While attending college, Jennifer Fritz and Sarah Nelson signed a lease for Apartment H of a 12-unit building owned by Hunters Ridge Condominium Owner’s Association. Paragraph 7(b) of their lease says Fritz and Nelson are responsible for “all costs for repairs … resulting from … negligent actions or omissions of themselves or their guests.”

During the lease term, Fritz’ friend Clay Pendleton asked if he could use Apartment H to clean his Civil War reenactment equipment, which he had been storing in Fritz’s storage locker. Although neither Fritz nor Nelson would be in the apartment that day, Fritz gave Pendleton permission to clean his gear on the balcony.

Purchase Bob Bruss reports online.

During that day, Pendleton washed his uniform, cleaned his utensils, and refinished the stock of his replica musket. He stripped the varnish off the stock with a stripper sprayed from an aerosol can, sanded it, and then applied linseed oil. He used rags from a cotton tee shirt.

When Pendleton finished around 8 p.m., he left the rags on the balcony, together with the aerosol can, and the can of linseed oil. Fritz and Nelson returned around midnight. At about 4 a.m., a smoke alarm awoke Nelson and her screams woke Fritz. They discovered a fire on the balcony, called 911, and fled the building.

The fire did substantial damage to Apartment H and to the entire building. Fire investigators concluded the most likely cause of the fire was spontaneous combustion of the linseed oil-soaked rag Pendleton had left on the wooden balcony. Linseed oil releases heat as it oxidizes, and if rags soaked in the oil are not properly ventilated, the heat can increase the ignition temperature of the rags.

Allstate Insurance Co., which insured Hunters Ridge, paid more than $700,000 for the fire damage to Apartment H and the rest of the building. Then Allstate brought this lawsuit against Fritz, Nelson and Pendleton for negligence in using and disposing of the linseed oil. Allstate alleged they should have known linseed oil is a fire hazard and, under the terms of the lease, Fritz and Nelson are liable for the negligence of their guest.

Before trial, Pendleton settled with Allstate, which dismissed its claims against him. Fritz and Nelson replied there was no evidence of their personal negligence. But Allstate argued the lease terms made them liable for the fire-loss negligence of their guest, Pendleton.

If you were the judge would you rule Fritz and Nelson can be held liable to Allstate Insurance Co. for reimbursement of the $700,000 fire loss?

The judge said yes!

Under the law of subrogation, the judge began, an insurer steps into the shoes of its insured to seek reimbursement for any insured loss paid by the insurer. That means Allstate has the legal right to bring any claim that Hunters Ridge Condominium Homeowners Association could bring against Fritz and Nelson under the lease terms, he continued.

“The Hunter’s Ridge lease could not be clearer in providing that the tenants are liable for all costs … resulting from the reckless or negligent actions or omissions of … tenant’s guests,” the judge explained. Therefore, Fritz and Nelson are contractually liable to pay for the costs of repairs resulting from the reckless or negligent actions or omissions, if any, of Pendleton, he noted.

However, because Fritz and Nelson are responsible for the negligence of their guest Pendleton, the extent of that liability is limited only to damage to the leased property, which is defined by the lease to be Apartment H, the judge ruled. Therefore, Fritz and Nelson are not liable to Allstate for fire-loss damage reimbursement beyond Apartment H., the judge concluded.

Based on the 2006 U.S. Court of Appeals decision in Allstate Insurance Co. v. Fritz, 452 Fed.3d 316.

(For more information on Bob Bruss publications, visit his
Real Estate Center

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