In Youell v. Cincinnati Ins. Co., 2018 Ind. App. LEXIS 497 (2018), the Court of Appeals of Indiana considered whether a landlord’s carrier could bring a subrogation claim against a commercial tenant for fire-related damages when the lease, which did not reference subrogation, explicitly required the landlord to maintain fire insurance coverage for the leased premises. The court held that subrogation was barred because the provision requiring the landlord to maintain fire insurance established an agreement to provide both parties with the benefits of insurance. The Youell case establishes that, in Indiana, if the lease explicitly states that the landlord will maintain fire casualty insurance for the building, the lease evidences an agreement by the parties to shift the risk of loss to the insurer. This agreement bars a landlord’s insurance carrier from subrogating against a commercial tenant in the event of a casualty.
In 2013, the building owner, Greg Dotson, began leasing a commercial building to Robert Youell for his tire business, Best One Giant Tire, Inc. (collectively, Youell). The lease agreement required that the landlord maintain fire and extended coverage insurance on the building and the leased premises. The lease also required the tenant to purchase fire and extended coverage insurance for its personal property. The lease did not mention subrogation. Dotson obtained a property insurance policy through Cincinnati Insurance.
In 2015, a fire occurred in the building. Cincinnati Insurance paid Dotson for the loss. In 2017, Cincinnati Insurance filed a subrogation action against Youell seeking to recover what it paid for this loss. Youell filed a motion for judgment on the pleadings on grounds that subrogation was barred because Dotson’s agreement to provide property insurance was for the benefit of both the landlord and tenant. The lower court denied the motion, and Youell filed an interlocutory appeal.
The Court of Appeals recognized Indiana’s precedent stating that if the language of a contract is unambiguous, the parties’ intent will be determined from the four corners of the contract. The court also acknowledged that Indiana courts have adopted a “case-by-case approach” with respect to landlord-tenant subrogation cases. Thus, the question of whether a landlord’s carrier can subrogate against a tenant depends on the reasonable expectations of the parties to a lease as ascertained from the lease as a whole.
Examining the lease agreement between Dotson and Youell, the court found that the lease unambiguously provided that Dotson would insure the building and Youell would insure its personal property inside the building. In addition, the court found that the insurance provision 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 held that a party who agrees to purchase insurance has no cause of action against the party for whose benefit the insurance was intended. Since the rights of the landlord’s subrogated insurance carrier rose no higher than the rights of the landlord, the court held that the landlord’s carrier was barred from subrogating against Youell. Thus, the Court of Appeals reversed the lower court’s decision with an instruction to grant Youell’s motion for judgment on the pleadings.
The Youell case establishes that, in Indiana, a lease provision explicitly requiring the landlord to maintain property insurance may evidence an agreement to shift the risk of loss to insurance, thereby prohibiting a landlord’s insurance carrier from subrogating against a tenant. This case is important to consider when evaluating whether subrogation is viable against an insured’s commercial tenant. While a lease may not explicitly address subrogation, subrogation professionals should review a lease’s insurance provisions to determine if the intent of the lease is to shift the risk of loss to insurance. If so, then the landlord’s carrier will be barred from subrogating against the tenant.