Pennsylvania Finally Picks A Side On Landlord/Tenant Implied Co-Insured Issue

Landlord Tenant LawJoella v. Cole, 2019 WL 5287987 (Pa. Super. 2019). The ability of a landlord’s property insurer to subrogate against a tenant for property damage caused by the negligence of the tenant depends on which state the loss occurs in and the nature and language of the lease involved. There are generally three different approaches:

  1. A minority of courts hold that, absent a clear contractual expression to the contrary, the insurance carrier will be permitted to sue a tenant in subrogation.
  2. Seeking to avoid a per se rule, in some states the ability to subrogate must be assessed on a case-by-case basis and governed by the intent and reasonable expectations of the parties under the terms of the lease and the facts of case.
  3. Known as the “Sutton Rule”, some states hold that, absent a clearly expressed agreement to the contrary, the tenant is presumed to be a co-insured on the landlord’s insurance policy and, therefore, the landlord’s insurance carrier has no right of subrogation against the negligent tenant. The rule of subrogation known as the “Sutton Rule” states that a tenant and landlord are automatically considered “co-insureds” under a fire insurance policy as a matter of law and, therefore, the insurer of the landlord who pays for the 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, 532 P.2d 478 (Okla. App. 1975) and is the benchmark against which the landlord/tenant subrogation laws of most states are measured. It is the modern rule and the rule more and more states are moving toward.

There are three approaches used by trial courts in the country to resolve the implied co-insured “Sutton Rule” approach. These approaches include:

(1) The no-subrogation (or implied co-insured) approach, in which, absent an express agreement to the contrary, a landlord’s insurer is precluded from filing a subrogation claim against a negligent tenant because the tenant is presumed to be a co-insured under the landlord’s insurance policy;

(2) The pro-subrogation approach, in which a landlord’s insurer can bring a subrogation claim against a negligent tenant absent an express term to the contrary; and

(3) The case-by-case approach, in which courts determine the availability of subrogation based on the reasonable expectations of the parties under the facts of each case.

Until recently, Pennsylvania had only one case speaking to this issue. 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). It depended on the lease language.

In the 2019 Superior Court decision of Joella v. Cole, 2019 WL 5287987 (Pa. Super. 2019), the landlord’s (Joella) insurance company (Erie Insurance Exchange) filed a subrogation suit against a tenant (Cole) to recover for 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 co-insured. 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, Remy 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 co-insured 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 co-insured under the Erie policy and Erie cannot pursue the tenant in subrogation.

A chart detailing the law in all 50 states with regard to the subrogation of a landlord’s insurance carrier can be found HERE.

For more information on Pennsylvania landlord-tenant laws or subrogating landlord-tenant property insurance claims in any state, contact Gary Wickert at [email protected].

Gary L. Wickert

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has nearly four decades of litigation experience and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and a national and international speaker and lecturer on subrogation and motivational topics.