Supreme Court of Texas to Determine Whether Responsibility-Shifting Provision of Lease Agreement Violates Public Policy

September 14, 2015 E-Alerts

The Supreme Court of Texas has recently granted petition for review in Philadelphia Indemnity Insurance Company, a/s/o Mirsan, L.P., d/b/a Sienna Ridge Apartments v. Carmen A. White, 14-0086, and will hear oral argument in October 2015.

Carmen White leased an apartment unit pursuant to the Texas Apartment Association (“TAA”) standard lease containing the following provision at Paragraph 12:

12. DAMAGES AND REIMBURSEMENT. You must promptly pay or reimburse us for loss, damage, consequential damages, government fines or charges, or cost of repairs or service in the apartment community due to: a violation of the Lease Contract or rules; improper use; negligence; other conduct by you or your invitees, guests or occupants; or any other cause not due to our negligence or fault. . . .

After she began occupying the apartment, White’s dryer caused a fire, destroying several units.  The complex made a claim with its insurer, which adjusted and paid the claim.  The insurer asserted its subrogation right and sued White for negligence and breach of Paragraph 12 of the lease.  The jury found that White was not negligent but did breach Paragraph 12.  White filed a motion for judgment notwithstanding the verdict, arguing that Paragraph 12 is unenforceable as a matter of law for several reasons, including being void on public policy grounds.  The trial court granted the motion and rendered a take nothing judgment in favor of White.

The San Antonio Court of Appeals affirmed by a 2-1 vote.  The majority recognized that Texas law strongly favors allowing parties the freedom to enter into and be bound by the contracts of their choosing.  Nevertheless, the court held that Paragraph 12 is void for violating public policy expressed in Chapter 92 of the Texas Property Code because a tenant cannot be contractually obligated to pay for any and all damages to the complex whenever the landlord is not responsible for the damages.

The dissenting justice disagreed with this holding, explaining that nothing in Chapter 92 limits the freedom of a landlord and tenant to negotiate responsibility-shifting as determined by the court.

The Supreme Court’s review is important because it has ramifications for all landlords and tenants who have entered into a standard TAA lease containing Paragraph 12, as well as other types of contracts that allocate responsibility for damages not caused by one of the parties to the contract.  The Supreme Court will likely issue its opinion sometime in the spring or summer of 2016.