Court adopts case-by-case approach in subrogation issue

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The Indiana Court of Appeals, after skirting around the issue in 2012, decided that Indiana should use the case-by-case approach to address subrogation claims of landlords’ insurers against negligent tenants.

Tennant Hillary Mannia caused nearly $750,000 in damages to Summer Place Apartments when a fire started resulting from her disposal of cigarettes on a balcony. After the fire, the apartment’s insurance company, Greater New York Mutual Insurance Co., filed an insurance subrogation action in the name of LBM Realty LLC, which owned the apartments. Mannia filed for summary judgment, asking the trial court to adopt a no-subrogation rule, citing Sutton v. Jondahl, 532 P.2d 478 (Okla. Ct. App. 1975), which would preclude the complaint against her.

Sutton stands for the proposition that absent an express agreement in the lease to the contrary, landlord and tenant are considered co-insureds under a landlord’s fire-insurance policy; the insurer, therefore, has no right of subrogation against the tenant to recover payments made under the insurance policy due to fire loss, even if the fire is caused by the tenant’s negligence.

The trial court adopted the rule and applied it, which led to the grant of her motion to dismiss. LBM appealed, and the COA reversed and remanded without adopting any approach.

Now, two years later, the appeals court has decided that the case-by-case approach should be adopted.

“Having considered the range of possible approaches, we conclude that Indiana should hereby adopt the largely case-by-case approach, finding that a tenant’s liability to the landlord’s insurer for damage-causing negligence depends on the reasonable expectations of the parties to the lease as ascertained from the lease as a whole and any other admissible evidence,” Chief Judge Nancy Vaidik wrote. “Although the case-by-case approach is said to provide less predictability than either the pro- or no-subrogation approaches, we find that this approach best effectuates the intent of the parties by simply enforcing the terms of their lease. In determining the expectations of the parties as articulated in the lease, courts should look for evidence indicating which party agreed to bear the risk of loss for a particular type of damage.”

“However, with regard to tenants in a multiunit dwelling, we find that absent clear notice—ideally in the form of an unambiguous, enforceable lease provision—that a negligent tenant will be held liable for damages to areas of the building beyond the tenant’s leased premises, such liability would not be within the tenant’s reasonable expectations and is therefore barred. This approach also avoids the unreasonable expectation and economic waste of requiring every tenant in a multiunit apartment building policy to carry insurance coverage adequate to cover damage to the entire building, particularly when the landlord presumably already maintains such coverage.”

The judges affirmed that summary judgment was properly granted to the extent the $742,402.86 insurance claim is for damages to areas beyond the leased premises because based on the lease, Mannia was not on notice that she would be liable for damage caused by negligence to areas of the multiunit apartment building beyond the lease premises. But summary judgment was inappropriate with respect to damage to the lease premises. They ordered on remand for the trial court to engage in the analysis of the case-by-case approach.

The case is LBM Realty, LLC, d/b/a Summer Place Apartments, an Indiana Corporation v. Hillary Mannia, an Indiana Resident, 71A03-1402-PL-66.

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