Charter Oak Fire Ins. Co. v. Lexington Ins. Co.

On November 16, 1997, a fire destroyed a Chili's Restaurant ("Chili's") in Nashville, Tennessee. At the time of the fire, the premises were owned and operated by RMR Investments and Gower Center, Ltd. ("RMR/Gower") and leased to Chili's. Under a 20-year lease agreement, Chili's agreed to insure the improvements against loss or damage by fire and other casualties and to insure against property damage and public liability arising out of occurrences on the premises. RMR/Gower was to be named as a loss payee or additional insured under the insurance policies obtained by Chili's. According to the lease, in the event the premises and/or the improvements were destroyed by fire or other casualty, Chili's had the option to terminate the lease, and all insurance proceeds were to be paid to RMR/Gower, except for the portion payable to Chili's for loss of personal property. Pursuant to the lease agreement, Chili's obtained insurance coverage through Lexington Insurance Company ("Lexington"). The certificate of insurance dated December 5, 1997 listed RMR/Gower as certificate holder and named RMR/Gower as additional insured. After the fire, Chili's elected to terminate the lease agreement due to the condition of the premises. Lexington paid the proceeds for the loss of the building to RMR/Gower, less amounts paid to Chili's for loss of personal property. RMR/Gower submitted an additional claim for damages it incurred for the loss of rental income and other charges it would have otherwise collected from Chili's. This claim was denied by Lexington. RMR/Gower then submitted a claim to its insurer Charter Oak Fire Insurance Company ("Charter Oak") for the loss of rental income, which Charter Oak paid. After Lexington refused to reimburse Charter Oak for the amounts it paid RMR/Gower for the loss of rental income, Charter Oak filed suit against Lexington for breach of contract under the theory of third party beneficiary. Parties filed cross motions for summary judgment. On June 26, 2002, the trial court granted Lexington's summary judgment motion and denied Charter Oak's motion. Notice of this appeal soon followed. For the reasons set forth below, the order of the trial court is reversed in part and affirmed in part.