The Connecticut Supreme Court just made it easier for a landlord’s property insurer to subrogate against a tenant whose negligence causes damage to the landlord’s building. For years, Connecticut had followed the so-called “Sutton Rule” which holds that tenants are considered co-insureds under a landlord’s fire insurance policy and may not be sued by the subrogated property insurer of the landlord for damage caused by the tenant’s negligence. Sutton v. Jondahl, 532 P.2d 478 (Okla. Ct. App. 1975); St. Paul Fire & Marine Ins. Co. v. Durr, 2001 WL 984782 (Conn. Super. 2001) (not reported in A.2d). A possible exception to this rule exists where the lease specifically addressed the subrogation rights of the landlord. However, in the absence of a specific agreement to the contrary, no subrogation was allowed. 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. The courts created a “default” rule intended to avoid the economic waste of forcing each individual tenant in a multi-unit apartment to insure the whole building. DiLullo v. Joseph, 792 A.2d 819 (Conn. 2002). The “default” was that, unless the lease referred to a right of subrogation on the part of the landlord or its insurer, no right of subrogation existed. It was a difficult hurdle to overcome, because most leases aren’t drafted with subrogation specifically mentioned.
As an example, in 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.” Middlesex Mutual Assurance Co. v. Vaszil, 900 A.2d 513 (Conn. 2006). 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.
Confusion with regard to precisely what sort of language was required in order to allow subrogation ensued. In 2012 a Superior Court decision dealt with a lease that provided as follows:
- 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
- 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. Amica Mut. Ins. Co. v. Andresky, 2012 WL 527678 (Conn. Super. Ct. 2012).
The Superior Court said that this language was “far more clear” and appropriately informed the defendant/tenant that they would be liable to their landlord’s insurer. However, the following year another Superior Court decision stated that a lease must specifically 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.
The recent Connecticut Supreme Court decision in Amica Mut. Ins. Co. v. Muldowney, 180 A.3d 950 (Conn. 2018), has taken a fresh look at the issue of a landlord’s property insurer subrogating against a tenant. Amica (the landlord’s carrier) paid for water damaged 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 allow a landlord’s carrier a right of subrogation and overcome the DiLullo presumption against subrogation (more precisely, overcome that “the tenant’s rent presumably includes some calculation of the landlord’s fire insurance premium). The 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 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 Muldowney, the tenants were required to take certain actions designed to guard against frozen pipes and subsequent water damage. The lease also stated that if the tenant breached the lease, he had to pay for repairs if his actions made the premises unfit or unlivable. It also stated that the tenant held the landlord harmless for any loss arising out of their use or occupancy of the premises. As a result, subrogation was allowed. The 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.
Subrogating against tenants in Connecticut just became a little easier and a little clearer. When facing a property loss which appears to be the fault of a tenant, immediate subrogation investigation should be conducted. A subrogated property carrier will still carry the burden of proving that it was the tenant’s actions which caused the loss. This will require immediate investigation, statements, retention of evidence, and other actions in order to preserve what will be needed to make a successful subrogation bid later.
A chart which details the law regarding landlord/tenant subrogation in all 50 states can be found HERE. For information or questions regarding a landlord’s property insurer subrogating against a tenant in Connecticut or any other state, please contact Gary Wickert at firstname.lastname@example.org.