Precisionware, Inc., Appellant, v. Madison County Tobacco Warehouse, Inc., Appellee.madison County Tobacco Warehouse, Inc., Appellant, v. Precisionware, Inc., Appellee, 411 F.2d 42 (5th Cir. 1969)

The appellant-tenant Precisionware, Inc., seeks reversal of a judgment growing out of a tortious claim which arose from a lease agreement with Madison County Tobacco Warehouse, Inc., its landlord.

Madison bases its claim against Precisionware for damages sustained because of negligence in causing a fire which destroyed its warehouse, a portion of which was being occupied by defendant-tenant under a written lease agreement.

Madison's complaint contained two counts. The first count alleged that the defendant Prescisionware's negligence caused the fire and permitted it to spread and destroy the plaintiff's warehouse and contents thereof. The second count realleged the specific acts of negligence and further alleged that such conduct constituted a violation of the lease covenants in that the tenant was guilty of wilful negligence. Under each count the plaintiff claimed damages in the amount of $175,000.00 plus interest and court costs.

The second count of the complaint was dismissed upon a finding by the District Court that the lease terms would only give rise to recovery in the event of wilful negligence. We are not concerned with Count Two, as the appellee does not contend that this ruling was error.

The lease contract originated from the efforts of an industry-seeking group in Madison, Florida, who began to encourage the defendant to locate a factory in Madison. After much negotiations, the defendant entered into a written lease agreement by which it would lease 40 percent of the plaintiff's warehouse for five years with an option for renewal. The annual rental to be paid was $4,000.00. By the terms of the lease,¹  the defendant agreed to use the premises in a careful and proper manner; not to commit waste; not to engage in any illegal activity; to leave the premises in the same condition, except for reasonable use and wear; and to indemnify the plaintiff for any damages caused by wilfully tortious or negligent acts on the part of the defendant Precisionware. Madison covenanted that there were no violations of statutes or ordinances in the construction of the building or in any other aspect of the leased premises; that the premises would be maintained in good repair except in the case of damage arising from the negligence of the defendant; that the defendant would be indemnified for any loss occasioned by any tortious or any wilfully tortious or negligent act on the part of the plaintiff; and that up to $10,000.00 would be spent on alterations to the warehouse as required by Precisionware's operation and as specified by it.

Precisionware was engaged in the cabinet manufacturing business which is regarded as highly fire-hazardous. With regard to the risk of loss by fire and the additional cost of the plaintiff's fire insurance due to the defendant's occupancy, the parties agreed to a modification of the lease.²  This modification provided that Precisionware would pay all increases in existing insurance on the premises to the extent that such increases could be attributed to Precisionware's occupancy.

On November 8, 1963, a fire destroyed the entire warehouse and the contents thereof. Madison received $61,000.00 in fire insurance payments from the insurance on which substantial premiums had been paid by the tenant Precisionware pursuant to the modification of the lease.³  Madison also received an additional $20,000.00 in fire insurance benefits from insurance which it had purchased on its own during the term of the lease.

The District Court excluded from the jury any evidence of payment of the $61,000.00 insurance proceeds paid by the insurance companies for the loss of the building under the policies in force on which Precisionware had paid a substantial part of the premiums.

The case was submitted to the jury on the claim for damages by the landlord that the tenant was negligent in certain respects, and on the defense of the tenant that the landlord had violated the fire code of the City of Madison by not providing suitable fire walls, and that the absence of such fire walls proximately contributed to the damages for which the landlord was complaining.

The District Court charged the jury that:

"If you find for the defendant, you will not consider the matter of damages, but if the evidence proves negligence which was a legal cause of damage to plaintiff and for which defendant is responsible, you should award plaintiff an amount of money that will fairly and adequately compensate it for such damage.

"The proper measure of damages is the difference between the value of plaintiff's property immediately before the fire complained of and immediately thereafter."

Precisionware, by its appeal, first asserts that the lease agreement excluded any liability for ordinary negligence on its part, and by the terms of the lease it would only be liable for any "wilfully tortious or negligent act on the part of the lessee, its agents or employees". The tenant claims that the District Court's ruling violates fundamental principles of law respecting the integrity of written contracts and that the implication of a "common law" obligation to indemnify for the results of ordinary negligence not only adds an obligation not expressed in the lease, but also renders futile and of no effect each party's written covenant to indemnify the other for the consequences of wilful negligence. After examining the entire lease agreement, together with its modification, we cannot agree with the construction of the lease agreement as contended by Precisionware.

In construing this agreement, the lease as a whole must be examined, and a court should look at the entire instrument and not merely particular provisions. Lalow v. Codomo, 101 So. 2d 390 (Fla.Sup.Ct., 1958) It is a basic proposition in the law of landlord and tenant that it is the duty of the tenant to exercise ordinary care in the use of the leased premises or property and not to cause any material and permanent injury thereto over and above the ordinary wear and tear, and that the tenant is liable to the landlord for damages for any such injury unnecessarily resulting from his wrongful acts or his failure to exercise ordinary care. In order to exculpate itself from the legal consequences of its negligence, it is well established that exculpation must be spelled out with such clarity that the intent to negate the usual consequences of tortious conduct is made plain. See Maiatico v. Hot Shoppes, Inc., 109 U.S.App.D.C. 310, 287 F.2d 349 (1961); Chicago and N. W. Ry. Co. v. Chicago Packaged Fuel Co., 195 F.2d 467 (7 Cir., 1952). As Judge Rives of this Court stated in Aerial Agricultural Service of Montana v. Richard, 264 F.2d 341 (5 Cir., 1959):

"It is elementary that if an express agreement exempting the defendant from liability for negligence is to be sustained, it must appear that its terms were brought home to the plaintiff, and that the express terms of the agreement apply to the particular negligence."

We agree with the District Court's construction of the lease that Precisionware would be liable to exercise ordinary care in its use and occupancy of the warehouse of Madison.

By its second contention, Precisionware asserts that the landlord Madison is barred in its claim for failure to comply with the mandatory ordinances of the City of Madison respecting the construction of the fire walls for its protection, and that this negligence contributed to the loss of the warehouse. This was a hotly contested issue in the trial of the case below. Under Florida law, where the negligence complained of was the violation of a municipal ordinance designed to protect the public generally, there is no right of recovery unless the injury was the proximate result of such negligence. Richardson v. Fountain, 154 So. 2d 709 (Fla.App.1963). Whether the landlord Madison's violations of the City Code of Madison in failing to construct the proper fire walls was negligence which proximately caused the destruction of the warehouse was a question for the jury. See Mastrandrea v. J. Mann, Inc., et al., 128 So. 2d 146 (Fla.App., 1963). The trial court properly submitted this question to the jury, and the jury decided against the tenant Precisionware.

The third contention of the tenant Precisionware is that the District Court should have credited the landlord's insurance benefits, in the amount of $61,000.00,⁴  against the judgment of $57,750.00, as found by the jury as Madison's loss in the destruction of the building and its personal property.

After the District Court's instructions on damages, supra, the jury returned a verdict which read as follows:

"We, the Jury, find for the plaintiff, Madison County Tobacco Warehouse, Inc., and against the defendant, Precisionware, Inc., and assess plaintiff's damages in the sum of $57,750.00 together with interest thereon at the rate of 6 percent per annum from November 8, 1963."

The jury found by its verdict negligence on the part of Precisionware and damages to the warehouse and personal property of the landlord in the amount of $57,750.00.

Precisionware asserted in its answer and now contends that credit should be allowed for the $61,000.00 paid by the insurance companies for which it paid a substantial portion of the premiums. The District Court refused to permit Precisionware to show before the jury that the $61,000.00 of insurance benefits, for which Precisionware paid more than $9,200.00 in premiums over the years during which the tenant occupied the premises, was paid to the landlord by the various insurance companies.

The lease contract provided for the return of the premises at the expiration of the term of the lease or any renewal or extension thereof in as good a condition as received, the reasonable use and wear and tear thereof in the meantime only excepted; and to assure such, the tenant paid $9,200.00, at their own cost and expense, to help carry $61,000.00 in insurance on the leased property, with a loss payable to the landlord, Madison. The lease contract also provided for termination of the lease in the case of fire destroying the building.

An examination of the lease and the evidence of the hazards of the particular manufacturing plant indicates that "loss by fire" was uppermost in the minds of the parties to the agreement, and that the supplement to the lease providing for the increases in premiums to be paid by the tenant further emphasizes their concern.

When the warehouse was so destroyed, Madison's loss was the value of the destroyed property — that was its interest in the insurance and when paid, of course, satisfied the loss, if the loss equalled or was less than the amount of insurance. To permit Madison to keep the insurance money in the case at hand, and then to collect from Precisionware would be a double recovery not sanctioned by law. As the jury determined that Precisionware's negligence caused the fire, Precisionware is liable for its negligence, but when it helped provide for the resulting damages by paying a substantial part of the premiums to an insuring company and when those insurance payments have more than provided for the resulting damages, Precisionware has satisfied the claim of Madison. See Publix Theatres Corp. v. Powell, 123 Tex. 304, 71 S.W.2d 237 (Tex.Comm. App., 1934).

We are cognizant of the line of authorities holding that the payment of insurance monies to which the wrongdoer does not contribute does not relieve the tenant from liability.⁵  However, the case at hand is entirely different. Here the lease agreement required Precisionware to pay a substantial part of the premiums for keeping the property insured against destruction by fire. Here the alleged wrongdoer was in privity to the insurance companies as well as the landlord, and actually contributed and paid directly to the companies a substantial part of the insurance premiums.

The District Court should credit the insurance payments of $61,000.00 on the loss sustained by Madison County Tobacco Warehouse, Inc., which amount, when credited on the judgment, will satisfy the judgment. As this loss was determined by the jury to be in the amount of $57,750.00, and the payment for the loss of the structure by the insurance companies exceeded this amount, the interest to compensate Madison for the use, detention or deprival of its property is not due.

Reversed and remanded for further proceedings not inconsistent herewith.