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Empire Lumber Company v. Thermal-Dynamic Towers, Inc.: Negligent Tenant Is Liable for Fire Damage

A recent decision from the Supreme Court of Idaho involved the liability of a tenant for fire damage. Empire Lumber Company v. Thermal-Dynamic Towers, Inc. Empire Lumber Company owned a 32,000 square foot warehouse located in Post Falls, Idaho. It leased over a third of the space to Thermal-Dynamic Towers (“TDT”) for a short time while TDT was in the process of constructing its own facility. At the expiration of the initial term, the lease continued on a month-to-month basis. During the lease negotiations, the parties had agreed that TDT was not required to provide fire insurance on the warehouse, and that Empire would provide the insurance. In paragraph 9 of the lease, which usually specified that the lessee was required to provide fire insurance in a certain dollar amount, the parties inserted “N/A.”

Empire purchased fire insurance and continued to extend the coverage as the lease term was extended. TDT gave notice that it would be vacating the premises by May 31, 1990. Empire’s request to extend the fire insurance to cover TDT’s last month of occupancy either was denied by the insurance carrier or was cost prohibitive.

On May 19, 1990, juveniles entered the warehouse through an unlocked door and engaged in activities which started a fire and ultimately destroyed the warehouse. The overhead door to the warehouse, which usually secured the building, had been damaged by a TDT employee several days earlier. There was evidence that there had been a highly flammable substance in the warehouse at the time of the fire, and that the day of the fire, one of the drums containing the substance had been punctured, which spread it on the floor. There also was evidence that TDT was aware that juveniles had entered the building on previous occasions, yet it had not taken action to secure the building. There also was testimony that TDT had left the sprinkler system turned off.

Empire sued TDT, claiming breach of contract and negligence, among other things. TDT moved for summary judgment, claiming paragraph 5 of the lease relieved it from liability for fire damage. The relevant portion of paragraph 5 stated that “Except for reasonable wear and tear and damage by fire or unavoidable casualty, Lessee will at all times preserve said premises in as good repair as they now are or may hereafter be put to...” The trial court ruled that if TDT was negligent, it could not rely on the exculpatory language of paragraph 5. After a two and a half week trial, the jury concluded that TDT had breached the contract and had been negligent, and awarded Empire a total judgment of $674,470.

On appeal to the Supreme Court of Idaho, TDT again argued that paragraph 5 of the lease relieved it of liability. The court explained that in order to exclude liability for negligence, that intention must be specifically stated. “Contract clauses purporting to exclude liability for negligence must speak clearly and directly to the particular conduct of the defendant which caused the harm at issue.” The court also stated that while parties may agree to limit liability for negligence, courts generally look upon this with disfavor and strictly construe such provisions against the party which is relying upon them. Since Empire was a case of first impression in Idaho, the court looked to decisions from Iowa and North Carolina involving similar lease provisions to help guide its decision.

The court determined that the lease agreement did not clearly show that the parties intended to exclude TDT from liability for its negligent acts. It interpreted paragraph 5 of the lease to mean that TDT would be relieved from liability in the event of an accidental event beyond its control, but not from a fire caused by its negligence. It also ruled that the jury’s finding of negligence on TDT’s part was supported by the record. The court also pointed to paragraph 8 of the lease, “Care of the Premises,” which provided that TDT was to take care of the premises and not allow waste, damage or injury to the property. Reading paragraph 8 and paragraph 5 together, the court found it clear that Empire did not intend to relieve TDT from liability for damage caused by TDT’s negligence. Therefore, the Supreme Court of Idaho upheld the trial court decision in favor of Empire, including the amount of the judgment.

Empire Lumber Company v. Thermal-Dynamic Towers, Inc., 971 P.2d 1119 (Idaho 1998).