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 Factory Mut. Ins. Co. v. Skanska United States Bldg., No. 18-cv-11700-DLC, 2020 U.S. Dist. LEXIS 95403 (Skanska), the United States District Court for the District of Massachusetts considered whether contractors on a construction job were additional insureds on the developer’s builder’s risk insurance policy. After a water loss occurred during construction, the builder’s risk insurance carrier paid its named insured for the resultant damage, and subsequently filed a subrogation action against two contractors. The defendants filed a motion for summary judgment, claiming that the anti-subrogation rule barred the carrier from subrogating against them because they were additional insureds on the policy. The court found that based on the particular language of the additional insured provision in the policy, the defendants were not additional insureds for purposes of the subrogation action. Continue reading
In Joella v. Cole, 2019 PA Super. 313, the Superior Court of Pennsylvania recently considered whether a tenant, alleged by the landlord’s property insurance carrier to have carelessly caused a fire, was an implied co-insured on the landlord’s policy. The court found that the tenant was an implied co-insured because the lease stated that the landlord would procure insurance for the building, which created a reasonable expectation that the tenant would be a co-insured under the policy. Since the tenant was an implied co-insured on the policy, the insurance carrier could not maintain a subrogation action against the tenant. This case confirms that Pennsylvania follows a case-by-case approach when determining whether a tenant was an implied co-insured on a landlord’s insurance policy. Continue reading
In Western Heritage Ins. Co. v. Frances Todd, Inc. 2019 Cal. App. Lexis 299, the Court of Appeals of California, First Appellate District, addressed whether a commercial condominium association’s carrier could subrogate against the tenants (aka lessees) of one of its member unit owners. After examining the condominium association’s declarations, as well as the lease terms between the owner and the lessees, the court held that the association’s carrier could not subrogate against the lessees because they were implied co-insureds on the policy. To reach its decision, the court explained that an insurer steps into the shoes of its insured, not the party with whom it is in privity. Although the first-party property portion of the association’s insurance policy did not, as required by the association’s declarations, have the owner listed as an additional named insured, the court held that it would be inequitable to treat the association as the sole insured for purposes of determining Western Heritage’s right to bring a subrogation action. 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
In Depositors Ins. Co. v. Dollansky, 919 N.W.2d 684 (Minn. 2018), the Supreme Court of Minnesota considered whether the anti-subrogation rule set forth in Minn. Stat. §60A.41(a) precluded a motor home lessor’s insurer, Depositors Insurance Company (Depositors), from proceeding against the motor home lessee. Finding that the lessee was an insured under the lessor’s policy, the court held that Depositors could not pursue subrogation. Continue reading
For subrogation professionals, it is important to limit the liability exposure of your insured. In cases where the insurer, as subrogee, is proceeding as the plaintiff, this means limiting any direct claims against the insured – whether for contribution or indemnity – to affirmative defenses as opposed to third-party claims. Limiting direct claims against insureds not only keeps captions clean, but avoids strategic maneuvering by the defense that could negatively impact your case. In Ohio, when a defendant tries to pursue direct claims against the insured for contribution or indemnification, practitioners should, consistent with the analysis set forth in Continental Casualty Company v. Equity Indus. Maple Heights, LLC, 2017 U.S. Dist. LEXIS 54440 (N.D. Ohio, April 10, 2017), argue that defendants can no longer attempt this maneuver and that they are limited to raising affirmative defenses against the plaintiff’s subrogor.
Many subrogation specialists are aware of the potential issues posed by the Sutton Doctrine. Decided by the Oklahoma Court of Appeals in 1975, Sutton v. Jondahl, 532 P.2d 478 (Okla. App. 1975), holds that, absent an express agreement to the contrary, a tenant is presumed to be a co-insured under the landlord’s fire insurance policy. Because subrogation is forbidden against one’s own insured, the Sutton Doctrine can bar landlord/tenant subrogation actions. West Virginia, like many states, however, has adopted its own approach to landlord/tenant subrogation.
In Nationwide Property & Cas. Ins. Co. v. D.F. Pepper Construction, Inc., — A.3d –, 2013 WL 313933 (R.I. Jan. 28, 2013), the Supreme Court of Rhode Island addressed the question of whether the anti-subrogation rule precluded Nationwide Property & Casualty Insurance Company (Nationwide) from pursuing a subrogation action against a corporation solely owned by its insured. Recognizing that the corporation owned by Nationwide’s insured is a separate and distinct legal entity from Nationwide’s insured, the court held that the anti-subrogation rule did not apply.
The dispute at issue in D.F. Pepper arose from events that occurred after a snow storm in February of 2009. On the date of the storm, Dean Pepper (Pepper) was driving a truck owned by his company, D.F. Pepper Construction, Inc. (DFP, Inc.). While driving the truck home, the truck slid off of the road and hit Pepper’s home. Nationwide insured Pepper’s home. Merchants Mutual Insurance Company (Merchants) insured the truck. Nationwide paid Pepper for the damage to his home and filed a subrogation action against DFP, Inc. Nationwide alleged that Pepper was negligent, that he was acting within the course and scope of his employment, and that DFP, Inc. was vicariously liable for Pepper’s conduct under both the doctrine of respondeat superior and state law.
Pursuant to G.L. § 31-3-6, “the owner of a vehicle may be vicariously liable for the conduct of someone who has consent to drive the vehicle if the underlying driver is in fact negligent.” DFP, Inc. acknowledged that Pepper had consent to drive the truck and, thus, the only issues for trial were the issues of negligence and damages. The trial justice found that Pepper was negligent when he drove the truck.
DFP, Inc. argued that Nationwide’s claims were barred by the anti-subrogation rule. The trial justice held that DFP, Inc. and Pepper are separate entities and, because there was no allegation that DFP, Inc. was a sham corporation, the anti-subrogation rule did not apply.
On appeal, DFP, Inc. argued that the court should apply the anti-subrogation rule because, if Nationwide was allowed to recover, then Merchants, as the insurer of the truck, would pay the claim and then exercise its right of subrogation against Pepper. The court refused to engage in speculation as to whether Merchants would, in fact, pursue Pepper. However, the court recognized that if Merchants chose to proceed against Pepper, Merchants may, itself, be attempting to subrogate against its own insured as Merchants’ policy defined the term “insureds” to include both DFP, Inc. and “[a]nyone else while using with [DFP, Inc’s] permission a covered ‘auto.’”
Ultimately, although the Supreme Court recognized that it has not yet embraced the anti-subrogation rule and that the question of whether the rule should be adopted would have to wait for another day, the Supreme Court agreed with the trial court’s analysis. As noted by the court, DFP, Inc. is a distinct legal entity from Nationwide’s insured, Pepper. Thus, the court held that even if it were to recognize the anti-subrogation rule, the rule would have no application to the facts and circumstances of the case at issue.
The analysis in D.F. Pepper highlights the fact that courts, in general, treat corporations as separate legal entities unless the circumstances of a case dictate that the corporate form is a sham or, stated another way, that the corporation is the alter-ego of its owner. As the analysis in D.F. Pepper shows, absent circumstances justifying ignoring the corporate form, an insured who is the sole owner of a corporation should be treated as a separate entity from the corporation for purposes of deciding whether the anti-subrogation rule will preclude the insurer from pursuing a subrogation claim.
For more information regarding this alert, please contact Ed Jaeger (215.864.6322 / email@example.com) or Bill Doerler (215.864.6383 / firstname.lastname@example.org).