occurrence," which indicates that contrary to the defendant's position, "single limit" is not synonymous with "per occurrence" (see e.g. Great N. Ins. Co. v Interior Constr. Corp., 7 NY3d 412, 416 [2006] [lease provision obligated tenant, "at its own expense, to maintain a comprehensive general liability insurance policy naming [defendant] as an additional insured with coverage to be no less than $5 million `combined single limit per occurrence for bodily injury and property damage liability"] [emphasis added]). And, that the provision permits an alternative for coverage "under an original policy with an umbrella,"^[8] does not support the defendant's interpretation. Thus, at the very least, the Lease's insurance provision is ambiguous as to whether the $2,000,000 coverage requirement refers to per occurrence or aggregate coverage.

To the extent the insurance requirements of the Lease are ambiguous as to whether $2,000,000 means aggregate or per occurrence, the provision must be interpreted in favor of finding that plaintiff complied with the insurance provision of the Lease by providing coverage of $1,000,000 per occurrence and $2,000,000 in aggregate coverage. And, a contrary interpretation which would require plaintiff to provide coverage of $2,000,000 per occurrence would impermissibly add to plaintiff's obligations under the Lease that were not clearly required by its terms (see 151 W. Assoc. v Printsiples Fabric Corp., 61 NY2d 732, 734 [1984] [affirming court order denying landlord a judgment of ejectment based on the "uncertainty" regarding whether an agreement involving tenant's creditors fell within the meaning of term "arrangement" in the lease's bankruptcy clause]; 67 Wall St. Co. v Franklin Nat. Bank, 37 NY2d at 249 [construing ambiguous article of lease in lessee's favor]).

And, significantly, the court's interpretation is consistent with the parties' intent based on their conduct under the Lease in that plaintiff provided insurance coverage in the amount of $1,000,000 per occurrence and $2,000,000 aggregate for five years before defendant objected (see Federal Ins. Co. v Americas Ins. Co., 258 AD2d at 44 ["Generally speaking, the practical interpretation of a contract by the parties to it for any considerable period of time before it comes to be the subject of controversy is deemed of great, if not controlling, influence"]; Kalmon Dolgin Co. v Walnut Lanes, Inc., 27 AD2d 843, 843 [2d Dept 1967] [when record indicates that tenant and its predecessor paid fire insurance premiums for seven years without objection "construction of the lease [consistent with this payment] ... is entitled to great weight because it was made by the parties themselves"]).

Next, to the extent expert evidence may be considered in light of the ambiguity of the contract, the opinion of the defendant's expert is insufficient to raise a triable issue of fact as to the meaning of "single limit" since his opinion is conclusory and unsupported by any authority (see Blonder & Co. Inc v Citibank, N.A., 28 AD2d 180, 183 [1st Dept 2006] [the conclusory affidavit of plaintiff's expert was insufficient to raise an issue of fact as to the interpretation of a letter of credit]).

Accordingly, the defendant's motion for summary judgment is denied except that the second cause of action for a Yellowstone injunction is denied as moot, and plaintiffs cross motion for summary judgment is granted on the first cause of action to the extent of declaring that that plaintiff is not in violation of the insurance requirements of the Lease and that defendant is enjoined from terminating plaintiffs tenancy on this ground."

EXCEPTIONS TO GOL 5-321

TITUMIR v. BARKER AVE. ESTATES LLC, 2022 NY Slip Op 50073 - NY: Supreme Court 2022:

"It has long been held that absent a violation of law or some transgression of public policy, people are free to enter into contracts, making whatever agreement they wish, no matter how unwise they may seem to others (Rowe v Great Atlantic & Pacific Tea Company, Inc., 46 NY2d 62, 67-68 [1978]). Consequently, when a contract dispute arises, it is the court's role to enforce the agreement rather than reform it (Grace v Nappa, 46 NY2d 560, 565 [1979]). In order to enforce the agreement, the court must construe it in accordance with the intent of the parties, the best evidence of which being the very contract itself and the terms contained therein (Greenfield v Philles Records, Inc., 98 NY2d 562, 569 [2002]). It is well settled that "when the parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms" (Vermont Teddy Bear Co., Inc. v 583 Madison Realty Company, 1 NY3d 470, 475 [2004] [internal quotation marks omitted]). Moreover, "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms" (Greenfield at 569). Accordingly, courts should refrain from interpreting agreements in a manner which implies something not specifically included by the parties, and courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing (Vermont Teddy Bear Co., Inc. at 475). This approach serves to preserve "stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses [and] infirmity of memory" (Wallace v 600 Partners Co., 86 NY2d 543, 548 [1995] [internal quotation marks omitted]).

The proscription against judicial rewriting of contracts is particularly important in real property transactions, where commercial certainty is paramount, and where the agreement was negotiated at arm's length between sophisticated, counseled business people (Vermont Teddy Bear Co., Inc. at 475). Specifically, in real estate transactions, parties to the sale of real property, like signatories of any agreement, are free to tailor their contract to meet their particular needs and to include or exclude those provisions which they choose. Absent some indicia of fraud or other circumstances warranting equitable intervention, it is the duty of a court to enforce rather than reform the bargain struck (Grace v Nappa, 46 NY2d 560, 565 [1979]).

Leases are nothing more than contracts and are thus subject to the rules of contract interpretation, namely, that the intent of the parties is to be given paramount consideration, which intent is to be gleaned from the four corners of the agreement, and that of course, the court may not rewrite the contract for the parties under the guise of construction, nor may it construe the language in such a way as would distort the contract's apparent meaning (Tantleff v Truscelli, 110 AD2d 240, 244 [2d Dept 1985]).

In the absence of fraud or other wrongful act, a party who signs a written contract is presumed to know and have assented to the contents therein (Pimpinello v Swift & Co., 253 NY 159, 162 [1930]; Metzger v Aetna Ins. Co., 227 NY 411, 416 [1920]; Renee Knitwear Corp. v ADT Sec. Sys., 277 AD2d 215, 216 [2d Dept 2000]; Barclays Bank of New York, N.A. v Sokol, 128 AD2d 492, 493 [2d Dept 1987]; Slater v Fid. & Cas. Co. of NY, 277 AD 79, 81 [1st Dept 1950]). In discussing this long-standing rule the court in Metzger stated that [i]t has often been held that when a party to a written contract accepts it as a contract he is bound by the stipulations and conditions expressed in it whether he reads them or not. Ignorance through negligence or inexcusable trustfulness will not relieve a party from his contract obligations. He who signs or accepts a written contract, in the absence of fraud or other wrongful act on the part of another contracting party, is conclusively presumed to know its contents and to assent to them and there can be no evidence for the jury as to his understanding of its terms. This rule is as applicable to insurance contracts as to contracts of any kind. (Metzger at 416 [internal citations omitted]).

Generally, pursuant to GOL § 5-321, a provision in a lease seeking to exempt a party for his own negligence is void and unenforceable as against public policy (Great N. Ins. Co. v Interior Const. Corp., 18 AD3d 371, 372 [1st Dept 2005], affd, 7 NY3d 412 [2006]; Tormey v City of New York, 302 AD2d 277, 278 [1st Dept 2003]; Gibson v Bally Total Fitness Corporation, 1 AD3d 477, 479 [2d Dept 2003]; Radius, Ltd. v Newhouse, 213 AD2d 614, 615 [2d Dept 1995]). To be sure, GOL § 5-321 states that

[e]very covenant, agreement or understanding in or in connection with or collateral to any lease of real property exempting the lessor from liability for damages for injuries to person or property caused by or resulting from the negligence of the lessor, his agents, servants or employees, in the operation or maintenance of the demised premises or the real property containing the demised premises shall be deemed to be void as against public policy and wholly unenforceable.

However, case law has carved an exception to the prohibition described in the GOL §5-321. Specifically, it is well settled that an indemnification agreement in a lease shall be enforceable even if the lessor seeks to have the lessee indemnify him for his own negligence when the lease is the product of "sophisticated parties negotiating at arm's length," and "have agreed to allocate the risk of liability to third parties between themselves, essentially through the employment of insurance" (Great N. Ins. Co. at 372; see Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153, 161 [1977]. In explaining why GOL §5-321 does not apply in the foregoing circumstances, the court in Hogeland stated that [t]he legislative history and the statute's express invalidation of any agreement `exempting the lessor from liability for damages for injuries resulting from the negligence of the lessor' strongly suggests that is was directed primarily to exculpatory clauses in leases whereby lessors are excused from direct liability for otherwise valid claims which might be brought against them by others. It and several parallel provisions prohibit agreements which free landlords (or others in comparable relationships) from all responsibility to a tenant (or others) for negligence; the former are thus compelled at their own peril to retain the incentive to act prudently. It is against this background of declared purpose that the indemnification clauses before us must be considered. So analyzed, Berenson is not exempting itself from liability to the victim for its own negligence. Rather, the parties are allocating the risk of liability to third parties between themselves, essentially through the employment of insurance. Courts do not, as a general matter, look unfavorably on agreements which, by requiring parties to carry insurance, afford protection to the public (internal citations omitted)(Hogeland at 160-161). Thus, in both Hogeland and Great N. Ins. Co., the lessees were obligated to indemnify the lessors, even though they had been found negligent Hogeland at 158; Great N. Ins. Co. at 372)."