The Subrogation Strategist

In Phila. Indem. Ins. Co. v. Gonzalez, No. 1-23-0833, 2024 Ill. App. Unpub. LEXIS 1372, the Appellate Court of Illinois considered whether the terms of a lease agreement limited a tenant’s liability for fire damages, a fire caused by her negligence, to her apartment unit only. The plaintiff insured the subject apartment building, which incurred damage to several units as result of a fire in the tenant’s unit. The lease defined “Premises” as the specific apartment unit occupied by the tenant and held the tenant responsible for damage caused to the Premises. While the court found that the lease permitted the plaintiff to subrogate against the tenant, it held that the lease terms limited the damages to the tenant’s apartment unit only.

In Gonzalez, the plaintiff’s insured owned a multi-unit apartment building in Chicago. In September 2019, the building owner entered into a lease agreement with the defendant for apartment Unit 601. The lease stated that Unit 601 was the “Leased Address (Premises).” Another provision stated that building owner “hereby leases to Tenant(s) and Tenant(s) hereby leases from Landlord(s) for use as a private dwelling only, the Premises, together with the fixtures and appliances (if any) in the premises…” The lease also stated that “Tenant shall be liable for any damage done to the premises as a result of Tenant’s or Tenant’s invitees, guests or others authorized to reside in the Premises [sic] direct action, negligence, or failure to inform Landlord of repairs necessary to prevent damage to the Premises.”Continue Reading

In Mutual Benefit Ins. Co. a/s/o Michael Sacks v. Koser, No. 1340 MDA 2023, 2023 Pa. Super. LEXIS 574, 2023 PA Super 252 (Mutual Benefit), the Superior Court of Pennsylvania discussed whether a landlord’s property insurer could file a subrogation action against tenants that had negligently damaged the landlord’s property. Despite there being more than one clause in the lease holding the tenants liable for the damages, the court held that because there was a provision requiring the landlord, not the tenants, to insure the leased building, the insurer could not subrogate against the tenants.

In Pennsylvania, a tenant’s liability for damage to a leased premises in a subrogation action brought by a landlord’s insurer is determined by the reasonable expectation of the parties to the lease agreement. Under this approach, to determine if subrogation is permitted, the court considers the circumstances of the case and examines the terms of the lease agreement.

In Westminster Am. Ins. Co. a/s/o Androulla M. Toffalli v. Bond, No. 538 EDA 2023, 2023 Pa. Super. LEXIS 626, 2023 PA Super 272, the Superior Court of Pennsylvania (Appellate Court) recently discussed the impact of silence on the Sutton Rule with respect to the landlord, Androulla M. Toffalli (Landlord), securing insurance. After holding that the tenant, Amy S. Bond (Bond) t/a Blondie’s Salon – who leased both commercial and residential space in the building pursuant to written leases – was not an implied “co-insured” on Landlord’s insurance policy, the Appellate Court reversed the decision of the trial court.

In this case, Bond rented the ground floor of a property located in Monroe County pursuant to a written commercial lease (Commercial Lease) and operated Blondie’s salon out of the leased location. In addition, Bond rented and lived in a second-floor apartment pursuant to a residential lease (Residential Lease). Both leases required the tenants (Tenants) to obtain insurance for personal items. The leases, however, did not require Landlord to obtain fire insurance for the property.Continue Reading

In Donegal Mut. Ins. Co. v. Thangavel, No. 379, 2022, 2023 Del. LEXIS 227, the Supreme Court of Delaware (Supreme Court) considered whether the Sutton Rule prevented the plaintiff from pursuing subrogation against the defendants. As applied in Delaware, the Sutton Rule explains that landlords and tenants are co-insureds under the landlord’s fire insurance policy unless a tenant’s lease clearly expresses an intent to the contrary. If the Sutton Rule applies, the landlord’s insurer cannot pursue the tenant for the landlord’s damages by way of subrogation. Here, the Supreme Court affirmed the trial court’s decision that the Sutton Rule applied because the lease did not clearly express an intent to hold the tenants liable for the landlord’s damages.

In Thangavel, the plaintiff, Donegal Mutual Insurance Company (Insurer), provided property insurance to Seaford Apartment Ventures, LLC (Landlord) for a residential property in Delaware. Sathiyaselvam Thangavel and Sasikala Muthusamy (Tenants) leased an apartment (the Premises) from Landlord and signed a lease. Insurer alleged that Tenants hit a sprinkler head while flying a drone inside the Premises which caused water to spray from the damaged sprinkler head, resulting in property damage to the Premises. Landlord filed an insurance claim with Insurer, who paid Landlord $77,704.06 to repair the damage. Insurer then sought to recover the repair costs from Tenants via subrogation.Continue Reading

In Patton v Pearson, No. M2022-00708-COA-RC-CV, 2023 Tenn. App. LEXIS 231, the Court of Appeals of Tennessee (Court of Appeals) considered whether the lower court erred in dismissing an insurance carrier’s lawsuit against its insured’s tenant for damages sustained in a fire. While the lawsuit was filed in the name of the landlord (i.e., the insured), discovery revealed that the lawsuit was actually a subrogation lawsuit, brought by the landlord’s insurance carrier. The lower court granted the tenant’s motion for summary judgment based on the Sutton Doctrine, holding that the tenant was an implied co-insured under the landlord’s policy. The Court of Appeals affirmed, finding that although the lease agreement did not reference insurance, the Sutton Doctrine applied, which barred the landlord’s carrier from subrogating against the tenant.

In United States Aviation Underwriters v. Turnberry Airport Holdings, LLC, No. 3D22-270, 2023 Fla. App. LEXIS 1207 (U.S. Aviation), the Court of Appeal of Florida, Third District (Appellate Court) considered whether the insurer for a commercial landlord could pursue subrogation against the landlord’s tenant.  Based on the terms of the lease between the landlord and the tenant, the Appellate Court held that the landlord’s insurer could not pursue subrogation.

In U.S. Aviation, the defendant, Turnberry Airport Holdings, LLC (Turnberry Airport) leased space to an insured aircraft owner.  The lease contained the following provision:

TENANT agrees that all policies of insurance obtained by it in connection with the Space or as required hereunder shall contain appropriate waiver of subrogation clauses.Continue Reading

In Am. Reliable Ins. Co. v. Addington., No. 3:21-CV-00848, __ F.Supp.3d __, 2022 U.S. Dist. LEXIS 218436, the United States District Court for the Middle District of Tennessee (the District Court) considered whether a tenant’s live-in partner and the partner’s adult son constituted a “family” in the underlying lease and, thus, were implied co-insureds under the Sutton Rule. The District Court determined that the arrangement did constitute a “family” and that the Sutton Rule barred subrogation.Continue Reading

The Supreme Court of Illinois (Supreme Court) reversed a 2021 appellate court decision which held that an insurer had to duty to defend the property owner’s tenant following a fire at the property.  In Sheckler v. Auto-Owners Insurance Co., 2022 IL 128012, the state’s highest court ruled that the appellate court’s reliance on Dix Mutual Insurance Co. v. LaFramboise, 597 N.E. 2d 622 (Ill. 1992) was misplaced as the ruling in Dix was limited to a specific set of facts, which did not apply to the current case.Continue Reading

In J&J Fish on Ctr. Str., Inc. v. Crum & Forster Specialty Ins. Co., No. 20-cv-644-bhl, 2022 U.S. Dist. LEXIS 16361, the United States District Court for the Eastern District of Wisconsin (District Court) recognized that “[t]here will be no further fish fries on Center Street until someone pays to repair the collapsed floor at J&J Fish on Center Street, Inc. (J&J Fish).”  The contenders were:  1) J&J Fish; 2) its’ insurer, Crum & Forster Specialty Insurance Company (Insurer); and 3) J&J Fish’s landlord, Vision Land, LLC (Vision). Recognizing Insurer’s right to subrogate against Vision based on the terms of the parties’ lease, the District Court held Insurer owed J&J Fish coverage for the losses it sustained, but that Insurer could subrogate against Vision for anything it had to pay J&J Fish.Continue Reading

In United States Automatic Sprinkler Corp. v. Erie Ins. Exch., et al., No. 21A-CT-580, 2022 Ind. App. LEXIS 87 (Automatic Sprinkler), the Court of Appeals of Indiana (Court of Appeals) considered whether there is a privity requirement for property damage claims against contractors. The court imposed a privity requirement. The court also addressed whether a subrogation waiver in a contract with a tenant applied to damage caused by work done outside the contract, at the landlord’s request. The court held that the waiver did not apply.Continue Reading

In Westfield Inc. Co. v. Ritcher, No. 20-CV-12692, 2021 U.S. Dist. Lexis 94926, the United States District Court for the Eastern District of Michigan considered whether a residential tenant was an implied co-insured on the landlord’s insurance policy, and thus shielded from a subrogation claim brought by the landlord’s carrier for fire damage caused by the tenant’s negligence. The court found that the tenant was an implied co-insured on the landlord’s insurance policy, but only with regards to the apartment that the tenant leased. The tenant was not shielded from claims for damage to the rest of the building, the contents of other residents and the landlord’s rental loss income.Continue Reading

Pursuant to the Sutton Doctrine, first announced in Sutton v. Jondahl, 532 P.2d 478 (Okla. Ct. App. 1975), some jurisdictions consider a tenant a coinsured of its landlord absent an express agreement to the contrary. In Ro v. Factory Mut. Ins. Co., No. 2019-0620, 2021 N.H. LEXIS 34 (Mar. 10, 2021), the Supreme Court of New Hampshire held that the Sutton Doctrine, adopted by New Hampshire in Cambridge Mut. Fire Ins. Co. v. Crete, 846 A.2d 521 (N.H. 2004), extends to resident students in a college dormitory. Thus, absent specific language to the contrary, a student is an implied coinsured under the fire insurance policy issued for his or her dormitory.Continue Reading

In Travelers Indem. Co. of Am. v. Schwarz Props., L.L.C., 2020 U.S. Dist. LEXIS 18176, the United States District Court for the Western District of North Carolina considered whether the lease between a commercial tenant and its landlord barred the tenant’s insurance carrier from subrogating against the landlord for damages to the tenant’s goods. The court found that the tenant’s carrier could not subrogate against the landlord because the lease clearly and explicitly stated that the landlord was not responsible for the tenant’s property. In addition, the lease required the tenant to insure its own property and to hold the landlord harmless for any damage to the tenant’s goods. This case establishes that, in North Carolina, negligence claims between a landlord and tenant may be barred if the lease includes clear and explicit exculpatory and indemnification provisions.Continue Reading

In Zurich Am. Ins. Co. v. Puccini, LLC, 2019 Fla. App. LEXIS 1487, 44 Fla. L. Weekly D 383, Florida’s Third District Court of Appeals considered whether a landlord’s carrier, Zurich American Insurance Company (Zurich), was precluded from pursuing a subrogation claim against the landlord’s tenant, Puccini, LLC (Puccini), for fire-related damages. After the fire, Zurich paid its insured, Lincoln-Drexel Waserstein, Ltd. (Lincoln), over $2.1 million. Zurich then proceeded with an action against Puccini. Puccini filed for summary judgment arguing that it was an additional insured under the Zurich policy. The trial court agreed with Puccini and dismissed the action. Zurich then appealed the case to Florida’s Third District Court of Appeals. Finding that the lease contemplated both liability on the part of the tenant and indemnification in favor of the landlord, the court held that the tenant was not an implied co-insured under Zurich’s policy. Thus, the court allowed Zurich’s subrogation action.Continue Reading