The law in Pennsylvania regarding the ability of a landlord’s property insurer to subrogate against a tenant whose negligence causes damage to the landlord’s building has been very slow to develop. But they are quickly making up for lost time.
Until recently, Pennsylvania had only one case speaking to this issue. In 1990, the Pennsylvania Superior Court held that if a 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.
For twenty-nine years, Pennsylvania’s courts gave us no further guidance on determining whether a tenant is a coinsured under his landlord’s lease and, therefore, immune for a subrogation action by the landlord’s insurance company.
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 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 coinsured. 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, the Remy decision 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 coinsured 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 coinsured under the Erie policy and Erie cannot pursue the tenant in subrogation.
In 2021, a Pennsylvania Superior Court took up the issue again and announced that Pennsylvania applies “the case-by-case approach….” 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.” To make that assessment “the court will look to the lease agreement between the landlord and the tenant.” Thomas v. Jones, 249 A.3d 1138 (Pa. Super. 2021).
Two years later, in Westminster American Ins. Co. v. Bond, 2023 WL 8884252 (Pa. Super. 2023), the Superior Court again weighed in on the issue. In that case, the landlord, Tofalli, leased both a commercial space and a residential space to the tenant, Bond. The leases required the tenant to obtain insurance for personal property, but it did not require the landlord to obtain fire insurance on the property. The lease provided that
“… Landlord’s insurance does not cover Tenant, Tenant’s property, or Tenant’s guests. Tenant is advised to obtain property and liability insurance to protect Tenant, Tenant’s property, and Tenant’s guests who may be injured while on the property.”
Bond began using and remodeling the attic space of the building even though neither she nor her business had rented it. Bond removed the door between the attic space and her apartment, used various electrical power sources, burned candles and sage, and smoked in the attic. A fire started, and Westminster paid $375,872 to the landlord and filed a subrogation suit against the tenant. The tenant, relying on Joella, argued it was a statutory coinsured under the leases and they could not sue her. She argued that since the leases did not require Tenants to purchase fire insurance for the premises, they had a reasonable expectation that they were implied “coinsureds” under Landlord’s fire insurance policy. The trial court agreed and dismissed the case. The Landlord appealed. On appeal, the Superior Court reversed, noting that the leases were silent on the landlord’s obligation to obtain fire insurance on the property. It said that the trial court erred when it rewrote the leases to add a provision that the landlord was obligated to obtain fire insurance on the property. Without rewriting the leases, the tenant could not reasonably expect that they were implied coinsureds on the landlord’s insurance policy.
The Westminster decision reiterates that whether a subrogating insurer can pursue a tenant will depend on the reasonable expectations of the parties as expressed in the lease. Where a lease is silent on a landlord’s obligation to procure fire insurance, neither a tenant, nor a subrogation professional analyzing a lease, should rewrite the terms of the lease to determine the tenant’s reasonable expectations. Where the lease is silent on that issue, subrogation will be allowed.
For questions regarding landlord/tenant subrogation anywhere in North America, contact Lee Wickert at leewickert@mwl-law.com.
Lee R. Wickert is a senior associate attorney in our Austin, Texas branch office. Lee was located in in our Wisconsin office, but transferred to our Austin, Texas branch office when it was opened in May 2019. Lee’s practice focuses on insurance litigation, subrogation, workers’ compensation, health insurance and ERISA, automobile insurance, property and casualty, and insurance coverage. Lee is a graduate of the University of Wisconsin-Milwaukee and obtained his law degree at Marquette Law School and his M.B.A. at Marquette University. Lee is licensed to practice in Texas and Wisconsin.
