LANDLORD / TENANT SUBROGATION

The rule of subrogation known as the “Sutton Rule” states that a tenant and a landlord are automatically considered “coinsureds” under a fire insurance policy as a matter of law, and therefore the insurer of the landlord which pays for 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, and is the benchmark against which the landlord/tenant subrogation law of most states is measured.

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 an endorsement under which the insurance company waives its right of subrogation against any party to the lease agreement in 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 negligence of the other. McCay v. Big Town, Inc., 293 Ala. 582, 307 So.2d 695  (Ala. 1975).

ALASKA

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 landlord and tenant to contrary. Landlord and tenant are coinsureds under 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 Insurance Co. v. Bar Club, Inc., 921 P.2d 626 (Alaska 1996).

ARIZONA

Arizona 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. 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 depends 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” 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.4th 313, 99 Cal.Rptr.2d 596, 602 (2000). However, unless there is evidence of a contrary intention, the tenant is presumed to be an implied coinsured and the “Sutton Rule” (see Oklahoma) applies. Parsons Mfg. Corp. v. Superior Court, 203 Cal. Rptr. 419 (1984) (landlord required to maintain fire insurance under terms of the lease).

COLORADO

A landlord’s insurer may recover against tenant only if the landlord would have the right to recover against tenant. 473 P.2d 181 (Col. 1970). Thus, the ultimate question presented is whether the provisions of the written lease between 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 therefore 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 therefore may not be sued for their negligence as they are an insured under the policy. St. Paul Fire & Marine Ins. Co. v. Durr, Not Reported in A.2d, 2001 WL 984782 (Conn.Super.,2001). This holding was first adopted in Sutton v. Jondahl, 532 P.2d 478 (Okl.Ct.App.1975) (the “Sutton Rule”). The Connecticut legislature has enacted a standard form of fire insurance, with which all fire insurance policies issued in this state must conform. Connecticut General Statutes § 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 Compan.” Connecticut General Statutes § 38a-307. The subrogation clause set forth in § 38a-307 fails to provide an insurer with a direct, and inviolate, right of subrogation. To the contrary, it merely provides that an insurer “may require” an insured to assign any rights he or she has to the insurer. Therefore, without additional language in the lease, the right of recovery belongs to the insured, and the insurer only obtains that right when the insured grants it. Wasko v. Manella, 849 A.2d 777 (Conn. 2004).

DELAWARE

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 landlord and tenant to contrary. Landlord and tenant are coinsureds under fire policy. Lexington Ins. Co. v. Raboin, 712 A.2d 1011, 1016 (Del.Super.Ct.1998)

FLORIDA

Florida has 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 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 lease provided that damage caused by fire "shall be repaired by and at the expense of Lessor").

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 an inflexible application of the “Sutton Rule” (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 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

Illinois has avoided an inflexible application of the “Sutton Rule” (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 (1992).

INDIANA

Indiana has avoided an inflexible application of the “Sutton Rule” (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 depends on the intent and reasonable expectations of the parties to the lease as ascertained from the lease as a whole. United Farm Bureau Mutual Insurance Company v. Owen, 660 N.E.2d 616 (Ind. App. 1996).

IOWA

Iowa has rejected the implied coinsured 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 provide insurance for the tenant, 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 that 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, generally speaking, would be classed as arson, and the lessee was not liable for loss by fire resulting from its negligence. New Hampshire Ins. Co. v. Fox Midwest Theatres, Inc. 457 P.2d 133 (Kan. 1969). But 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 independent of 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 negligence of the tenant. Salina Coca-Cola Bottling Corp. v. Rogers, 237 P.2d 218 (1951).

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).

LOUISIANA

Specific lease provisions will prohibit subrogation against a tenant. A lease provision, under which 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 Illinois 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 landlord and tenant to contrary. Landlord and tenant are coinsureds under 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. Rausch v. Allstate Ins. Co., 882 A.2d 801 (Md.,2005).

MASSACHUSETTS

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

Follows “Sutton Rule” (Oklahoma). 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 landlord and tenant to contrary. Landlord and tenant are coinsureds under fire policy. N.H. Ins. Group v. Labombard, 399 N.W.2d 527, 531 (Mich. App. 1986)

MINNESOTA

Tenants are co-insureds under their landlord's fire insurance policy for purposes of subrogation actions. United Fire & Cas. Co. v. Bruggeman, 505 N.W.2d 87 (Minn.App.,1993).

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

Courts therefore consider it to be 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. This exemption from liability does not apply if there is arson. Rock Springs Realty, Inc. v. Waid, 392 S.W.2d 270, 278 (Mo.1965). (subrogation denied because lease required tenant to maintain premises in good condition, with "loss by fire...excepted").

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 or not a tenant is considered an implied co-insured.

NEBRASKA

Absent an express agreement to the contrary in a lease, a tenant and his or her landlord are implied coinsureds 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).

NEVADA

It is not uncommon for the lessor to provide fire insurance on the leased property. As a matter of sound business practice, the premium to be paid had to be considered in establishing the rental rate. Also, such premiums would be chargeable against the rent as an overhead or operating expense. Accordingly, the tenant actually paid the premium as part of the monthly rental. Courts therefore consider it to be 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. 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 landlord and tenant to contrary. Landlord and tenant are coinsureds under fire policy. Safeco Ins. Co. v. Capri, 705 P.2d 659, 661 (Nev. 1985).

NEW HAMPSHIRE

Follows the “Sutton” doctrine. 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 coinsured. Cambridge Mut. Fire Ins. Co. v. Crete, 846 A.2d 521 (N.H. 2004). In addition, a landlord may not even pursue the tenant for uninsured losses it sustains.

NEW JERSEY

If landlord has claim against tenant, existence of insurance obtained by landlord, paid by landlord and for benefit of landlord does not exculpate tenant from consequences of negligent conduct, absent express agreement to that effect. Zoppi v. Traurig, 598 A.2d 19 (N.J.Super. 1990).

NEW MEXICO

Where lease indicated that parties failed to agree that one, or both, of them would carry fire insurance, and where there was no specific exculpatory language relieving tenant from liability for negligence, 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).

NEW YORK

New York has rejected the implied coinsured rationale and 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 (1958). The principles underlying the subrogation doctrine and the antisubrogation rule in New York also do not support the fiction that the tenant is an implied coinsured 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 coinsured rationale and allowed the insurer to bring a subrogation claim against the tenant, absent an express agreement to the contrary. Winkler v. Appalachian Amusement Co., 238 N.C. 589, 79 S.E.2d 185, 190 (1953).

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, 146-50 (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. United States Fire Ins. Co. v. Phil-Mar Corp., 166 Ohio St. 85, 139 N.E.2d 330, 332 (1956). (denied subrogation because lease provided that tenant would pay possible increase in fire insurance premiums due to tenant's activities).

OKLAHOMA

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 landlord and tenant to contrary. Landlord and tenant are coinsureds under fire policy. Sutton v. Jondahl, 532 P.2d 478 (Okla. App. 1975). (known as the “Sutton Rule”).

OREGON

Rejects blanket following of “Sutton” rule which holds tenant is implied coinsured. Rather, whether or not 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

Depends on the language of the lease. 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).

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).

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 has not directly addressed this issue.

TENNESSEE

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 denied because lease required lessor to purchase insurance coverage on building).

TEXAS

As a matter of law, insurer of leased premises had no subrogation claim against tenant for losses paid to landlord when leased premises were destroyed by fire where lease agreement, signed by landlord and tenant, contained limitation of liability clause which provided that neither party would be liable for insurable casualty damage to leased premises, even though tenant had assigned its lease to third party prior to fire. Interstate Fire Ins. Co. v. First Tape, Inc., 817 S.W.2d 142 (Tex.App.-Hous. [1 Dist.] 1991). However, the application of the “Sutton Rule” has never been addressed in Texas.

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 County R.R., 369 A.2d 1389, 1390 (Vt. 1976).

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 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).

WEST VIRGINIA

West Virginia has not directly addressed this issue.

WISCONSIN

Wisconsin Statute Section 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:

Sec. 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.

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).