By Joe Forward, Legal Writer, State Bar of Wisconsin

Aug. 4, 2010 – When neither tenant nor landlord is negligent in causing fire, water or other casualty damage to property, a residential lease that ambiguously allocates liability will be construed in favor of the non-drafter, the Wisconsin Supreme Court recently held.

However, the court did not decide whether Wisconsin statutory law actually prohibits parties from allocating risk by lease agreement in the event that neither party is negligent.

In other words, that question will arise when the court is faced with a lease agreement that clearly shifts liability to a party who is not negligent.

In Maryland Arms Ltd P’ship v. Connell, 2010 WI 64 (July 7, 2010), the supreme court looked to contract interpretation to resolve a liability dispute between landlord Maryland Arms and tenant Cari Connell. Connell’s hair dryer was the source of a fire that caused more than $8,000 damage, but Connell was not found to be negligent in operating or maintaining the hair dryer. Similarly, the landlord was not found to be negligent in any way.

The lease agreement provision at issue read, in pertinent part: “Lessee shall be responsible for all intentional and negligent acts or breaches of this Lease by Lessee. … Lessee shall be liable for all damage to the premises and appliances and equipment belonging thereto, in any way caused by the acts of Lessee …”

Maryland Arms argued that the lease clearly shifted liability to Connell for all damage “in any way caused” by Connell, and negligence was not required. It asserted that Connell “caused” the fire because it was her hair dryer that caused it.

The circuit court held that under the lease, Connell was liable for the fire caused by the hair dryer, and the provision did not contravene Wis. Stat. section 704.07. It granted summary judgment to Maryland Arms.

Section 704.07 places liability on a landlord for fire damage caused by the landlord’s negligence or intentional act, but places liability on the tenant if fire is caused by tenant’s negligence or improper use of the premises. However, the section does not allocate liability in the event that neither is negligent in causing fire, water or other casualty damage.

Concluding that the intent of section 704.07 “is to have the landlord shoulder the responsibility for fire repairs when there is no tenant negligence,” the appeals court reversed. It held that the lease agreement and section 704.07 require the tenant to be negligent to be liable. That is, in the absence of negligence, the tenant is not liable for fire damage under section 704.07.

Majority

In an opinion written by Justice Ann Walsh Bradley, the majority affirmed as modified. By a 5-2 majority, the court held that the lease agreement was ambiguous, and thus required a resolution in favor of the non-drafter of the lease, Connell.

To construe the lease as imposing liability for any act within the control of the tenant, “regardless of how remote the tenant’s act was from the damage” would be absurd, the court explained. It also addressed the inconsistency between the provision that requires negligence and the provision which seemingly required no negligence at all.

Having decided the case on the basis of contract interpretation, the court declined to address whether shifting risk to a tenant for damages not caused by the tenant’s negligence contravened section 704.07.

Justice Annette Ziegler wrote a concurring opinion to state that under section 704.07, “parties are not necessarily prohibited from allocating liability by contract … so long as it is done clearly and is otherwise enforceable by law.”

Dissent

In his dissent, Justice David Prosser (Gableman, J. joined) concluded that the lease unambiguously allocated risk to Connell in the event she “caused” the damage.

Justice Prosser employed a “substantial factor” test to interpret the term “cause.” That is, Connell left the hairdryer plugged in overnight and this was a “substantial factor” in causing the damage, Prosser explained.

“The lease was drafted so that the landlord would not be required to prove negligence,” Prosser wrote. Proving cause “satisfied the landlord’s burden under the lease.”

Justice Prosser, and Justice Gableman, also agreed with Justice Ziegler that section 704.07 does not prohibit parties from allocating liability to a tenant for damage that is caused without negligence.

Attorneys

Randy Wynn of Wynn Law Office, West Allis, represented Maryland Arms Ltd. Partnership. James Connell of Crooks, Low & Connell S.C., Wausau, represented Cari Connell.