Landlord's Insurer Can't Seek Subrogation from Tenant

 Facts: A landlord and a tenant signed a lease that provided that the landlord would insure the building and the tenant would insure its personal property inside the building. When the property was later damaged by a fire, the landlord’s insurance covered the loss. The landlord’s insurer later filed a subrogation action—that is, a claim to be reimbursed—against the tenant to recover the amount it had paid to the landlord.

The tenant asked a trial court to rule on the insurer’s claim. It argued that the landlord’s agreement to obtain property insurance for the building was an agreement to provide both parties with the benefits of insurance and expressly allocated the risk of loss in case of fire to insurance, thereby barring a subrogation action. The trial court denied the motion. The tenant appealed.

Decision: An Indiana appeals court reversed the decision of the lower court.

Reasoning: The appeals court noted that, here, the lease unambiguously provided that the landlord would insure the building and the tenant would insure its personal property inside the building. The landlord’s and tenant’s agreement to insure was thus an agreement to provide both parties with the benefits of the insurance and expressly allocated the risk of loss in case of fire to insurance, the appeals court determined.

“Because the insurance ‘stands in the shoes of the landlord’ it takes no rights other than those that the landlord had,” the appeals court pointed out. It concluded that, therefore, the insurance company has no subrogation rights against the tenant. “The party who agreed to purchase insurance, in this case, the landlord, has no cause of action against the party for whose benefit the insurance was intended, in this case, the tenant, regardless of the fault of this intended insured,” said the appeals court. “As the rights of a subrogated insurer can rise no higher than the rights of its insured, the first party’s insurance carrier has no subrogation cause of action against the intended insured,” the appeals court decided.

So the appeals court reversed the decision of the lower court and ruled in favor of the tenant.

• Youell v. Cincinnati Ins. Co., December 2018