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MATTHIESEN, WICKERT & LEHRER, S.C.
Hartford, WI ❖ New Orleans, LA ❖ Orange County, CA
❖ Austin, TX ❖ Jacksonville, FL ❖ Boston, MA
Phone: (800) 637-9176
gwickert@mwl-law.com
www.mwl-law.com
LANDLORD/TENANT SUBROGATION IN ALL 50 STATES
The ability of a landlord’s property insurer to subrogate against a tenant for property damage caused by the
negligence of the tenant depends on which state the loss occurs in and the nature and language of the lease
involved. There are generally three different approaches:
(1) A minority of courts hold that, absent a clear contractual expression to the contrary, the insurance carrier
will be permitted to sue a tenant in subrogation.
(2) Seeking to avoid a per se rule, in some states the ability to subrogate must be assessed on a case-by-case
basis and governed by the intent and reasonable expectations of the parties under the terms of the lease and
the facts of case.
(3) Known as the “Sutton Rule”, some states hold that, absent a clearly expressed agreement to the contrary,
the tenant is presumed to be a co-insured on the landlord’s insurance policy, and therefore the landlord’s
insurance carrier has no right of subrogation against the negligent tenant. The rule of subrogation known as the
“Sutton Rule” states that a tenant and landlord are automatically considered “co-insureds” under a fire
insurance policy as a matter of law and, therefore, the insurer of the landlord who pays for the fire damage
caused by the negligence of a tenant may not sue the tenant in subrogation because it would be tantamount to
suing its own insured.
The “Sutton Rule” is derived from an Oklahoma Court of Appeals decision styled Sutton v. Jondahl, 532 P.2d 478
(Okla. App. 1975) and is the benchmark against which the landlord/tenant subrogation laws of most states are
measured. It is the modern rule and the rule more and more states are moving toward.
There are three approaches used by trial courts in the country to resolve the implied co-insured “Sutton Rule”
approach. These approaches include:
(1) the no-subrogation (or implied co-insured) approach, in which, absent an express agreement to the contrary,
a landlord’s insurer is precluded from filing a subrogation claim against a negligent tenant because the tenant
is presumed to be a co-insured under the landlord’s insurance policy;
(2) the pro-subrogation approach, in which a landlord’s insurer can bring a subrogation claim against a negligent
tenant absent an express term to the contrary; and
(3) the case-by-case approach, in which courts determine the availability of subrogation based on the
reasonable expectations of the parties under the facts of each case.
The following is a summary of the law in all 50 states with regard to the subrogation of a landlord’s insurance carrier
against a negligent tenant whose careless acts cause damage to or destruction of the leased premises.
ALABAMA
If a lease clearly and unambiguously states that each party agrees to cause any fire insurance policy on the property
to contain a waiver of subrogation or endorsement under which the insurance company waives its right of
subrogation against any party to the lease agreement in the case of destruction or damage by fire, each party waives
any cause of action against the other in case their property is damaged by fire as the result of other’s negligence.
McCay v. Big Town, Inc., 293 Ala. 582, 307 So.2d 695 (Ala. 1975).
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ALASKA
A fire insurer is not entitled, as subrogee, to bring an action against a tenant to recover for amounts paid to landlord
for fire damage to rental premises caused by the tenant’s negligence in absence of an express agreement between
the landlord and tenant to the contrary. This is because the landlord and tenant are considered co-insureds under
our fire policy. Alaska Ins. Co. v. RCA Alaska Communications, Inc., 623 P.2d 1216, 1218 (Alaska 1981). However,
later case law indicates that the tenant is a co-insured under the lease only if the lease expressly provides for same.
Great American Ins. Co. v. Bar Club, Inc., 921 P.2d 626 (Alaska 1996). However, in that case, the tenant’s insurer was
suing the landlord for causing the fire and the Court held that since the policy was purchased by the tenant and
named only the tenant as insured, equitable principles underlying “Implied Insured Doctrine” did not apply.
ARIZONA
Arizona has avoided per se rules and has taken a more flexible case-by-case approach, holding that a tenant’s liability
to the landlord’s insurer for negligently causing a fire depends on the intent and reasonable expectations of the
parties to the lease as ascertained from the lease as a whole. General Accident Fire & Life Assurance Corp. v. Traders
Furniture Co., 401 P.2d 157 (Ariz. App. 1981).
ARKANSAS
Arkansas has avoided per se rules and taken a more flexible case-by-case approach, holding that a tenant’s liability
to the landlord’s insurer for negligently causing a fire will depend on the intent and reasonable expectations of the
parties to the lease as ascertained from the lease as a whole. Page v. Scott, 567 S.W.2d 101, 103 (Ark. 1978).
CALIFORNIA
California has avoided per se rules with regard to the “Sutton Rule” (see Oklahoma) and taken a more flexible case-
by-case approach, holding that a tenant’s liability to the landlord’s insurer for negligently causing a fire depends on
the intent and reasonable expectations of the parties to the lease as ascertained from the lease as a whole. Fire Ins.
Exch. v. Hammond, 83 Cal. App.4
th
313, 99 Cal. Rptr.2d 596, 602 (Cal. 2000).
California has generally held that a lessee is not responsible for damages where the lessor and lessee intend the
lessor’s fire policy to be for their mutual benefit. Hammond, supra. The import of this rule is that an insurer may not
seek subrogation against an insured’s lessee in such cases for a fire he or she negligently causes, even when the
elements necessary for subrogation have otherwise been met.
California prohibits a subrogation action by the fire insurance company of a lessor against a lessee where a lessee’s
negligence causes a fire, but the policy is intended to benefit the lessee. In such cases, the lessee is treated as an
insured, despite the lessee not being a named insured on the policy. Because the insurance company could not seek
subrogation against its own named insured (the lessor), it cannot seek subrogation against the lessee. Western
Heritage Ins. Co. v. Frances Todd, Inc., 2019 WL 1011104 (Cal. App. 2019). This comes into play via the doctrine of
superior equities, which prevents an insurer from recovering against a party whose equities are equal or superior to
those of the insurer. State Farm Gen. Ins. Co. v. Wells Fargo Bank, N.A., 49 Cal. Rptr.3d 785 (Cal. App. 2006).
In Fred A. Chapin Lumber Co. v. Lumber Bargains, Inc., 189 Cal.App.2d 613 (Cal. App. 1061), a lessor’s policy was held
to be for the mutual benefit of the lessor and lessee where the lease expressly required the lessor to maintain fire
insurance. This rule was followed in Gordon v. J.C. Penney Co., 7 Cal.App.3d 280 (Cal. App. 1970). That court affirmed
a judgment in favor of the lessee following a court trial, stating, “A fire insurance policy which does not cover fires
caused or contributed to by the insured would be an oddity indeed. … Otherwise, few insured fire claims would be
paid without controversy and most would require litigation.” For that reason, courts do not deem that a policy “for
the benefit” of a lessee excludes coverage for fires caused by his negligence.
In Liberty Mutual Fire Ins. Co. v. Auto Spring Supply Co., 59 Cal.App.3d 860 (Cal. App. 1976), the lessee’s insurer was
denied subrogation against the sub-lessee where the sub-lessee’s rent covered the premium on the lessee’s fire
policy and proceeds of the policy were to be used to repair fire damages. The court held it was quite obvious from
these provisions that the parties to the lease and the sublease all intended that the proceeds of [the insurance
company’s] fire insurance policy, maintained by the lessee at [the sub-lessee’s] expense, were to constitute the
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protection of all parties to the lease documents against fire loss[.] This was the commercial expectation of these
parties. Stated otherwise, under the facts of this case, we regard the subtenant ... as an implied in law co-insured of
[the lessee], absent an express agreement between them to the contrary.” (Id. at p. 865.)
A lessor can shift to the lessee the burden of insuring against the lessee’s negligence. However, where the lease
agreement adverts to the possibility of fire and there is no clear language or other admissible evidence showing an
agreement to the contrary, a lease agreement should be read to place on the lessor the burden of insuring the
premises (as distinguished from the lessee’s personal property) against lessor and lessee negligence.” Parsons Mfg.
Corp. v. Superior Court, 203 Cal. Rptr. 419 (Cal. App. 1984).
In Western Heritage Ins. Co. v. Frances Todd, Inc., 2019 WL 1011104 (Cal. App. 2019), the lease required the tenant
to obtain only liability insurance and not fire insurance. The implication of this is that fire insurance would be carried
by the lessor. Lessors were also prohibited from purchasing fire insurance under the covenants and conditions of
the condominium association. Therefore, there was no way to protect themselves from fire. Finally, the yield-up
clause in the lease provided that lessees agreed to “surrender the Premises at the termination of the tenancy herein
created, in substantially the same condition as they were on the Commencement Date, reasonable wear and tear,
casualty, and any alterations, improvements, and/or additions which are the property of the Lessor under Paragraph
7 excepted.” “Casualty” includes damage from fire. The clause is similar to the one in Parsons. Where the lease
agreement “adverts to the possibility of fire and there is no clear language or other admissible evidence showing an
agreement to the contrary, a lease agreement should be read to place on the lessor the burden of insuring the
premises (as distinguished from the lessee’s personal property) against lessor and lessee negligence.” Therefore,
the tenant was an implied co-insured of the landlord and subrogation against it was barred because there was no
express agreement that tenant would obtain his own fire insurance.
COLORADO
A landlord’s insurer may recover against a tenant only if the landlord has the right to recover against the tenant.
Employers Cas. Co. v. D.M. Wainwright, 473 P.2d 181 (Colo. 1970). The ultimate question presented is whether
provisions of the written lease between the tenant and its landlord have circumscribed the landlord’s right of
recovery under the circumstances of the case. U.S. Fidelity & Guar. Co. v. Let’s Frame It, Inc., 759 P.2d 819 (Colo.
App. 1988) (redelivery clause in lease has applicability only to premises subject to lease and cannot affect tenant’s
liability for damage done to landlord’s other property).
CONNECTICUT
Tenants are co-insureds under a landlord’s fire insurance policy and may not be sued for their negligence as they
are an insured under the policy. St. Paul Fire & Marine Ins. Co. v. Durr, 2001 WL 984782 (Conn. Super. 2001) (not
reported in A.2d). This holding was first adopted in Sutton v. Jondahl, 532 P.2d 478 (Okla. Ct. App. 1975) (“Sutton
Rule”). An exception to this rule exists where there is a lease that addresses the subrogation rights of the landlord.
In the absence of a specific agreement to the contrary, there is no subrogation. The reasoning behind this is that the
tenant is deemed to be a co-insured of the landlord because: (1) both parties have an insurable interest in the
premises, the landlord as owner, and the tenant as possessor, of the fee; and (2) the tenant’s rent presumably
includes some calculation of the landlord’s fire insurance premium.
In DiLullo v. Joseph, 792 A.2d 819 (Conn. 2002), the Connecticut Supreme Court established a “default rule of law”
where there is no agreement between landlord and tenant as to who bears the risk of loss. The “default” is that,
unless the lease refers to a right of subrogation on the part of the landlord or its insurer, no right of subrogation
exists. The DiLullo Court specifically noted that “tenants and landlords are always free to allocate their risks and
coverages by specific agreements, in their leases and otherwise.” Id.
In Middlesex Mutual Assurance Co. v. Vaszil, 279 Conn. 28 (2006), the Connecticut Supreme Court held that the
lease in question did “not remotely inform the defendant that they would be liable to their landlord’s insurer” for
fire damages to the landlord’s building, nor did it inform the defendant of the need to obtain fire insurance “to cover
the value of the entire multi-unit apartment building.” One of the reasons DiLullo established a “default” rule was
to avoid the economic waste of forcing each individual tenant in a multi-unit apartment to insure the whole building.
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The lease in Middlesex was ambiguous about whether the defendant’s liability was limited to loss of the security
deposit, so no subrogation was allowed. However, in Amica Mut. Ins. Co. v. Andresky, 2012 WL 527678 (Conn. Super.
Ct. 2012), the lease provided:
(1) that tenant (defendants) would obtain public liability and fire insurance for the benefit of the landlord and
the tenant in the amount of $500,000 for liability and $500,000 for fire, and (2) the tenant would pay all costs
if repair is required because of misuse or neglect by tenant, his family or anyone else on the premises.
The Superior Court in Andresky said that this language was “far more clear” and informed the defendant/tenant
that they would be liable to their landlord’s insurer. The following year, another Superior Court decision stated that
a lease must mention subrogation and/or inform the defendant that he may be liable to the landlord’s insurer for
any casualty fire damages to the landlord’s building. State Farm Fire & Cas. Ins. Co. v. Rodriguez, 2013 WL 5879514
(Conn. Super. 2013). Like the lease agreement involved in Vaszil, the lease in Rodriguez made no mention of
subrogation and did not remotely inform the defendant of liability to the landlord’s insurer for any casualty fire
damages to the landlord’s building.
In Amica Mut. Ins. Co. v. Muldowney, 180 A.3d 950 (Conn. 2018), the Connecticut Supreme Court took a fresh look
at the issue of a landlord’s property insurer subrogating against tenants. The landlord’s carrier paid for water
damage caused by frozen pipes of a tenant who was on vacation. The issue was what sort of “specific agreement”
(see DiLullo) was required to expressly state that a landlord’s carrier has a right of subrogation and overcome the
DiLullo presumption against subrogation (more precisely, overcomes that “the tenant’s rent presumably includes
some calculation of the landlord’s fire insurance premium). The Supreme Court loosened the prohibitions against
subrogating against a tenant by stating that the lease doesn’t have to expressly state that a landlord’s insurer has a
right of subrogation against the tenant in order for subrogation to be allowed. It is sufficient for the lease to notify
the tenant explicitly that he is responsible for any damage to the leased property and to allocate to the tenant the
responsibility to provide liability and property damage insurance. Under the lease in that case, the tenants were
required to take certain actions designed to guard against frozen pipes and subsequent water damage. The lease
also stated that if they breached the lease, the tenant had to pay for repairs if their actions made the premises unfit
or unlivable and to hold the landlord harmless for any loss arising out of their use or occupancy of the premises. As
a result, subrogation was allowed. The Supreme Court held that (1) the landlord and tenant had a “specific
agreement” sufficient to overcome the default presumption that the landlord’s insurer had no right of subrogation
against the tenants; and (2) the landlord’s carrier was allowed to pursue subrogation against the tenants and this
was fair and consistent with the doctrine of equitable subrogation.
All fire insurance policies issued in Connecticut must conform to. C.G.S.A. § 38a-308. In regard to the insurer’s
subrogation rights, the standard form includes a subrogation provision stating: “This Company may require from the
insured an assignment of all right of recovery against any party for loss to the extent that payment therefore is made
by this Company.” The subrogation clause set forth in C.G.S.A. § 38a-307 fails to provide an insurer with a direct,
and inviolate, right of subrogation. It merely provides that an insurer “may require” an insured to assign any rights
they have to the insurer. Thus, under this clear language, the right of recovery belongs to the insured, and the insurer
can only obtain that right when the insured grants it. Wasko v. Manella, 849 A.2d 777 (Conn. 2004). The policy must
contain specific subrogation language.
DELAWARE
The fire insurer is not entitled, as subrogee, to bring an action against a tenant to recover for amounts paid to the
landlord for fire damage to rental premises caused by the tenant’s negligence in absence of an express agreement
between the landlord and tenant to contrary. The landlord and tenant are co-insureds under the fire policy.
Lexington Ins. Co. v. Raboin, 712 A.2d 1011, 1016 (Del. Super. Ct. 1998). The Lexington decision surveyed the law of
multiple jurisdictions in holding that the “trend of modem jurisprudence holds that fire insurance secured by the
landlord has been obtained for the mutual benefit of landlord and lessee.” In Deloach v. Houser, 2018 WL 5899080
(Del. Super. 2018), the insurer for an apartment complex joined a suit filed by two tenants against a third tenant
who caused a fire. The court affirmed that the Sutton Rule is the rule followed in Delaware.
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DISTRICT OF COLUMBIA
Not applicable.
FLORIDA
Florida has avoided per se rules with regard to the “Sutton Rule” (see Oklahoma) and taken a more flexible case-by-
case approach, holding that a tenant’s liability to the landlord’s insurer for negligently causing a fire depends on the
intent and reasonable expectations of the parties to the lease as ascertained from the lease as a whole. Continental
Ins. Co. v. Kennerson, 661 So.2d 325, 327 (Fla. App. 1995) (denied subrogation because the lease provided that
damage caused by fire “shall be repaired by and at the expense of Lessor”); State Farm Florida Ins. Co. v. Loo, 2010
WL 445945 (Fla. App. 2010) (rejected presumptions against or for subrogation under the Sutton “Implied Co-Insured
Doctrine” or its opposite, the anti-Sutton approach).
In Zurich Am. Ins. Co. v. Puccini, LLC, 271 So.2d 1079 (Fla. App. 2019), a commercial restaurant tenant caused a fire
for which Zurich paid over $ 2.1 million dollars. Zurich subrogated against the tenant, who argued he was an implied
co-insured under the Zurich policy. The trial court agreed and dismissed the case. The Court of Appeals noted that
the lease provisions were very different from those in Kennerson. Although the tenants in Kennerson paid a pro-rata
share of the fire insurance, the court did not rely on that fact alone. Instead, the court considered the lease as a
whole. The lease in Kennerson provided that “damage caused by fire ‘shall be repaired by and at the expense of
[landlord].’ ” Kennerson, 661 So.2d at 328. Moreover, the parties in Kennerson agreed that the tenant “would be
excused even from paying rent for damaged premises while [the landlord] applied insurance proceeds ... to effect
repairs.” Finally, the lease in Kennerson had “no provision making [tenant] liable for damages its negligence might
cause.” In Puccini, the parties agreed that the tenant would be “fully responsible” for damage caused by fire, and
the landlord had no obligation to make repairs “occasioned by any intentional or negligent act of Tenant, its agents,
or its employees.” Further, the lease provided that Tenant would be liable for damages caused by its negligence,
that it would maintain its own fire insurance for damage claims “arising out of accidents occurring in or around the
Premises[,]” and that Landlord would be held harmless for such damage claims. Thus, unlike in Kennerson, the risk-
allocating provisions in Puccini did not show an intent to shift the risk of loss from a negligent tenant to the landlord’s
insurer. Instead, the clear intent of the parties was that the tenant would bear the risk of loss due to damage
resulting from Tenant’s negligence. Therefore, the court in Puccini found that the tenant was not an implied co-
insured under Zurich’s policy and, therefore, Zurich could proceed with its subrogation action against the tenant.
GEORGIA
Georgia has avoided per se rules and taken a more flexible case-by-case approach, holding that a tenant’s liability
to the landlord’s insurer for negligently causing a fire depends on the intent and reasonable expectations of the
parties to the lease as ascertained from the lease as a whole. Tuxedo Plumbing & Heating Co. v. Lie-Nielsen, 262
S.E.2d 794 (Ga. 1980).
HAWAII
Hawaii has not directly addressed this issue.
IDAHO
Idaho has avoided per se rules with regard to the “Sutton Rule” (see Oklahoma) and taken a more flexible case-by-
case fire approach, holding that a tenant’s liability to the landlord’s insurer for negligently causing a fire depends on
the intent and reasonable expectations of the parties to the lease as ascertained from the lease as a whole. Bannock
Bldg. Co. v. Sahlberg, 887 P.2d 1052 (Idaho 1994).
ILLINOIS
Residential Lease. Illinois has until recently avoided per se rules with regard to the “Sutton Rule” (see Oklahoma)
and taken a more flexible case-by-case approach, holding that a tenant’s liability to the landlord’s insurer for
negligently causing a fire depends on the intent and reasonable expectations of the parties to the lease as
ascertained from the lease as a whole. Dix Mut. Ins. Co. v. LaFramboise, 597 N.E.2d 622, 625 (Ill. 1992). Dix was a
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case involving a residential lease. The Supreme Court said that although a tenant is generally liable for fire damage
caused to the leased premises by his negligence, if the parties intended to exculpate the tenant from the negligently
caused fire damage, their intent - as expressed in the lease agreement - will be enforced. To make this
determination, the lease must be interpreted as a whole so as to give effect to the intent of the parties. Stein v.
Yarnall-Todd Chevrolet, Inc., 241 N.E.2d 439 (Ill. 1968). In Dix, the residential lease did not contain a provision
expressly apportioning fault in the case of a negligently caused fire, so the Court construed the lease as a whole and
concluded that it did not reflect any intent that the tenant would be responsible for fire damage. Absent any such
intent, the tenant is considered a co-insured with the landlord by virtue of having paid rent which contributed to
the insurance premiums, and the subrogated insurer could not sue its own insured for subrogation.
The rule, therefore, appears to be that a tenant will be an implied co-insured and cannot be sued by the landlord’s
subrogee for fire or other damage unless a contrary intent can be gleaned from the four corners of the lease itself.
Auto Owners Ins. Co. a/s/o John Ellis v. Thomas Callaghan, 952 N.E.2d 119 (Ill. App. 2011). Where a lease reflects
the parties’ intent to place the responsibility for water damage on the tenants, they will not be considered implied
co-insureds. Pekin Ins. Co. v. Murphy, 2014 WL 6092187 (Ill. App. 2014).
In Sheckler v. Auto-Owners Ins. Co., 2021 WL 4932296 (Ill. App. 2021), the landlord’s property insurer (Auto-Owners)
sought subrogation against a worker whose negligence caused an explosion in a tenant’s apartment. The worker
filed a third-party action against the tenants. Auto-Owners rejected the tenant’s tender of defense based on the
fact that the tenants were co-insureds under their policy. The tenants filed a declaratory judgment action in which
the trial court ruled in favor of the carrier and found that it did not need to defend the tenants. On appeal, the
tenants argued that they were co-insureds under Insurer’s policy because their rent payment had been used by the
landlord to purchase his insurance. The lease also stated that the landlord would buy fire insurance for the entire
building. The Court of Appeals agreed and reversed the trial court, finding that the tenants were co-insureds under
the landlord’s policy. It held that the carrier had a duty to defend the Shecklers from the worker's third-party claim.
The court said, “It is inequitable to find that there is no duty to defend in this case … On the facts of this case, finding
that the insurer has a duty to defend its co-insured is a natural and necessary extension of Dix to prevent a
subversion of its ruling.” Carriers pursuing subrogation for damage to rental property will need to defend tenants
from contribution claims just as they would have to defend contribution claims filed against the landlord.
Oral Lease. The same outcome results from an oral lease which contains only basic terms such as rent and duration
of the lease. Cincinnati Ins. Co. v. DuPlessis, 848 N.E.2d 220 (Ill. App. 2006).
Commercial Lease. The same Anti-Subrogation Rule which applies to residential leases applies to commercial leases.
Nationwide Mut. Fire Ins. Co. v. T & N Master Builder & Renovators, 959 N.E.2d 201 (Ill. App. 2011). In Nationwide,
a provision of the commercial lease agreement provided that commercial tenants that held over were liable for all
damages sustained to property while in the tenants’ possession. However, this clause did not render the tenants
liable for damages caused by fire, because the lease specifically excepted losses caused by fire.
INDIANA
An Indiana Court of Appeals decision in LBM Realty, LLC v. Mannia, 19 N.E.3d 379 (Ind. App. 2014) changed the
landscape of landlord/tenant subrogation in the Hoosier State. For years, Indiana allowed an insurer to bring a
subrogation claim against a tenant. LBM Realty, LLC v. Mannia, 981 N.E.2d 569 (Ind. App. 2012) (first appeal before
remand). A 1996 Court of Appeals decision appeared to announce that Indiana had avoided an inflexible application
of the “Sutton Rule” and taken a more flexible case-by-case approach, holding that a tenant’s liability to the
landlord’s insurer for negligently causing a claim depends on the intent and reasonable expectations of the parties
to the lease as ascertained from the lease as a whole. United Farm Bureau Mut. Ins. Co. v. Owen, 660 N.E.2d 616
(Ind. App. 1996).
In 2012, that same Court of Appeals in LBM Realty, LLC v. Mannia, 981 N.E.2d 569 (Ind. App. 2012) (first appeal
before remand), had clarified that while Indiana law does not preclude a subrogation action by a landlord’s insurer
against a tenant, the Court in Owen did not adopt a case-by-case approach. Rather, Owen merely affirmed a trial
court’s entry of summary judgment in favor of a tenant and against an insurer who sought subrogation for a claim
it paid to its insured (who was the tenant’s landlord) because the specific language of a lease provision at issue
released the tenant from property damage liability to the landlord, thereby precluding the insurer - who steps into
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the shoes of its insured - from raising a subrogation claim. Mannia, supra. The Mannia decision was reviewing a trial
court order which declared that Indiana had adopted the “no subrogation” approach and noted, that in Owen, the
Court of Appeals did not discuss or adopt any of the three subrogation approaches, and the question of whether
Indiana would adopt a rule regarding subrogation claims by a landlord’s insurer against a negligent tenant was never
raised. The Mannia decision also noted that question had not been raised in other cases where an insurer brought
a subrogation claim against an insured’s tenant for property damage. Cincinnati Ins. Co. v. Davis, 860 N.E.2d 915
(Ind. App. 2007); St. Paul Fire & Marine Ins. Co. v. Pearson Construction Co., 547 N.E.2d 853 (Ind. App. 1989), trans.
denied.
On October 28, 2014, Indiana for the first time officially announced that whether subrogation could be brought by
a landlord’s insurer against a negligent tenant was to be determined by a case-by-case approach based on the
reasonable expectations of the parties as reflected in the lease agreement. LBM Realty, LLC v. Mannia, 19 N.E.3d
379 (Ind. App. 2014). The court held that whether a landlord’s insurer may bring a subrogation action against a
negligent tenant for damage to tenant’s leased premises is determined under the case-by-case approach; a finding
that a tenant’s liability to the 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. 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 in question.
In July 2010, a fire caused $743,402.86 in damages at the Summer Place Apartments in Granger, Indiana, owned by
LBM. Mannia was a tenant in the Apartments, having signed a one-year lease in March 2010. Included within the
lease were several relevant lease provisions, condensed and paraphrased as follows:
• A provision titled “Insurance,” which is silent as to LBM’s obligation to maintain property insurance, but
states in bold type: “Owner recommends the Resident obtain renter’s insurance.” This provision also states
that in the event the leased premises are totally destroyed by some cause beyond the owner’s control, the
lease will terminate as of that date (and to the extent that the premises are only partially destroyed, there
will be abatement in rent).
• A provision titled “Rules,” which incorporates an attached list of “Rules and Regulations” into the lease, the
most relevant of which reads as follows: (7) Resident must pay repair costs for all damages to Resident’s
Apartment, Apartment Community facilities, and common areas caused by Resident or members of
Resident’s household or guests ...
• A “Save Harmless Clause,” which states: “Resident shall indemnify and save harmless Owner from and
against any and all claims or actions for damages to persons or property,” including claims in which it is
asserted that Owner has been negligent.
• A provision stating that “‘Premises’ shall mean only that portion of Owner’s property contained within the
interior walls of the dwelling unit described herein ...”
• Within “Miscellaneous Provisions”: At the end of the term, Resident shall return the Leased Premises to
Owner in the same good condition, reasonable wear and tear excepted. Resident is and shall be responsible
and liable for any injury or damage done to the Leased Premises, common areas or any property of Owner
caused by [R]esident, any occupant, or any other person whom Resident permits to be in or about the Leased
Premises. This section also states, “Resident shall permit no waste of the Leased Premises nor allow the same
to be done, but Resident shall take good care of the same ...”
After the fire at the Apartments, the insurer filed a subrogation action in LBM’s name against Mannia, alleging in its
complaint that Mannia breached her contract with LBM in “one or more of the following ways”:
(1) Carelessly and improperly disposed of smoking materials by placing same in a plastic bottle and in close
proximity to the vinyl siding on the balcony patio wall of the leased premises; and/or
(2) Carelessly and improperly allowed guests to dispose of smoking materials by placing same in a plastic bottle
and in close proximity to the vinyl siding on the balcony patio wall of the leased premises; and/or
(3) Otherwise failed to comply with her obligation to return the premises in the same condition as when she
moved in, reasonable wear and tear excepted.
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In regard to its negligence claim, LBM repeated (1) and (2) above and also alleged that Mannia had “otherwise acted
carelessly and negligently.” Mannia filed a motion to dismiss LBM’s complaint, discussing the three different
approaches used by courts around the country to address subrogation claims of landlord’s insurers against negligent
tenants, including:
(1) The no-subrogation (or implied co-insured) approach (i.e., the “Sutton Rule”), in which, absent an express
agreement to the contrary, a landlord’s insurer is precluded from filing a subrogation claim against a negligent
tenant because the tenant is presumed to be a co-insured under the landlord’s insurance policy;
(2) The pro-subrogation approach, in which, absent an express term to the contrary, a landlord’s insurer is
allowed to bring a subrogation claim against a negligent tenant; and
(3) The case-by-case approach, in which courts determine the availability of subrogation based on the
reasonable expectations of the parties under the facts of each case.
Mannia convinced the trial court to apply approach number one, dismissing the case because Mannia was an
“additional insured” under LBM’s insurance policy. LBM appealed and, in 2012, the Court of Appeals reversed and
remanded because the trial court did not test the complaint against the backdrop of the law that existed. Further
discovery occurred, and it was agreed and stipulated that:
(1) The money received from rent (including Mannia’s rent from March 25, 2010 to July 3, 2010) was used to
pay LBM’s operating expenses, including, but not limited to, procurement and maintenance of insurance
covering the apartment complex at 825 Summer Place Lane, Granger, IN 46530 and all units included therein.
However, LBM’s property insurance did not provide coverage to any of the belongings owned by Mannia.
(2) Furthermore, pursuant to the terms of the insurance policy that LBM obtained, LBM’s insurer has asserted
a right of subrogation as to the claims asserted by LBM against Mannia based upon the insurer’s payment to
LBM for damages resulting from the fire that occurred on July 3, 2010, which is the subject of this lawsuit.
In 2013, Mannia filed a Motion for Summary Judgment, which the trial court granted, and LBM appealed again. This
time, the Court of Appeals rejected the legal fiction of the Sutton Rule and specifically adopted the “middle-ground”
case-by-case approach, which eschews presumptions that a tenant is or is not a co-insured of the landlord, and
requires an examination of the lease as a whole to determine the parties’ reasonable expectations as to who should
bear the risk of loss when a tenant negligently damages the leased premises. Although it provides less predictability
than either the pro- or no-subrogation approaches, the Court of Appeals found that this approach best effectuates
the intent of the parties by simply enforcing the terms of their lease. It reversed the trial court again, allowing
subrogation against Mannia, specifically because the lease in question permitted subrogation.
In 2018, the Court of Appeals said that if a lease obligates a tenant to procure insurance covering a particular type
of loss, such a provision will provide evidence that the parties reasonably anticipated that the tenant would be liable
for that particular loss, which would allow an insurer who pays the loss to bring a subrogation action against the
tenant. Hoosier Ins. Co. v. Riggs, 92 N.E.3d 685 (Ind. App. 2018).
In Youell v. Cincinnati Ins. Co., 117 N.E.3d 639 (Ind. App. 2018), a landlord and a tenant entered into a commercial
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 fire, the landlord’s insurance subrogated and the
tenant argued that the landlord’s agreement to obtain property insurance 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 Court of Appeals held that this case was distinguishable from LBM Realty, LLC v. Mannia. In
LBM Realty, the lease did not require the landlord to maintain property insurance and only recommended that the
tenant obtain renter’s insurance; as a result, the parties’ expectations with respect to liability for damage to the
leased premises was unknown. In Youell, however, the lease unambiguously provided that the landlord would insure
the building. Accordingly, the test set forth in LBM Realty (whether a landlord can subrogate depends on the case-
by-case approach and a tenant’s liability depends on the reasonable expectations of the parties to the lease as
ascertained from the lease as a whole). Instead, Morsches Lumber, Inc. v. Probst, 388 N.E.2d 284 (Ind. App. 1979)
controlled (when lease requires that landlord will insure the building and tenant will insure its personal property,
this was 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 court in Youell reversed and remanded with instructions for the trial court to
grant the tenant’s motion to dismiss.
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IOWA
Iowa has rejected the implied co-insured rationale and allowed the insurer to bring a subrogation claim against the
tenant, absent an express agreement to the contrary. Neubauer v. Hostetter, 485 N.W.2d 87, 89-90 (Iowa 1992).
KANSAS
Absent an agreement by the landlord to allocate the risk of loss to the landlord and/or provide insurance for the
tenant’s benefit, subrogation against a tenant appears to be allowed. Under a lease agreement providing that lessor
would purchase fire insurance for adequate protection of improvements on leased premises and lessee would
maintain premises in good repair “damage by fire or other casualty being expressly excepted”, lessor’s obligation to
insure premises inured to benefit of both parties. The exemption from “damage by fire or other casualty” included
all fires except those which would be classified as arson, and the lessee was not liable for loss by fire resulting from
its negligence. New Hampshire Ins. Co. v. Fox Midwest Theaters, Inc., 457 P.2d 133 (Kan. 1969). The court noted that
the insurance provisions in that case were for the benefit of both the landlord and the tenant, especially given how
any insurance payment for fire loss was to be applied. The lease in that case also required the landlord to repair or
rebuild the theater within 60 days after any fire damage. However, in TMD Southglen II, LLC v. Parker, 2014 WL
2589768 (Kan. App. 2014), the lease was mutually beneficial. The tenants were relieved of liability to the landlord
for fire damage to the space they leased or other parts of the mall. The premiums for that insurance would amount
to an expense in leasing from TMD over and above the monthly rent. Therefore, this case came within the New
Hampshire Insurance decision to the extent the court’s ruling required some mutual benefit to the fire-loss
covenants. The lease requires the tenant to indemnify and to hold harmless the landlord for “all claims arising from
the tenant’s use of the premises” or “from any breach or default” of the obligations imposed by the agreement. The
landlord contends it should be able to recover under the indemnification clause regardless of the provisions
regarding fire insurance and fire loss. However, the protections flowing under the indemnification clause are against
third-party claims based on the wrongful conduct of the tenants. Id. Indemnification clauses are not commonly
understood to apply to direct claims between the parties as opposed to third-party claims against the party entitled
to be indemnified. Id.
Kansas also has a statute which governs the liability of tenants:
K.S.A. § 58-2555. Duties of Tenant. (f) be responsible for any destruction, defacement, damage, impairment
or removal of any part of the premises caused by an act or omission of the tenant or by any person or animal
or pet on the premises at any time with the express or implied permission or consent of the tenant.
Independent of the above statute and an express agreement to insure the tenant, Kansas law imposes an obligation
on a tenant to return the premises to the landlord at the end of a rental term unimpaired by the tenant’s negligence.
Salina Coca-Cola Bottling Corp. v. Rogers, 237 P.2d 218 (Kan. 1951).
A negotiated agreement to absolve a tenant from liability to the landlord for negligence for fire damage would seem
to be no more or less compatible with public policy based on the number of entities leasing space on the premises.
TMD’s argument would create an inexplicable rift in what could be legally enforced in leases for single-use
commercial properties and what could be enforced as to multi-tenant premises. Had TMD wanted some different
arrangement, it should have negotiated a different deal and crafted the lease language accordingly.
KENTUCKY
A tenant’s liability to the landlord’s insurer for negligently causing a fire depends on the intent and reasonable
expectations of the parties to the lease as ascertained from the lease as a whole. Britton v. Wooten, 817 S.W.2d
443, 445-47 (Ky. 1991) (subrogation allowed because there was no clause requiring purchase of fire insurance by
landlord). It must be determined on a case-by-case basis. A requirement in a lease agreement that the landlord must
obtain fire insurance militates against the insurance carrier’s right of subrogation. Liberty Mut. Fire Ins. Co. v.
Jefferson Family Fair, Inc., 521 S.W.2d 244 (Ky. 1975). The absence from the lease agreement of a requirement that
the landlord provide fire insurance generally permits a right of subrogation.
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LOUISIANA
Specific lease provisions will prohibit subrogation against a tenant. A lease provision, under which the lessor agreed
to carry fire insurance on property and released and discharged lessee “from any and all claims and damages
whatsoever from any cause resulting from or arising out of any fire” constituted release from fire damage
acknowledged to have been caused by lessee’s negligence and extinguished any subrogation recovery by lessor’s
insurer. Home Ins. Co. of Ill. v. National Tea Co., 588 So.2d 361 (La. 1991). The intent of the parties as determined
from the terms of the lease is paramount.
MAINE
Fire insurer is not entitled, as subrogee, to bring action against tenant to recover for amounts paid to landlord for
fire damage to rental premises caused by tenant’s negligence in absence of express agreement between the landlord
and tenant to contrary. The landlord and tenant are co-insureds under the fire policy. N. River Ins. Co. v. Snyder, 804
A.2d 399, 403-04 (Me. 2002).
MARYLAND
A tenant’s liability for damage to the leased premises in a subrogation action brought by the landlord’s insurer after
paying the claim should be determined by the reasonable expectations of the parties to the lease, as determined
from the lease itself and any other admissible evidence, on a case-by-case basis. Evidence outside the four corners
of the lease may be relevant in some cases. Most generally, it clarified that a tenant’s liability to the landlord’s
insurer depends on the reasonable expectations of the parties to the lease, “as determined from the lease itself and
any other admissible evidence.” Rausch v. Allstate Ins. Co., 882 A.2d 801 (Md. 2005). A tenant’s liability in a
subrogation action is determined by examining “the lease as a whole, along with any other relevant and admissible
evidence,” to determine the reasonable expectations of parties to the lease. Fowlkes v. Choudhry, 248 A.3d 298,
311 (Md. 2021).
MASSACHUSETTS
Massachusetts follows the “Implied Co-Insured Doctrine”. The term “insured” impliedly includes the tenant.
Peterson v. Silva, 704 N.E.2d 1163 (Mass. 1999). Absent an express provision in a lease establishing a tenant’s
liability, the landlord’s insurance is deemed held for the mutual benefit of both parties. When a residential landlord
sues a tenant for damages to the landlord’s, the Implied Co-Insured Doctrine presumes that the landlord’s liability
insurance is held “for the mutual benefit of both parties”. This rule applies to residential leases but is generally
inapplicable to commercial leases. Federal Ins. Co. v. Commerce Ins. Co., 2010 WL 716412 (1
st
Cir. 2010).
Massachusetts recognizes that while courts have not distinguished between commercial and residential tenancies
in applying Sutton (see Oklahoma), commercial tenancies present different considerations, for “[c]ommercial
tenants tend to be more sophisticated about the terms of their leases and, unlike residential tenants, commercial
tenants generally purchase liability insurance”; thus, commercial tenants will be relieved of liability for negligently
caused fire damage only if the lease reveals the parties so intended. Seaco Ins. Co. v. Barbosa, 761 N.E.2d 946, 950
(Mass. 2002).
MICHIGAN
Michigan follows “Sutton Rule” (see Oklahoma). The fire insurer is not entitled, as subrogee, to bring an action
against the tenant to recover for amounts paid to landlord for fire damage to rental premises caused by the tenant’s
negligence in absence of an express agreement between the landlord and tenant to the contrary. The landlord and
tenant are co-insureds under the fire policy. N.H. Ins. Group v. Labombard, 399 N.W.2d 527, 531 (Mich. App. 1986).
However, more recent decisions indicate that the Labombard decision applies only to negligence cases - not to cases
based on breach of contract. Laurel Woods Apartments v. Roumayah, 734 N.W.2d 217 (Mich. App. 2007). In
Roumayah, the lease stated, “Tenant shall also be liable for any damages to the Premises...that is caused by the acts
or omissions of Tenant or Tenant’s guests.” The Court held that the tenant was contractually liable for “any damage”
caused by their acts, and that this was not limited to negligent acts. The landlord was allowed to pursue the tenant
based on a breach of the lease agreement, notwithstanding Labombard. This was later extended to specifically
include subrogation claims. American States Ins. Co. v. Hampton, 2008 WL 4724279 (Mich. App. 2008).
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In Westfield Inc. Co. v. Ritcher, No. 20-CV-12692, 2021 U.S. Dist. Lexis 94926 (E.D. Mich. 2021), a federal court limited
the scope of a tenant’s protection from a subrogation suit by virtue of being an implied coinsured. The court held
that the tenant was an implied coinsured—and thus shielded from a subrogation suit by the landlord’s insurance
company—but only with regard to the tenant’s apartment. The implied coinsured doctrine did not shield the tenant
from a subrogation claim for damages to the rest of the buildings, the contents of other residents, and the landlord’s
loss of profits/rents.
MINNESOTA
Until recently, this general rule has been applied in Minnesota to prohibit a landlord’s insurer from maintaining a
subrogation action against the landlord’s tenants because the tenant was a co-insured under the landlord’s policy.
United Fire & Casualty Co. v. Bruggeman, 505 N.W.2d 87 (Minn. App. 1993). In 2012, the Supreme Court overruled
the rule set forth in Bruggeman and adopted a “case-by-case approach” to ascertain whether an insurer may
maintain a subrogation action against the negligent tenant of its insured, based on the reasonable expectations of
landlord and tenant under the lease and the facts of case. RAM Mut. Ins. Co. v. Rohde, 820 N.W.2d 1 (Minn. 2012),
rejecting United Fire & Casualty Co. v. Bruggeman, 505 N.W.2d 87 (Minn. App. 1993), and abrogating Bigos v.
Kluender, 611 N.W.2d 816 (Minn. App. 2000), St. Paul Cos. v. Van Beek, 609 N.W.2d 256 (Minn. App. 2000), Blohm
v. Johnson, 523 N.W.2d 14 (Minn. App. 1994). Based on the lease, along with any other relevant and admissible
evidence, the court determines whether it was reasonably anticipated by the landlord and the tenant that the tenant
would be liable, in the event of a tenant-caused property loss paid by the landlord’s insurer, to a subrogation claim
by the insurer. Melrose Gates, LLC v. Moua, 2015 WL 1608845 (Minn. App. 2015). Section 60A.41 provides:
§ 60A.41. Subrogation against insureds prohibited.
(a) An insurance company providing insurance coverage or its reinsurer for that underlying insurance
coverage may not proceed against its insured in a subrogation action where the loss was caused by the
nonintentional acts of the insured.
(b) An insurance company providing insurance coverage or its reinsurer for that underlying insurance
coverage may not subrogate itself to the rights of its insured to proceed against another person if that other
person is insured for the same loss, by the same company. This provision applies only if the loss was caused
by the nonintentional acts of the person against whom subrogation is sought.
(c) This provision does not apply to or affect claims of a surety against its principal.
(d) Nothing in this section prevents an insurer from allocating the loss internally to the at-fault insured for
purposes of underwriting, agency, and claims information.
MISSISSIPPI
There do not appear to be any restrictions on the ability of a landlord’s insurer to pursue the tenant for subrogation
as a result of damages paid by the insurer which were caused by the tenant. Paramount Ins. Co. v. Parker, 112 So.2d
560 (Miss. 1959).
MISSOURI
A tenant may be considered a “co-insured” under the insurance policy obtained by the lessor where it was clear
that the parties intended to look only to insurance, rather than at each other, to pay damages caused by negligence.
This intent must be determined from the four corners of the lease. Jos. A. Bank Clothiers, Inc. v. Brodsky, 950 S.W.2d
297, 303 (Mo. App. 1997). The Brodsky Court found such intent from a surrender clause of the lease. That clause
provided that the lessee would surrender possession of the leased premises to lessor in good condition, “loss by
fire, casualty, providence and deterioration excepted.” Where a lease requires the landlord to carry insurance and
provides there is to be no subrogation right between the parties, it may be determined that the parties intended to
look only to insurance, rather than each other, for any loss or damage to the premises. Rock Springs Realty, Inc. v.
Waid, 392 S.W.2d 270, 274 (Mo. 1965). An insurer cannot subrogate against its own insured, since, by definition,
subrogation arises only with respect to the insured’s rights against third persons to whom the insurer owes no duty.
Therefore, no right of subrogation arises against a person who holds the status of an additional insured, or against
a tenant who is determined from the intent of the parties to be an implied “co-insured.” Brodsky, supra. Where a
party is required by contract to carry insurance for the benefit of another, that party will be treated as a co-insured.
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Id.
MONTANA
Montana adheres to the rule that no right of subrogation can arise in favor of an insurer against its own insured
since, by definition, subrogation exists only with respect to rights of insurer against third persons to whom insurer
owes no duty. Home Ins. Co. v. Pinski Bros., Inc., 500 P.2d 945 (Mont. 1972). However, there have been no cases
addressing whether a tenant is considered an implied co-insured.
NEBRASKA
Absent an express agreement to the contrary in a lease, a tenant and his/her landlord are implied co-insureds under
the landlord’s fire insurance policy, and the landlord’s liability insurer is precluded from bringing a subrogation
action against the negligent tenant. Tri-Par Investments, L.L.C. v. Sousa, 680 N.W.2d 190 (Neb. 2004). This is true
even when subrogating for portions of the building/complex which the tenant did not lease or live in. Buckeye State
Mut. Ins. Co. v. Humlicek, 284 Neb. 463 (2012). To subrogate against a tenant in Nebraska, it is necessary to show
that the provisions of the lease and the expectations of the parties overcome the presumption that the tenant is an
implied co-insured.
In Beveridge v. Savage, 830 N.W.2d 482 (Neb. 2013), the lease provided: “Renter’s insurance is a ‘contents’ policy
which covers tenant’s possessions, such as furniture, appliances, personal belongings, and household goods’.”
However, renter’s insurance does not typically cover the structure of the leased premises. The lease also required
Savage to obtain a “liability and renter[’]s insurance [policy] ($100,000) at Tenant’s expense.” However, the lease
did not state what “liability” was to be covered. Therefore, it was not clear as to the tenant’s obligations and what
liability the tenant was to insure. Finally, there is no lease provision stating that Beveridge or his insurer had a right
of subrogation against the Savages for damages caused by fire as a result of negligence. There was no provision
which gave the tenant notice that he must obtain insurance coverage for the realty in the event his negligence
caused damage to the house by fire. The court said that the tenants reasonably expected that the owner of the
building would provide fire insurance protection for the premises on behalf of both the tenant and landlord, and
the provisions of the lease were insufficient to overcome the presumption that the Savages were co-insureds under
Beveridge’s fire insurance policy. Because the Savages were co-insureds, no subrogation was allowed.
In SFI, Ltd. P’ship 8 v. Carroll, 851 N.W.2d 82 (Neb. 2014), the Nebraska Supreme Court held that the implied co-
insured rule does not apply to uninsured losses. SFI owned an apartment complex and Michelle Carroll was a tenant
under a residential lease agreement requiring Carroll to pay for repairs caused by her use of the unit and to maintain
renter’s insurance including “a personal liability coverage to a minimum of $100,000.00.” A fire occurred, and both
the apartment and the surrounding building were damaged. SFI had $10 million of coverage with a deductible of
$250,000. Still, SFI had over $100,000 in uninsured losses. But, neither the total amount of damages nor the amount
of any insurance recovery by SFI was included in the evidence. Carroll had renter’s insurance and submitted a claim
to her insurer, which paid $1,500 for her damages under “Loss of Use Coverage.” The court declined to extend the
anti-subrogation rule to a landlord’s uninsured losses caused by a tenant’s negligence.
NEVADA
It is not uncommon for the lessor to provide fire insurance on leased property. As a matter of sound business
practice, the premium to be paid had to be considered in establishing the rental rate. Such premiums would be
chargeable against the rent as an overhead or operating expense. Accordingly, the tenant paid the premium as part
of the monthly rental. Courts consider it an undue hardship to require a tenant to insure against his own negligence,
when he is paying, through his rent, for the fire insurance which covers the premises. A fire insurer is not entitled,
as subrogee, to bring an action against a tenant to recover for amounts paid to the landlord for fire damage to rental
premises caused by the tenant’s negligence in absence of express agreement between the landlord and tenant to
the contrary. The landlord and tenant are co-insureds under fire policy. Safeco Ins. Co. v. Capri, 705 P.2d 659, 661
(Nev. 1985). Absent an express provision in the lease establishing the tenant’s liability for loss from negligently
started fires, courts find that the premises insurance was obtained for the mutual benefit of both parties and that
the tenant stands in the shoes of the insured landlord for the limited purpose of defeating a subrogation claim. In
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short, they are an “implied co-insured.” Rizzuto v. Morris, 592 P.2d 688 (Wash. App. 1979); Liberty Mutual Fire Ins.
Co. v. Auto Spring Sup. Co., 59 Cal.App.3d 860 (1976).
NEW HAMPSHIRE
New Hampshire follows the “Sutton Rule” (see Oklahoma). A landlord’s insurer may not pursue a tenant for any
damages caused by the tenant’s negligence because the tenant is considered an implied co-insured. Cambridge
Mut. Fire Ins. Co. v. Crete, 846 A.2d 521 (N.H. 2004). In addition, a landlord may not pursue the tenant for uninsured
losses it sustains. The implied coinsured fiction was recently extended to apply to students living in a dorm at
Dartmouth College.
In Ro v. Factory Mut. Ins. Co. as Trustees of Dartmouth College, 260 A.3d 811 (N.H. 2021), the plaintiffs lived in
separate dormitories on campus, and each paid room and board in addition to tuition. Prior to being assigned a
dormitory room, each of the plaintiffs was required to sign a form acknowledging receipt and understanding of the
college’s student handbook. Included in the handbook were prohibitions on: (1) possessing charcoal grills in student
housing; (2) lighting and burning of any item with an open flame in residence halls; and (3) placing items on, and the
use of, “the roof, portico, fire escape, or any other architectural feature not designed for recreational or functional
use, except in cases of emergency.” The handbook noted that violation of the open flame policy “may” result in
liability for damage due to fire. In addition, the handbook placed responsibility on students for claims arising from
damage to college property. It provided that student residents “assume any and all liability for damage or claims
that result from their own negligence,” or that of their visitors or guests, and that student residents who damage or
vandalize Dartmouth property “will typically be expected to pay restitution.” Students set up a charcoal grill and a
fire resulted in over $4.5 million in damages to university property, which was paid by their carrier, Factory Mutual,
who attempted to subrogate against the students. The students preemptively filed a declaratory judgment action
seeking a declaration that they were “implied co-insureds” under the Factory Mutual policy. The trial court agreed
with the students and Factor Mutual appealed. On appeal, Factory Mutual argued that the trial court erred in: (1)
concluding that the plaintiffs held a possessory interest in their dormitory rooms; (2) failing to conclude that the
plaintiffs were licensees “with a revocable personal privilege to occupy Dartmouth College residence halls” and that,
therefore, the anti-subrogation rule set forth in Crete did not apply; and (3) failing to conclude that policies in the
student handbook negated any presumption that the plaintiffs are implied co-insureds under the fire insurance
policy. In short, Factory Mutual argues that the Crete doctrine does not apply under the circumstances of this case
and that, in any event, the parties contracted out of the doctrine through the student handbook. The court held
that the Sutton doctrine has not been confined by strict property law distinctions. As the Nebraska Supreme Court
noted, “A shared insurable interest and privity between the landlord and tenant are part of the backdrop to the
development of the per se rule in Sutton and similar cases, but those concepts do not form a bright line for the rule's
applicability.” Buckeye State Mut. Ins. Co. v. Humlicek, 822 N.W.2d 351 (Neb. 2012). In determining whether to apply
the Crete anti-subrogation doctrine to a college/residential student situation, it looked at the contractual
relationship between the parties more broadly than whether it was “technically a lease in the traditional sense.”
The trial court decision was affirmed.
NEW JERSEY
Absent a clear contractual expression to the contrary, the insurance carrier will be permitted to sue a tenant in
subrogation. Zoppi v. Traurig, 598 A.2d 19 (N.J. Super. 1990). If the landlord has a claim against the tenant, existence
of insurance obtained by the landlord, paid by the landlord, for the benefit of the landlord, does not exculpate the
tenant from consequences of negligent conduct, absent express agreement to that effect. Id.
NEW MEXICO
Where the lease indicated that the parties failed to agree that one, or both, of them would carry fire insurance, and
where there was no specific exculpatory language relieving the tenant from liability for negligence, the tenant was
liable for negligently having caused a fire in the leased premises. Acquisto v. Joe R. Hahn Enterprises, Inc., 619 P.2d
1237 (N.M. 1980).
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NEW YORK
New York has rejected the implied co-insured rationale set forth in the “Sutton Rule” and has allowed the insurer to
bring a subrogation claim against the tenant, absent an express agreement to the contrary. Galante v. Hathaway
Bakeries, Inc., 6 A.D.2d 142, 176 N.Y.S.2d 87, 92 (N.Y. 1958). The principles underlying the Subrogation Doctrine and
Anti-Subrogation Rule in New York does not support the fiction that the tenant is an implied co-insured of the
landlord, and subrogation is therefore allowed. Phoenix Ins. Co. v. Stamell, 21 A.D.3d 118, 796 N.Y.S.2d 772 (N.Y.A.D.
4 Dept. 2005).
NORTH CAROLINA
North Carolina has rejected the implied co-insured rationale set forth in the “Sutton Rule” that allows the landlord’s
insurer to bring a subrogation claim against the tenant, absent an express agreement to the contrary contained in
the lease. Winkler v. Appalachian Amusement Co., 238 N.C. 589, 79 S.E.2d 185, 190 (N.C. 1953). Upon paying a loss
by fire, the insurer is entitled to subrogation to the rights of insured against the third-party tortfeasor causing the
loss, to the extent of the amount paid. In William F. Freeman, Inc. v. Alderman Photo Co., 365 S.E.2d 183 (N.C. App.
1988), the court held that a lease that only addresses insurance coverage and subrogation rights will not extend to
exempt the parties from liability for negligence. There, the lease required the parties to insure their own property,
and the court concluded the parties included the subrogation clause to ensure each party would only be required
to pay for damages to his own property. The court reasoned because the lease contained “no clear, explicit words
waiving liability for negligence[,]” it would not infer the parties intended to do so. In Morrell v. Hardin Creek, Inc.,
2017 WL 3480543 (N.C. App. 2017), even though the lease stated the parties “agree and discharge each other from
all claims and liabilities arising from or caused by any hazard covered by insurance,” the court ruled the lease did
not explicitly state the parties contemplated waiving claims stemming from negligence.
NORTH DAKOTA
A tenant’s liability to the landlord’s insurer for negligently causing a fire depends on the intent and reasonable
expectations of the parties to the lease as ascertained from the lease as a whole. Agra-By-Products, Inc. v. Agway,
Inc., 347 N.W.2d 142 (N.D. 1984) (subrogation denied because lease required lessor to keep insurance and lessee
to reimburse lessor for premiums).
OHIO
A tenant’s liability to the landlord’s insurer for negligently causing a fire depends on the intent and reasonable
expectations of the parties to the lease as ascertained from the lease as a whole. U.S. Fire Ins. Co. v. Phil-Mar Corp.,
166 Ohio St. 85, 139 N.E.2d 330, 332 (Ohio 1956) (denied subrogation because lease provided that tenant would
pay possible increase in fire insurance premiums due to tenant’s activities). In Phil–Mar, the court looked at the
words expressed in the totality of the lease agreement to ascertain the intent of the parties. The court found that
where a lease agreement contained (1) a surrender clause requiring the lessee to return possession of the leased
premises to the lessor upon the expiration or termination of the lease, with said premises being “in as good
condition and repair as the same shall be at the commencement of said term (loss by fire * * * excepted),” and (2)
a provision requiring the lessee to pay the lessor any additional premium charged for the fire insurance on the
premises that resulted from the lessee’s occupancy, the lessor had relieved the lessee of liability for fire caused by
the lessee’s negligence, and thus the lessor had no right of recovery against the lessee. The court, after “considering
the lease as a whole,” found that it was apparent under the circumstances of the case that “the parties intended to
relieve the lessee from its common-law liability to the lessor for loss by fire.” In Cincinnati Ins. Co. v. Control Service
Technology, Inc., 677 N.E.2d 388 (Ohio App. 2011), the lease provided that the lessor agreed to restore the leased
premises under certain conditions in the event of a fire or other casualty. The trial court found that this lease
provision constituted “a waiver of any negligence on the part of CST.” The Court of Appeals disagreed, finding that
the provision was ambiguous and was not the type of waiver ordinarily relied upon to excuse a party from the results
of the party’s own negligence. The Court of Appeals also found that the parties’ lease did not contain a surrender
clause similar to the “rather explicit” surrender clauses in Phil–Mar. It must be clear and apparent from the terms
of the lease agreement, looked at as a whole, that the parties intended to relieve tenant from her common-law
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liability to landlord for negligence. If the landlord cannot sue, its insurer cannot sue. Cincinnati Ins. Co. v. Getter, 958
N.E.2d 202 (Ohio App. 2011).
OKLAHOMA
The fire insurer is not entitled, as subrogee, to bring an action against the tenant to recover for amounts paid to the
landlord for fire damage to rental premises caused by the tenant’s negligence in absence of express agreement
between the landlord and tenant to the contrary. Landlord and tenant are co-insureds under the fire policy. Sutton
v. Jondahl, 532 P.2d 478 (Okla. App. 1975) (known as the “Sutton Rule”).
OREGON
Oregon rejects blanket following of the “Sutton Rule” (see Oklahoma) which holds the tenant is an implied co-
insured. Whether the landlord’s insurer can subrogate against the tenant depends on the facts of the case and the
language of the lease. Koch v. Spann, 92 P.3d 146 (Or. App. 2004). Where the lease provides that the landlord will
provide “full fire insurance coverage on all of the leased property for all of the parties and that the premiums
therefore were included in the monthly lease payments” or “OWNER TO FURNISH FREE OF CHARGE ‘[f]ire insurance
in the amount equal to the value of the equipment’”, the Court recognized as a complete defense to either a direct
action or a subrogation claim the landlord’s contractual obligation to maintain fire insurance. Permitting the owner
or lessor to proceed against the tenant or lessee would deprive the latter of the benefit of what it bargained for:
insurance against liability for its own negligence.
PENNSYLVANIA
Until recently, Pennsylvania had only one case speaking to this issue. If the lease requires the landlord to provide
fire insurance, the landlord’s carrier cannot subrogate against the tenant. If the lease requires the tenant to obtain
fire insurance, the landlord’s carrier can subrogate. Remy v. Michael D’s Carpet Outlets, 571 A.2d 446 (Pa. Super.
1990). It depended on the lease language.
In the 2019 Superior Court decision of Joella v. Cole, 221 A.3d 674 (Pa. Super. 2019), the landlord’s (Joella) insurance
company (Erie Insurance Exchange) filed a subrogation suit against a tenant (Cole) to recover for damages from a
fire caused when Cole ran an extension cord across metal hinges to a microwave. Joella who carried insurance
through Cole responded by arguing that the lease required Joella to maintain fire insurance and, therefore, she was
an implied co-insured. The lease provided that the tenant had the right to maintain fire insurance to cover property
not covered by the landlord’s policy. Until this decision, Remy had been the only case discussing the issue. The trial
court held that the reasonable expectation of the tenant was that she was an implied co-insured under the policy.
On appeal, however, the Superior Court noted that while the Erie policy did not mention the tenant, it did say that
the landlord would secure insurance for the building and the tenant had a right to get her own policy. Therefore,
where the lease required the landlord to maintain insurance on the building, the reasonable expectations of the
parties was that the tenant is an implied co-insured under the Erie policy and Erie cannot pursue the tenant in
subrogation.
To determine whether a tenant is a co-insured under his landlord’s lease and, therefore, immune for a subrogation
action by the landlord’s insurance company, Pennsylvania applies “the case-by-case approach....” Joella, 221 A.3d
at 678. Under this approach “courts determine the availability of subrogation based on the reasonable expectations
of the parties as expressed in the lease under the facts of each case.” Id. To make that assessment “the court will
look to the lease agreement between the landlord and the tenant.” Thomas v. Jones, 2021 WL 462025 (Pa. Super.
2021).
RHODE ISLAND
A tenant’s liability to the landlord’s insurer for negligently causing a fire depends on the intent and reasonable
expectations of the parties to the lease as ascertained from the lease as a whole. 56 Assocs. v. Frieband, 89 F.Supp.2d
189, 194 (D. R.I. 2000) (subrogation allowed where lease did not address question of fire insurance).
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SOUTH CAROLINA
South Carolina statute provides as follows:
§ 38-75-60. Cause of action by insurer against tenant. Notwithstanding any other provision of law, no insurer
has a cause of action against a tenant who causes damage to real or personal property leased by the landlord
to the tenant when the insurer is liable to the landlord for the damages under an insurance contract between
the landlord and the insurer, unless the damage is caused by the tenant intentionally or in reckless disregard of
the rights of others.
SOUTH DAKOTA
South Dakota rejects the blanket following of the “Sutton Rule” (see Oklahoma) which holds that the tenant is an
“implied co-insured” of the landlord’s insurer. American Family Mut. Ins. Co. v. Auto-Owners Ins. Co., 2008 WL
4816666 (S.D. 2008). Instead, South Dakota adopts the case-by-case approach as a better reasoned rule that
recognizes the intent of the parties under contract law and the equitable underpinning of subrogation. Subrogation
may be denied under the case-by-case approach if the lease expressly requires the landlord to maintain fire
insurance or the lease exonerates a tenant from losses caused by a fire.
TENNESSEE
According to a U.S. Federal District Court, a tenant’s liability to the landlord’s insurer for negligently causing a fire
depends on the intent and reasonable expectations of the parties to the lease as ascertained from the lease as a
whole. Tate v. Trialco Scrap, Inc., 745 F.Supp. 458, 467 (M.D. Tenn. 1989) (subrogation was denied because the lease
required the lessor to purchase insurance coverage on the building). In 2007, however, the Tennessee Court of
Appeals has decided that the case-by-case review of the lease terms to determine the intent and expectations of
the parties is not the best approach and has indicated that absent an express agreement to the contrary, a tenant
should be considered a co-insured under the landlord’s property casualty insurance policy, and the insurance carrier
should therefore be precluded from asserting subrogation rights against the tenant. Dattel Family Limited
Partnership v. Wintz, 250 S.W.3d 883 (Tenn. App. 2007).
TEXAS
An insurer of leased premises has no subrogation claim against the tenant for losses paid to the landlord when the
leased premises are destroyed by a fire and the lease agreement, signed by the landlord and tenant, contains a
limitation of liability clause which provided that neither party is liable for the insurable casualty damage to the
leased premises, even when the tenant assigns its lease to the third party prior to fire. Interstate Fire Ins. Co. v. First
Tape, Inc., 817 S.W.2d 142 (Tex. App. - Houston [1
st
Dist.] 1991). However, the application of the “Sutton Rule” has
never been addressed in Texas. Landlords and tenants are free to contract between themselves that the tenant will
pay for specific kinds of repair without a showing that the tenant caused the damage. Where a lease states that the
tenant “must promptly pay or reimburse [landlord] for loss, damage, consequential damages, government fines or
charges, or cost of repairs or service in the apartment community due to: a violation of the Lease Contract or rules;
improper use; negligence; other conduct by you or your invitees, guests or occupants; or any other cause not due
to [landlord’s] negligence or fault”, it is subject to only one interpretation: that the tenant is required to pay the
landlord for any damages to the apartment complex as long as the apartment complex was not at fault. The
provision in the lease agreement obligating the tenant to reimburse the landlord for all damage “not due to the
landlord’s negligence or fault” was not unenforceable per se, even though the provision was overly broad and could
have encompassed scenarios in which the landlord would have had a non-waivable duty to repair under the Property
Code. A jury’s finding that the tenant’s negligence did not proximately cause damage from the fire did not support
the finding that the tenant was not at fault or didn’t cause the damage, as required for the tenant to establish that
the landlord had a non-waivable duty to repair a condition that was not “caused by” the tenant. If there is sufficient
evidence that the tenant's actions, even if not negligent, caused the fire, the lease provision is not unenforceable
under the Code as applied. Philadelphia Indem. Ins. Co. v. White, 490 S.W.3d 468 (Tex. 2016).
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UTAH
Utah considers the tenant an implied co-insured for the “limited purpose” of subrogation. GNS Partnership v.
Fullmer, 873 P.2d 1157, 1162 (Utah Ct. App. 1994).
VERMONT
Vermont finds the case-by-case approach to be the most consistent with Vermont law. In determining the rights of
the parties to a lease, this court has consistently looked to the intent of the contracting parties as ascertained from
the terms of the lease. Fairchild Square Co. v. Green Mountain Bagel Bakery, Inc., 658 A.2d 31, 33 (Vt. 1995); Lamoille
Grain Co. v. St. Johnsbury & Lamoille Cty. R.R., 369 A.2d 1389, 1390 (Vt. 1976); Union Mut. Fire Ins. Co. v. Joerg, 824
A.2d 586, 590 (Vt. 2003).
VIRGINIA
A tenant’s liability to the landlord’s insurer for negligently causing a fire depends on the intent and reasonable
expectations of the parties to the lease as ascertained from the lease as a whole. Monterey Corp. v. Hart, 224 S.E.2d
142, 147 (Va. 1976) (subrogation denied because the lease contained “except fire” provision).
WASHINGTON
A landlord is presumed to carry insurance for tenant’s benefit, as implied co-insured, absent express lease provision
to the contrary. Therefore, without more, the landlord’s fire insurer has no subrogation rights against tenants for
loss to leased premises. Cascade Trailer Court v. Beeson, 749 P.2d 761 (Wash. App.1988). A mutual understanding
that a tenant will be relieved of liability for his own negligence may be inferred from provisions of the parties’ lease.
For example, the lease may expressly require the lessor to carry fire insurance covering the leased building, or it
may prohibit the tenant from performing any acts which would raise the cost of insurance. Other circumstances
may also give rise to an inference that the parties have mutually understood that the lessor would provide the
insurance. Rizzuto v. Morris, 592 P.2d 688 (Wash. App. 1979). In Trinity Universal Ins. Co. v. Cook, 276 P.3d 372
(Wash. App. 2012), the Court held that a tenant is a co-insured under its landlord’s policy for the entire building, not
only the unit she occupies. It also held that a tenant’s spouse is a co-insured under the landlord’s insurance policy.
WEST VIRGINIA
In 2015, the Supreme Court of Appeals of West Virginia (the highest appellate court in that state) held that if the
insurance contract unambiguously identifies the insured, then a court may not, by judicial construction, enlarge the
coverage to include other individuals foreign to the insurer. To do so would be “patently unfair” since the insurer
“has a right to choose whom it will or will not insure.” The Court ruled that a residential tenant is not an equitable
“insured” under a landlord’s homeowners’ policy, unless specifically named in the policy. Therefore, a landlord’s
insurer can maintain a subrogation action against a tenant for the damages the insurer pays to the landlord following
a fire or other destruction of the leased premises caused by a negligent tenant. The tenant is neither a named nor a
definitional insured of the landlord’s homeowners’ insurance policy and is not an “insured” under the landlord’s
policy by the mere fact that the tenant may have an insurable interest in the leased property. Farmers & Mechanics
Mut. Ins. Co. v. Allen, 778 S.E.2d 718 (W. Va. 2015).
WISCONSIN
Wis. Stat, § 704.07(3)(a) makes a tenant automatically liable to the landlord for damage to property caused by the
tenant’s negligence. A tenant is precluded from claiming co-insured status under the landlord’s fire insurance policy
so as to avoid subrogation where the lease is silent as to fire insurance coverage. Bennett v. West Bend Mut. Ins.
Co., 200 Wis.2d 313, 546 N.W.2d 204 (Wis. App.1996). The statute reads as follows:
§ 704.07 (3) Duty of Tenant. (a) If the premises are damaged by the negligence or improper use of the premises
by the tenant, the tenant must repair the damage and restore the appearance of the premises by redecorating.
However, the landlord may elect to undertake the repair or redecoration, and in such case the tenant must
reimburse the landlord for the reasonable cost thereof; the cost to the landlord is presumed reasonable unless
proved otherwise by the tenant.
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WYOMING
Although Wyoming has not directly addressed this issue, the Wyoming Supreme Court has intimated that it views a
contractual provision to provide specific insurance as a waiver of subrogation rights with regard to the risk insured
against. Berger v. Teton Shadows, Inc., 820 P.2d 176 (Wyo. 1991).
If you have any questions regarding landlord/tenant subrogation, please contact Gary Wickert at gwickert@mwl-
law.com.
These materials and other materials promulgated by Matthiesen, Wickert & Lehrer, S.C. may become outdated or superseded
as time goes by. If you should have questions regarding the current applicability of any topics contained in this publication
or any of the publications distributed by Matthiesen, Wickert & Lehrer, S.C., please contact Gary Wickert at (800) 637-9176
or gwickert@mwl-law.com. This publication is intended for the clients and friends of Matthiesen, Wickert & Lehrer, S.C. This
information should not be construed as legal advice concerning any factual situation and representation of insurance
companies and\or individuals by Matthiesen, Wickert & Lehrer, S.C. on specific facts disclosed within the attorney\client
relationship. These materials should not be used in lieu thereof in anyway.
