Printable Format84-2a-220. Effect of default on risk of loss. (1) Where risk of loss is to pass to the lessee and the time of passage is not stated:
(a) If a tender or delivery of goods so fails to conform to the lease contract as to give a right of rejection, the risk of their loss remains with the lessor, or, in the case of a finance lease, the supplier, until cure or acceptance.
(b) If the lessee rightfully revokes acceptance, such lessee, to the extent of any deficiency in such lessee's effective insurance coverage, may treat the risk of loss as having remained with the lessor from the beginning.
(2) Whether or not risk of loss is to pass to the lessee, if the lessee as to conforming goods already identified to a lease contract repudiates or is otherwise in default under the lease contract, the lessor, or, in the case of a finance lease, the supplier, to the extent of any deficiency in such supplier's effective insurance coverage may treat the risk of loss as resting on the lessee for a commercially reasonable time.
History: L. 1991, ch. 295, ยง 29; February 1, 1992.
KANSAS COMMENT, 1996
1. This section describes the effect of default under the lease contract on which party bears the risk of loss. Subsection (1) addresses default by the lessor, and by its terms applies only when risk of loss is to pass to the lessee and the lease contract is silent on the timing. The subsection does not apply in the ordinary lease contract in which risk of loss remains on the lessor. Paragraph (1)(a) is based on section 84-2-510(1). Under this paragraph, the risk of loss stays on the lessor (or the supplier in the case of a finance lease) when nonconforming goods are tendered, until the defect is cured or the buyer accepts the goods despite their nonconformity. Paragraph (1)(b) is based on section 84-2-510(2). Under this paragraph, when the lessee rightfully revokes acceptance, it may treat the loss as having remained with the lessor from the beginning, but only to the extent of any deficiency in the lessee's insurance coverage. The Official Comments point out that this paragraph "does not allow the lessee under a finance lease to treat the risk of loss as having remained with the supplier from the beginning," and explains that this result is appropriate given the limited circumstances under which a finance lessee may revoke acceptance.
2. Subsection (2) addresses default by the lessee, and applies regardless of whether risk of loss is to pass to the lessee. It shifts the risk of loss to the lessee when the lessee repudiates or otherwise defaults if four additional conditions are met: (1) the goods conform to the lease contract; (2) the goods were identified to the lease contract before the default; (3) the lessor or supplier under a finance lease lacks adequate insurance coverage, but only to the extent of the deficiency: and (4) the loss occurs within a commercially reasonable time of the default. As adopted in Kansas, subsection (2) refers only to "any deficiency in such supplier's effective insurance coverage"; it obviously should extend as well to the lessor's insurance coverage in a lease contract other than a finance lease.
3. The provisions in paragraph (1)(b) and subsection (2) limiting loss reallocation to "the extent of any deficiency in (the party's) effective insurance coverage" operate as anti-subrogation devices and effectively make any insurance company bear the risk of loss.