Kel Kim Corp. v. Central Markets, Inc.
524 N.Y.S.2d 384, 70 N.Y.2d 900, 519 N.E.2d 295 (1987)
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Rule of Law:
A party's performance under a contract is not excused under the doctrine of impossibility unless performance is objectively impossible due to an unforeseeable event. Similarly, a force majeure clause only excuses non-performance if the event is specifically listed or is of the same kind as the enumerated events.
Facts:
- In early 1980, Kel Kim Corporation leased a property from the defendants to operate a roller skating rink.
- The lease required Kel Kim to maintain a public liability insurance policy with a minimum aggregate coverage of $1 million.
- Kel Kim obtained the required insurance and operated the rink for six years.
- In November 1985, Kel Kim's insurer notified them that the policy would not be renewed upon its January 6, 1986 expiration, due to the reinsurer's financial instability.
- Due to a widespread liability insurance crisis, Kel Kim was unable to procure a new policy with the required $1 million aggregate coverage.
- After its policy expired, Kel Kim operated without the contractually required insurance.
- Kel Kim eventually obtained a $500,000 policy effective March 1, 1986, and secured the full required coverage in August 1987.
Procedural Posture:
- On January 7, 1986, the defendants (landlords) sent Kel Kim (tenant) a notice of default, demanding it cure the insurance breach within 30 days.
- Kel Kim filed a declaratory judgment action against the defendants in the trial court (Special Term) to have its non-performance excused.
- The defendants filed a motion for summary judgment.
- The trial court granted summary judgment for the defendants, voided the lease, and ordered Kel Kim to vacate the premises.
- Kel Kim appealed the decision to the intermediate appellate court (Appellate Division).
- A divided Appellate Division affirmed the trial court's ruling.
- Kel Kim then appealed to the Court of Appeals of New York, the state's highest court.
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Issue:
Does a commercial tenant's inability to procure the contractually required amount of liability insurance, due to a market-wide insurance crisis, excuse its breach of that lease provision under the doctrines of impossibility or force majeure?
Opinions:
Majority - The Court (Memorandum Opinion)
No. A tenant's inability to procure contractually required insurance does not excuse its breach under the doctrines of impossibility or force majeure. The court reasoned that contract law's purpose is to allocate risks, and performance should only be excused in extreme circumstances. The doctrine of impossibility applies narrowly and only when an unanticipated event, which could not have been foreseen or guarded against, makes performance objectively impossible. Here, the inability to obtain insurance was a foreseeable commercial risk that Kel Kim specifically undertook in the lease. Similarly, for the force majeure clause to apply, the event must either be specifically listed or fall within the catchall provision. Applying the principle of ejusdem generis, the court found that the inability to procure insurance is not of the same kind or nature as the listed events (e.g., labor disputes, riots, war), which relate to the ability to conduct day-to-day operations on the premises. The insurance requirement, by contrast, protects the landlord's distinct economic interests.
Analysis:
This decision reinforces the narrow application of excuse doctrines in contract law, particularly in commercial contexts. It underscores the principle that courts will hold parties to their bargained-for obligations, even when market shifts make performance more difficult or expensive. The case serves as a precedent that foreseeable business risks, such as the availability or cost of insurance, are deemed to be allocated by the contract itself unless explicitly stated otherwise. Future commercial tenants and contracting parties are thus put on notice to negotiate specific clauses to cover such risks if they wish to avoid being held in breach.
