FOR PUBLICATION
Oct 28 2014, 10:22 am
ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:
CHARLES R. SHEDLAK MARK D. GERTH
Shedlak & Benchik Law Firm LLP MICHAEL WROBLEWSKI
South Bend, Indiana Kightlinger & Gray, LLP
Indianapolis, Indiana
GEORGE M. FERRETI
Foran Glennon Palandech Ponzi & Rudloff, PC
Chicago, Illinois
IN THE
COURT OF APPEALS OF INDIANA
LBM REALTY, LLC, d/b/a SUMMER )
PLACE APARTMENTS, an Indiana )
Corporation )
)
Appellant/Plaintiff, )
)
vs. ) No. 71A03-1402-PL-66
)
HILLARY MANNIA, an Indiana resident, )
)
Appellee/Defendant. )
APPEAL FROM THE ST. JOSEPH SUPERIOR COURT
The Honorable David C. Chapleau, Judge
Cause No. 71D06-1105-PL-00110
October 28, 2014
OPINION – FOR PUBLICATION
VAIDIK, Chief Judge
Case Summary
Following a fire in an apartment building owned by LBM Realty LLC d/b/a
Summer Place Apartments (LBM), LBM’s insurance company Greater New York Mutual
Insurance Company (Insurer) filed an insurance subrogation action in LBM’s name against
LBM’s tenant, Hillary Mannia. Mannia filed for summary judgment, urging the trial court
to adopt a no-subrogation rule—citing Sutton v. Jondahl, 532 P.2d 478 (Okla. Ct. App.
1975), and its progeny as support—which would preclude LBM’s complaint against her.
The trial court granted summary judgment in favor of Mannia, and LBM now appeals. We
find that Indiana law supports a largely case-by-case approach to subrogation actions by a
landlord’s insurer against a tenant and, therefore, does not preclude LBM from pursuing
its claims against Mannia, at least with respect to damage to the leased premises.
Accordingly, we affirm in part, reverse in part, and remand with instructions.
Facts and Procedural History
In July 2010, a fire—resulting in $743,402.86 in damages—occurred at Summer
Place Apartments (the Apartments), an apartment complex in Granger, Indiana, owned by
LBM. Appellant’s App. p. 3. Mannia was a tenant in the Apartments, having signed a
one-year lease in March 2010.1 Included within the lease are several relevant lease
provisions, which we have condensed and paraphrased below:
A provision titled “Insurance,” which is silent as to LBM’s obligation to
maintain property insurance, but states in bold type: “Owner recommends
the Resident obtain renter’s insurance.” This provision also states that in the
event the leased premises are totally destroyed by some cause beyond the
owner’s control, the lease will terminate as of that date (and to the extent that
the premises are only partially destroyed, there will be an abatement in rent).
1
Debra Mannia also signed the Lease, as “CoHead of House” (whereas Mannia was “Head of
House”). Appellant’s App. p. 11.
2
A provision titled “Rules,” which incorporates an attached list of “Rules and
Regulations” into the lease, the most relevant of which reads as follows:
7. Resident must pay repair costs for all damages to Resident’s
Apartment, Apartment Community facilities, and common areas
caused by Resident or members of Resident’s household or guests. . .
.
A “Save Harmless Clause,” which states: “Resident shall indemnify and save
harmless Owner from and against any and all claims or actions for damages
to persons or property,” including claims in which it is asserted that Owner
has been negligent.
A provision stating that “‘Premises’ shall mean only that portion of Owner’s
property contained within the interior walls of the dwelling unit described
herein . . . .”
Within “Miscellaneous Provisions”:
At the end of the term, Resident shall return the Leased
Premises to Owner in the same good condition, reasonable
wear and tear excepted. Resident is and shall be responsible
and liable for any injury or damage done to the Leased
Premises, common areas or any property of Owner caused by
[R]esident, any occupant, or any other person whom Resident
permits to be in or about the Leased Premises.
This section also states, “Resident shall permit no waste[2] of the Leased
Premises nor allow the same to be done, but Resident shall take good care of
the same . . . .”
See id. at 5-14.
2
“Waste” is defined, in relevant part, as:
A. The occurrence or threat of physical damage to the Premises, common areas, or other
property of Owner;
B. The occurrence or threat of . . . damage to the property of . . . other persons lawfully in
the Leased Premises, common areas, other living units, or other property of Owner . . . .
*****
E. Other acts or omissions which are or may be likely to cause damage or injury to . . .
Owner’s property . . . .
3
After the fire at the Apartments, Insurer filed a subrogation action in LBM’s name
against Mannia, alleging in its complaint that Mannia was in breach of contract and
negligent. Id. at 1-4. Specifically, the complaint states that Mannia breached her contract
with LBM in “one or more of the following ways”:
(1) Carelessly and improperly disposed of smoking materials by placing
same in a plastic bottle and in close proximity to the vinyl siding on the
balcony patio wall of the leased premises; and/or
(2) Carelessly and improperly allowed guests to dispose of smoking
materials by placing same in a plastic bottle and in close proximity to the
vinyl siding on the balcony patio wall of the leased premises[;] and/or
(3) Otherwise failed to comply with her obligation to return the premises in
the same condition as when she moved in, reasonable wear and tear excepted.
Id. at 2. In regard to its negligence claim, LBM repeated (1) and (2) above, and also alleged
that Mannia had “otherwise acted carelessly and negligently.” Id. at 3.
Mannia filed a motion to dismiss LBM’s complaint. In her brief in support of the
motion, Mannia discussed the three different approaches used by courts around the country
to address subrogation claims of landlords’ insurers against negligent tenants. See id. at
25-27. These approaches include:
(1) the no-subrogation (or implied co-insured) approach (i.e., the “Sutton
rule”), 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, absent an
express term to the contrary, a landlord’s insurer is allowed to bring a
subrogation claim against a negligent tenant; 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.
See LBM Realty, LLC v. Mannia, 981 N.E.2d 569, 573 (Ind. Ct. App. 2012) (internal
footnotes omitted). Mannia then argued that the trial court should adopt the first
4
approach—the no-subrogation/implied co-insured rule articulated in the Oklahoma case of
Sutton v. Jondahl, 532 P.2d 478, otherwise known as the Sutton rule—and dismiss LBM’s
complaint. Id. The trial court agreed—adopting this rule and then applying it—and
granted Mannia’s motion to dismiss, concluding that LBM was precluded from pursuing
its subrogation claims because Mannia was an “additional insured” under LBM’s insurance
policy. Id. at 576.
LBM appealed, and this Court reversed and remanded, without adopting either
approach:
Despite the current state of Indiana law that permits insurers to bring a
subrogation claim against a tenant, the trial court did not test LBM’s
complaint against the backdrop of the law as it existed. Instead, the trial court
adopted the no-subrogation approach, thereby precluding LMB’s claims
against Mannia. It seems that the trial court put the proverbial cart before the
horse by first adopting a rule precluding subrogation claims against tenants
and then reviewing LBM’s complaint in light of that newly adopted rule.
Whether the no-subrogation approach, pro-subrogation approach, or case-
by-case approach should be adopted in this State is a matter we leave for
another day as the facts in this case are limited at this juncture of the
proceedings and have not been developed enough to enable a meaningful
review of the issue. Because Indiana law does not currently preclude a
landlord’s insurer from bringing a subrogation claim against a tenant and
because the allegations in LBM’s complaint establish a set of circumstances
under which it would be entitled to relief, LBM’s complaint states claims
upon which relief could be granted.
Id. at 578.
Thereafter, further discovery occurred, and the parties agreed to the following
Stipulations:
1. The money received from rent (including [] Mannia’s rent from March
25, 2010[,] to July 3, 2010) was used to pay LBM []’s operating expenses,
including but not limited to procurement and maintenance of insurance
covering the apartment complex at 825 Summer Place Lane, Granger,
5
Indiana, 46530 and all units included therein. However, [LBM]’s
property insurance did not provide coverage to any of the belongings
owned by [] Mannia.
2. Furthermore, pursuant to the terms of the insurance policy that LBM []
obtained, LBM []’s insurer has asserted a right of subrogation as to the
claims asserted by [LBM] against [] Mannia based upon the insurer’s
payment to [LBM] for damages resulting from the fire that occurred on
July 3, 2010, which is the subject of this lawsuit.
Appellant’s App. p. 236-37. In addition, LBM deposed Mannia, and elicited the following
testimony:
Q: Okay. Based on your discussions with the lady that was there on behalf
of the management company, did you have any understanding at all
concerning whether if [sic] you wanted to have insurance for your stuff in
the apartment, whether you had to take out your own renter’s insurance?
A: Yes.
Q: Was that something that she explained to you?
A: Yes.
Q: Okay. Based on your discussions with this lady representing the
management company, did you have any understanding at all as to whether
or not either you or your mother would be an insured under the apartment
building’s insurance policy?
A: I don’t understand the question.
Q: Okay. Do you remember anything being discussed with the property
management lady as to whether the apartment complex’s own insurance
would cover any of your property?
A: I don’t remember.
Q: Okay. Is it fair to say that you had no understanding one way or the other
whether you would be insured or qualify as an uninsured person under the
apartment complex’s property insurance?
A: I don’t understand the question.
6
Q: Okay. Did you have any understanding as to whether or not the apartment
complex would have any type of property insurance for their building?
A: I don’t know.
Q: That’s not something you recall discussing?
A: I don’t understand the question.
Q: Okay.
A: Sorry.
Q: Are you familiar with the concept of property insurance?
A: Yes.
Q: Okay. You understand that, for example, your mother and father, I’m
assuming, have property insurance on their home. Correct?
A: Correct.
Q: Okay, by the way, do you own a home now?
A: No.
Q: Okay. Did you have any understanding when you signed this lease that
the apartment complex would have property insurance to cover its building
in case there was a loss?
A: Yes.
Q: Okay. And what was that understanding based on?
A: I don’t understand. What . . . .
Q: How did you learn that the apartment complex would have property
insurance on its building when you signed this lease?
A: I was told.
Q: And who told you that?
A: The woman.
7
Q: Okay. So there was some – the lady told you that the apartment complex
would have property insurance for its building?
A: Right.
Q: What else, if anything, did she explain to you about the building’s
property insurance?
A: I don’t remember.
Q: Okay. As a result of your conversation with this lady about the building’s
-- about the apartment complex’s property insurance, did you have any
understanding at all one way or the other as to whether you would be insured
-- you, [ ] Mannia -- under the apartment complex’s property insurance?
A: I don’t understand the question.
Q: Sure. You mentioned that you remember something being said by this
property management representative about the fact that the apartment
complex would have property insurance for the building. Right?
A: Right.
Q: Okay. Based on your conversation with her about that issue, did you
leave the meeting with the understanding that you personally would be
covered as an insured under the apartment complex’s insurance policy?
A: No.
Q: Okay. Was it your understanding that you personally would not be
covered as an insured under the apartment complex’s insurance policy?
A: I’m sorry. I don’t understand.
Q: Sure. Two questions ago, you indicated that you left the meeting --
A: Right
.
Q: -- and it was not your understanding that you personally would be covered
as an insured under the apartment complex’s insurance policy. Correct?
A: Correct.
8
Q: Okay. You were going to say something?
A: I was told to get insurance.
Q: Okay. So based on your discussion, you came away with the
understanding that (a) the building would take out an insurance policy for the
building, and (b) that you had to take out an insurance policy for your
belongings?
A: Yes.
Q: Okay. But you had no expectation that you personally would be covered
in any way under the apartment complex’s insurance policy. Is that correct?
A: Right.
Q: Did you, in fact, ever go out and obtain renter’s insurance?
A: Yes.3
Id. at 237-40 (internal objections omitted).
In October 2013 Mannia filed a motion for summary judgment, again urging the
trial court in her supporting memorandum to adopt the no-subrogation Sutton rule. Id. at
78. The trial court granted the motion, finding that LBM’s claims were barred under both
the Sutton rule and the case-by-case approach, and stating as follows at the hearing on the
motion:
I think I want to let the Court of Appeals have another opportunity to rule on
this, so I’m going to grant the motion for summary judgment. . . . And then
we’ll receive instructions from the Court of Appeals, and we’ll do whatever
they tell us to do, case-by-case, whatever it is. And we’ll have a jury trial, if
that is the case, and go from there.
Tr. p. 28. LBM now appeals.
3
According to the transcript of the summary-judgment hearing, Mannia did not actually obtain
renter’s insurance, but was instead covered by her parents’ homeowners’ policy. Tr. p. 12.
9
Discussion and Decision
On appeal, LBM argues that this Court should “reject the legal fiction created by
the Sutton rule that a residential tenant is an additional insured under her landlord’s
property insurance policy through her payment of rent.” Appellant’s Br. p. 6. Instead,
LBM continues, we should adhere to, clarify, and formally adopt as Indiana law the
“middle ground” or case-by-case approach. Id. at 6, 12. Furthermore, LBM asserts that
because the lease in this case clearly permits subrogation, this Court should reverse the trial
court’s grant of summary judgment in favor of Mannia. We consider each of these issues
in turn.4
I. Subrogation in Indiana
Subrogation is a doctrine of equity long recognized in Indiana. Erie Ins. Co. v.
George, 681 N.E.2d 183, 186 (Ind. 1997). It applies whenever a party, not acting as a
volunteer, pays the debt of another that, in good conscience, should have been paid by the
one primarily liable. Id. The ultimate purpose of the doctrine, as with other equitable
principles, is to prevent unjust enrichment.5 Id. (citing 73 Am. Jur. 2d Subrogation § 4
(1974)). Because subrogation is an equitable remedy, in determining whether an insurer
4
Because nobody is arguing that Indiana should adopt an “anti-Sutton” per se rule favoring
subrogation, and because we see no basis for doing so, we need not consider this possibility.
5
In Couch, subrogation is considered from the perspective of the insured, the insurer, and the
tortfeasor. 16 COUCH ON INSURANCE § 222:8 (3d ed. 2000). With regard to the tortfeasor’s
perspective, Couch writes that a wrongdoer who is legally responsible for the harm should not receive the
windfall of being absolved from liability because the insured procured, and paid for, insurance. Id. But in
a law-review note, one legal scholar writes that “[because] insurers do not consider the likelihood of a
successful subrogation collection in determining premiums[,] . . . any recovery through subrogation for an
insured risk is undoubtedly a windfall to the insurer.” Aleatra P. Williams, Insurers’ Rights of Subrogation
Against Tenants: The Begotten Union Between Equity and Her Beloved, 55 DRAKE L. REV. 541, 593
(2007).
10
may bring a subrogation action in a particular case, courts must weigh “the principles of
equity and good conscience.” RAM Mut. Ins. Co. v. Rohde, 820 N.W.2d 1, 16 (Minn. 2012)
(citing Dix Mut. Ins. Co. v. LaFramboise, 597 N.E.2d 622, 626 (Ill. 1992) (explaining that
the equities of the case should be considered in addition to examining “the provisions of
the lease as a whole [and] the reasonable expectations of the parties”); Am. Family Mut.
Ins. Co., 757 N.W.2d at 595 (allowing landlord’s insurer to maintain a subrogation action
against tenant’s liability insurer after examining the lease and “[c]onsidering the equitable
underpinnings of subrogation”). When the insurer claims a right through subrogation, it
stands in the shoes of the insured and takes no rights other than those which the insured
had. United Farm Bureau Mut. Ins. Co. v. Owen, 660 N.E.2d 616, 619 (Ind. Ct. App.
1996).
Although there is a vast body of law from across the country involving landlords’
insurers pursuing negligent residential tenants through subrogation,6 in Indiana the caselaw
is extremely limited. See id.; Mannia, 981 N.E.2d 569. In Owen, five tenants who
occupied a house the night before the electricity was restored started a fire that caused
substantial damage when they used a kerosene lantern during the night. See Owen, 660
N.E.2d at 617. Included in the parties’ lease agreement was an “Indemnification and
Release” provision, which read in relevant part as follows:
Landlord and Tenant do each hereby release the other from all liability for
any accident, damage or injury caused to person or property, provided, this
release shall be effective only to the extent that the injured or damaged party
6
One court described the question of whether, for subrogation purposes, and absent an express
provision in the parties’ lease to the contrary, the law presumes that a tenant is coinsured under his or her
landlord’s insurance policy such that the landlord’s insurer can maintain a subrogation action against a
tenant as “a dispute that has raged in subrogation jurisprudence for the last 30 years.” Tri-Par Invs., L.L.C.
v. Sousa, 680 N.W.2d 190, 194 (Neb. 2004).
11
is insured against such injury or damage and only if this release shall not
adversely affect the right of the injured or damaged party to recover under
such insurance policy.
Id. The landlord had insured the premises with Farm Bureau and subsequently collected
$98,247.46 on its policy. Id. The tenant who had started the fire with Owen settled with
the insurer for $43,000, and the insurer then pursued its claim against Owen for the
remaining $55,247.14, plus costs. Id. At the time of collecting from the insurer, the
landlord had signed a subrogation agreement stating that she had not “released or
discharged any [] claim or demand” against the tenants. Id. at 619. Nonetheless, this Court
held that because the landlord had—in the lease provision cited above—released Owen of
liability to the extent the landlord was covered by insurance, and the insurer had paid in
full, the insurer was barred from pursuing Owen since the insurer “stepped into [the
landlord’s shoes] and took no rights other than those which [the landlord] had at the time.”
Id.
In LBM Realty, LLC v. Mannia, another panel of this Court reversed a motion to
dismiss and remanded in the same matter that is before us now, stating that because
“Indiana law does not currently preclude a landlord’s insurer from bringing a subrogation
claim against a tenant” and because the allegations in LBM’s complaint established a set
of circumstances under which it would be entitled to relief, the complaint stated claims
upon which relief could be granted. Mannia, 981 N.E.2d at 578. In that instance, the Court
disapproved of the trial court’s adoption of a no-subrogation approach as “putting the
proverbial cart before the horse by first adopting a rule precluding subrogation claims
12
against tenants and then reviewing LBM’s complaint in light of that newly adopted rule.”
Id. The Court also wrote as follows:
When filing her motion to dismiss, Mannia did not argue that LBM’s claims
for negligence or breach of contract were somehow lacking in sufficiency or
that the allegations in the complaint did not establish any set of circumstances
under which LBM—as landlord—would be entitled to relief. Instead, her
motion to dismiss for failure to state a claim was premised on the argument
that LBM’s complaint—as a subrogation action—would fail to state a claim
upon which relief could be granted if the trial court first adopted the no-
subrogation approach. Indeed, by asking the trial court to adopt no-
subrogation approach, Mannia recognized that the law in Indiana did not
preclude subrogation by a landlord’s insurer against a tenant.
Id. at 577. Although the Court acknowledged in footnotes the Sutton case and other
jurisdictions’ responses to the subrogation issue, the Court ultimately decided to “leave for
another day” the question of which approach Indiana should adopt. Id. at 578.
II. The Sutton Rule
Mannia urges us to adopt the position articulated by the Oklahoma Court of Appeals
in Sutton v. Jondahl, 532 P.2d 478, now known as the Sutton doctrine. In that case, a tenant
and his ten-year-old son, who had caused a fire while playing with a chemistry set given to
him for Christmas, were sued by the property owner/landlord’s insurer on negligence
grounds. Id. at 479. After a full trial, the insurer prevailed against the father but not the
son. Id. at 481. The appellate court reversed the verdict against the father, finding
prejudicial error in the jury instructions, but then went on to announce that the insurer could
not pursue its subrogation claim because “the law considers the tenant as a co-insured of
the landlord absent an express agreement between them to the contrary, comparable to the
13
permissive-user feature of automobile insurance.”7 Id. at 482. The Sutton court went on
to say:
This principle is derived from a recognition of a relational reality, namely,
that both landlord and tenant have an insurable interest in the rented
premises—the former owns the fee and the latter has a possessory interest.
Here the landlords (Suttons) purchased the fire insurance from Central
Mutual Insurance Company to protect such interests in the property against
loss from fire. This is not uncommon. And as a matter of sound business
practice the premium paid had to be considered in establishing the rent rate
on the rental unit. Such premium was chargeable against the rent as an
overhead or operating expense. And of course it follows then that the
tenant actually paid the premium as part of the monthly rental.
The landlords of course could have held out for an agreement that the tenant
would furnish fire insurance on the premises. But they did not. They elected
to themselves purchase the coverage. To suggest the fire insurance does not
extend to the insurable interest of an occupying tenant is to ignore the
realities of urban apartment and single-family dwelling renting. Prospective
tenants ordinarily rely upon the owner of the dwelling to provide fire
protection for the realty (as distinguished from personal property)
absent an express agreement otherwise. Certainly it would not likely occur
to a reasonably prudent tenant that the premises were without fire insurance
protection or if there was such protection it did not inure to his benefit and
that he would need to take out another fire policy to protect himself from any
loss during his occupancy. Perhaps this comes about because the companies
themselves have accepted coverage of a tenant as a natural thing. Otherwise
their insurance salesmen would have long ago made such need a matter of
common knowledge by promoting the sale to tenants of a second fire
insurance policy to cover the real estate.
Basic equity and fundamental justice upon which the equitable doctrine
of subrogation is established requires that when fire insurance is
provided for a dwelling it protects the insurable interests of all joint
owners including the possessory interests of a tenant absent an express
agreement by the latter to the contrary. The company affording such
coverage should not be allowed to shift a fire loss to an occupying tenant
even if the latter negligently caused it. . . . For to conclude otherwise is to
shift the insurable risk assumed by the insurance company from it to the
In rejecting this analogy, the Maryland Supreme Court wrote, “Permissive users are regarded as
7
insureds under . . . a[n automobile insurance] policy because the policy expressly provides coverage for
them, usually by including them in the definition of ‘insured.’” Rausch v. Allstate Ins. Co., 882 A.2d 801,
815 (Md. 2005).
14
tenant—a party occupying a substantially different position from that of a
fire-causing third party not in privity with the insured landlord.
Id. (emphasis added; internal citation omitted). In sum, Sutton stands for the proposition
that absent an express agreement in the lease to the contrary, landlord and tenant are
considered co-insureds under a landlord’s fire-insurance policy; the insurer, therefore, has
no right of subrogation against the tenant to recover payments made under the insurance
policy due to fire loss, even if the fire is caused by the tenant’s negligence. See id.; see
also Dattel Family Ltd. P’ship v. Wintz, 250 S.W.3d 883 (Tenn. Ct. App. 2007).
The “co-insured” aspect of the Sutton approach has been widely criticized. In a
leading insurance-law treatise, for instance, Appleman writes as follows:
Sutton, the leading modern case denying subrogation of lessees, cites no
cases for the proposition that the lessee is a co-insured of the lessor,
comparable to a permissive user under an auto insurance policy. Contrary to
the [Sutton] court’s statement, the fact both parties had insurable interests
does not make them co-insureds. The insurer has a right to choose whom it
will insure and did not choose to insure the lessees, and under this holding
the lessee could have sued the insurer for loss due to damage to the realty,
e.g., loss of use if policy provides such coverage. Cases following Sutton,
however, have at least impliedly restricted the co-insurance relationship to
one limited solely to the purpose of prohibiting subrogation.
6A J. A. Appleman & J. Appleman, Insurance Law and Practice § 4055, pp. 138-39 n.86.10
(Cum. Supp. 2014).
Courts rejecting Sutton have tended to agree with Appleman in rejecting the co-
insurer rationale. In Iowa, for instance, the Supreme Court wrote: “[T]he theory that fire
insurance on an entire dwelling includes the interest of both landlord and tenant as a matter
of law . . . disregards the fact that these are separate estates capable of being separately
valued and separately insured.” Neubauer v. Hostetter, 485 N.W.2d 87, 90 (Iowa 1992).
15
And in 56 Assoc. ex rel. Paolino v. Frieband, 89 F. Supp. 2d 189, 193 (D.R.I. 2000), the
Rhode Island court rejecting Sutton wrote, “[A]n insurance policy is a contract between an
insurer and its insured. . . . Thus, a court is not free to rewrite a policy or read provisions
into it in order to achieve what the court subjectively may believe to be a desirable result.”
Although various jurisdictions have adopted the Sutton rule,8 not all have adopted
the same rationale for that approach, and some have offered their own “law and economics”
justifications for the rule. See Rausch v. Allstate Ins. Co., 882 A.2d 801, 812 (Md. 2005).
In Connecticut, for instance, the Supreme Court held that in the absence of an express
agreement between the parties covering the question, there is no right of subrogation on
the part of a landlord’s fire insurer against a tenant of the landlord’s premises. See DiLullo
v. Joseph, 792 A.2d 819 (Conn. 2002). The court recognized that under traditional rules
of insurance law and contract law, “a tenant is not considered a coinsured on his landlord’s
fire policy simply because he has an insurable interest in the premises and pays rent,” and
“whether subrogation would apply would ordinarily depend, in large part, on a case-by-
case analysis of the language of the insurance policies and leases involved.” Id.
Nonetheless, the court found that on the grounds of “policy and fairness,” and in the public-
policy interest of “disfavoring economic waste,” the Sutton rule was appropriate:
8
See, e.g., Alaska Ins. Co. v. RCA Alaska Commc’ns, Inc., 623 P.2d 1216, 1218 (Alaska 1981);
DiLullo v. Joseph, 792 A.2d 819, 822 (Conn. 2002); Lexington Ins. Co. v. Raboin, 712 A.2d 1011, 1016
(Del. Super. Ct.), aff’d, 723 A.2d 397 (Del. 1998); Cont’l Ins. Co. v. Kennerson, 661 So.2d 325, 330-31
(Fla. Dist. Ct. App. 1995); N. River Ins. Co. v. Snyder, 804 A.2d 399, 403-04 (Me. 2002); Peterson v. Silva,
704 N.E.2d 1163, 1164-65 (Mass. 1999); N.H. Ins. Grp. v. Labombard, 399 N.W.2d 527, 531 (Mich. Ct.
App. 1986); Buckeye State Mut. Ins. Co. v. Humlicek, 822 N.W.2d 351, 359-60 (Neb. 2012); Sousa, 680
N.W.2d at 198-99; Safeco Ins. Co. v. Capri, 705 P.2d 659, 660-61 (Nev. 1985); Cambridge Mut. Fire Ins.
Co. v. Crete, 846 A.2d 521, 523 (N.H. 2004); Cmty. Credit Union of New Rockford, N.D. v. Homelvig, 487
N.W.2d 602, 605 (N.D. 1992); Sutton, 532 P.2d at 482; Wintz, 250 S.W.3d at 892; GNS P’ship v. Fullmer,
873 P.2d 1157, 1163-64 (Utah Ct. App. 1994); Cmty. Ass’n Underwriters of Am., Inc. v. Kalles, 259 P.3d
1154, 1158 (Wash. Ct. App. 2011).
16
[I]t would be inappropriate to create a default rule that allocates to the tenant
the responsibility of maintaining sufficient insurance to cover a claim for
subrogation by his landlord’s insurer. Such a rule would create a strong
incentive for every tenant to carry liability insurance in an amount necessary
to compensate for the value, or perhaps even the replacement cost, of the
entire building, irrespective of the portion of the building occupied by the
tenant. That is precisely the same value or replacement cost insured by the
landlord under his fire insurance policy. Thus, although the two forms of
insurance would be different, the economic interest insured would be the
same. This duplication of insurance would, in our view, constitute economic
waste and, in a multiunit building, the waste would be compounded by the
number of tenants. We think that our law would be better served by having
the default rule of law embody this policy against economic waste, and by
leaving it to the specific agreement of the parties if they wish a different rule
to apply to their, or their insurers’, relationship.[9]
Id. at 822-23 ((citing Peterson v. Silva, 704 N.E.2d 1163, 1166 (Mass. 1999) (“It surely is
not in the public interest to require all the tenants to insure the building which they share,
thus causing the building to be fully insured by each tenancy.”)).
III. The Case-By-Case Approach10
9
The DiLullo court also wrote: “[W]e agree with Judge Keeton and Professor Widiss that, in most
instances, neither landlords nor tenants ordinarily expect that the landlord’s insurer would be proceeding
against the tenant, unless expert counseling to that effect had forewarned them.” DiLullo, 792 A.2d at 823
(citing R. Keeton & A. Widiss, Insurance Law § 4.4(b), p. 340-41 (1988)).
10
As with the pro-subrogation approach, it is difficult to accurately determine the number
of jurisdictions that have adopted the case-by-case approach because, depending on the
language of the lease involved, both no-subrogation and pro-subrogation courts have often
tied their analysis to the terms of the lease, rendering their analysis very similar to that
undertaken by case-by-case courts. See Rausch, 882 A.2d at 814 (explaining that most of
the courts that have dealt with the issue presented in this case, including some that have
been characterized as either no- or pro-subrogation courts “have taken a middle approach”
and “looked to the lease as a whole to determine” the parties’ expectations). RAM, 820
N.W.2d at 12.
Notwithstanding the difficulty of drawing clear lines, the following cases appear to adopt a case-
by-case approach: Gen. Mills, Inc. v. Goldman, 184 F.2d 359, 366 (8th Cir. 1950); Gen. Accident Fire &
Life Assurance Corp. v. Traders Furniture Co., 401 P.2d 157, 159-60 (Ariz. Ct. App. 1965); Fire Ins. Exch.
v. Hammond, 99 Cal.Rptr.2d 596, 601 (Cal. Ct. App. 2000); U.S. Fid. & Guar. Co. v. Let’s Frame It, Inc.,
759 P.2d 819, 823 (Colo. Ct. App. 1988); Underwriters of Lloyds of London v. Cape Publ’ns, Inc., 63 So.
3d 892, 896 (Fla. Dist. Ct. App. 2011); Bannock Bldg. Co. v. Sahlberg, 887 P.2d 1052, 1056 (Idaho 1994);
LaFramboise, 597 N.E.2d at 625; Seaco Ins. Co. v. Barbosa, 761 N.E.2d 946, 951 (Mass. 2002) (rejecting
Sutton with respect to commercial leases); Rausch, 882 A.2d 801, 814-15; RAM, 820 N.W.2d 1 at 12;
17
LBM urges us to explicitly reject the Sutton doctrine and, instead, to formally adopt
as Indiana law the case-by-case approach. “The case-by-case approach eschews
presumptions that a tenant is or is not a co-insured of the landlord.” Underwriters of Lloyds
of London v. Cape Publ’ns, Inc., 63 So. 3d 892, 895 (Fla. Dist. Ct. App. 2011). “Instead,
the court examines the lease as a whole to determine the parties’ reasonable expectations
as to who should bear the risk of loss when a tenant negligently damages the leased
premises.” Id. (citing Am. Family Mut. Ins. Co. v. Auto-Owners Ins. Co., 757 N.W.2d 584
(S.D. 2008); Rausch, 882 A.2d 801; Union Mut. Fire Ins. Co. v. Joerg, 824 A.2d 586 (Vt.
2003)). In addition to the actual language of a lease or insurance policy, courts engaged in
a case-by-case analysis may also examine “any other admissible evidence” shedding light
on the expectations of the parties. RAM, 820 N.W.2d at 15-16 (citing Rausch, 882 A.2d at
814.) Such evidence could include, among other things, the types of insurance purchased
by each party as evidence of each party’s expectations with respect to its responsibility for
particular losses. Id. (citing Am. Family Mut. Ins. Co., 757 N.W.2d at 594).
Finally, because subrogation is an equitable remedy, in determining whether an
insurer may bring a subrogation action in a particular case, courts taking this approach must
weigh “the principles of equity and good conscience.” Id. (citing LaFramboise, 597
N.E.2d at 626 (explaining that the equities of the case should be considered in addition to
examining “the provisions of the lease as a whole [and] the reasonable expectations of the
parties”); Am. Family Mut. Ins. Co., 757 N.W.2d at 595 (allowing an insurer to maintain a
Cincinnati Ins. Co. v. Getter, 958 N.E.2d 202 (Ohio Ct. App. 2011); Koch v. Spann, 92 P.3d 146, 152 (Or.
Ct. App. 2004); Am. Family Mut. Ins. Co. v. Auto-Owners Ins. Co., 757 N.W.2d 584, 594 (S.D. 2008);
Monterey Corp. v. Hart, 224 S.E.2d 142, 144 (Va. 1976); Union Mut. Fire Ins. Co. v. Joerg, 824 A.2d 586,
590 (Vt. 2003).
18
subrogation action after examining the lease and “[c]onsidering the equitable
underpinnings of subrogation”). In balancing the equities, the court may consider, among
other factors, whether the lease is a contract of adhesion, and if the provisions allocating
responsibility “are found to be unfair,” may declare such provisions “invalid as being in
violation of public policy.” Rausch, 882 A.2d at 815. Moreover, the fact that the leased
premises are part of a large multi-unit structure may be relevant to the equities and the
parties’ reasonable expectations regarding responsibility. RAM, 820 N.W.2d at 16. This
factor may be relevant because, in the absence of a “very clear contractual obligation to the
contrary,” the tenant likely is not “thinking beyond the leased premises” and may not “as
a practical matter . . . be able to afford, or possibly even obtain, sufficient liability insurance
to protect against such an extended loss.” Id. (citing Rausch, 882 A.2d at 816).
In Rausch, 882 A.2d 801, the Maryland Court of Appeals consolidated two cases
for appellate purposes in order to address the issue before us today. In one of the cases, a
tenant living in a multi-unit apartment development left candles burning in her bedroom
when she went to answer the telephone; after smelling smoke, she discovered that her
bedspread had caught fire. Id. at 805. The fire caused extensive damage to the second
floor of the apartment building, and the landlord’s insurer—after paying over $83,000 to
repair the damages—pursued the tenant to recover its costs. Id. at 805-06. Included in the
tenant’s written lease were three provisions that the court found relevant:
[In a provision discussing a storage space made available to the tenant]:
“Resident expressly agrees that landlord shall not be liable for any loss,
damage or injury to property. Tenant shall have insurance coverage for
this storage area as well as Renter’s Insurance for the apartment.
Landlord is not responsible for such loss which may be incurred.”;
19
Another provision required the tenant to reimburse the landlord for “any
loss, damage or actual cost of repairs or service caused in the apartment
or apartment complex by improper use or negligence of tenant or tenant’s
guests or occupants”; and
Finally, the tenant, when moving out, was required to “surrender the
apartment in the same condition as when received, reasonable wear
expected. Reasonable wear means occurring without negligence,
carelessness, accident, or abuse.”
Id. at 805. Other than the reference in (1) to renter’s insurance, which the tenant had
obtained, the lease was silent with respect to insurance. Id. However, the owner had
obtained a fire-insurance policy that was in effect at the time of the fire. Id. The policy
contained a subrogation clause, stating that, “[i]f any person or organization to or for whom
we make payment under this policy has rights to recover damages from another, those
rights are transferred to us to the extent of our payment” and that the payee “must do
everything necessary to secure our rights and must do nothing after loss to impair them.”
Id. The subrogation clause permitted the insured to waive its rights against another party,
but the insured had not done so. Id.
After considering at length the “legal landscape” on this issue, the Rausch court
ultimately determined that
[t]he middle approach, followed by the great majority of courts that have
dealt with the issue, provides an adequate and supportable analytical
framework. Although that framework makes the analysis largely a case-by-
case one, certain general principles emanating from basic contract law will
control[.]
Id. at 815. Included among these principles are the following: provisions included in a
lease that create or enhance a tenant’s liability are subject to the normal rules of contract
law, and there can be no subrogation unless there is liability in the first instance by the
20
tenant to the landlord. Id. at 816. Moreover, if, in the lease or by some other commitment,
the landlord has communicated to the tenant an express or implied agreement to maintain
fire insurance on the leased premises, absent some compelling provision to the contrary,
the court may properly conclude that—notwithstanding a general “surrender in good
condition” or “liability for negligence” clause in the lease—the reasonable expectation was
that the landlord would look only to the policy for compensation for fire loss covered by
the policy. Id. And finally, the court wrote:
If the leased premises is a unit within a multi-unit structure, absent a clear,
enforceable provision to the contrary, a court may properly conclude that the
parties anticipated and reasonably expected that the landlord would have in
place adequate fire insurance covering the entire building and, with respect
to damage caused by the tenant’s negligence to parts of the building beyond
the leased premises, would look only to the policy, to the extent of its
coverage, for compensation. That expectation has a rational and practical
basis. Whatever general common law liability a tenant may have for damage
to another person’s property caused by the tenant’s negligence, it is not
likely, unless faced with a very clear contractual obligation to the contrary,
that the tenant is thinking beyond the leased premises or, as a practical matter,
would be able to afford, or possibly even obtain, sufficient liability insurance
to protect against such an extended loss. Nor should the law encourage the
economic waste that would result from multiple layers of insurance by the
individual tenants to cover the same loss.[11]
Id.
11
As observed by the Nebraska Supreme Court, “The court thus seemed to adopt a[n anti-
subrogation] per se rule only for those units not leased by the tenant. We find that to be
equally true whether there is one other unit or many other units. The tenant is not thinking
beyond the leased premises unless the lease agreement alerts the tenant otherwise. The
right to subrogation does not depend on the number of walls separating the units or whether
there are common areas. The pertinent fact is that there is one building in which the fire
from one unit within that building can easily spread to another. It is reasonable for the
tenant to presume that the landlord has fire protection for that building. And it is reasonable
for a tenant to expect that if he negligently starts a fire, the insurance company will not sue
him to recoup payments made under a policy which was purchased by the landlord
precisely for such an occurrence.”
Buckeye State Mut. Ins. Co., 822 N.W.2d at 359 (emphasis in original).
21
Having articulated the foregoing principles, the Maryland court affirmed summary
judgment for the tenant to the extent that the claim under the landlord’s insurance policy
included payments for damage to parts of the building beyond the tenant’s leased premises,
but the court held that summary judgment was inappropriate with respect to liability for
amounts paid by the insurer to repair damage done to the leased premises. Id. at 817.
Because the tenant’s renter’s insurance policy was not part of the record, the appellate court
found that it could not determine as a matter of law what the parties’ reasonable
expectations were with respect to the damage to the leased premises. Id. The Rausch court
wrote:
Having concluded that there was sufficient evidence of negligence on [the
tenant]’s part to create a triable issue, the court will have to examine the lease
and such other admissible evidence in order to determine whether there is a
triable issue as to the reasonable expectation of the parties, and, if necessary,
deal further with the issue of [the tenant]’s negligence.
Id. at 817.
And in RAM, the Minnesota Supreme Court rejected the previously adopted Sutton
doctrine in favor of “an approach that is largely a case-by-case one,” 820 N.W.2d at 14,
concluding that this was the “soundest method to evaluate when an insurer has a
subrogation claim against an insured’s tenant.” 820 N.W.2d at 12. The RAM court further
explained its reasoning as follows:
By examining the reasonable expectations of the contracting parties to
determine whether subrogation is appropriate in a particular case, the case-
by-case approach avoids the legal assumptions of the other approaches, and
thus best effectuates the intent of the parties by eliminating presumptions
altogether. While the case-by-case approach does not provide the same kind
of predictability that accompanies either the pro- or no-subrogation
approaches, the case-by-case method provides more predictability to parties
by simply enforcing the terms of their contracts.
22
Id.
Having considered the range of possible approaches, we conclude that Indiana
should hereby adopt the largely case-by-case approach, finding that a tenant’s liability to
the landlord’s insurer for damage-causing negligence depends on the reasonable
expectations of the parties to the lease as ascertained from the lease as a whole and any
other admissible evidence. See id. at 14; Rausch, 882 A.2d at 815. Although the case-by-
case approach is said to provide less predictability than either the pro- or no-subrogation
approaches, we find that this approach best effectuates the intent of the parties by simply
enforcing the terms of their lease. See RAM, 820 N.W.2d at 12. In determining the
expectations of the parties as articulated in the lease, courts should look for evidence
indicating which party agreed to bear the risk of loss for a particular type of damage. See
id. at 15. For instance, if the lease indicates that the landlord has agreed to procure
insurance covering a particular loss, a court “may properly conclude that, notwithstanding
a general ‘surrender in good condition’ or ‘liability for negligence’ clause in the lease,” the
landlord and tenant reasonably expected “that the landlord would look only to the policy,
and not to the tenant, for compensation for . . . loss[es] covered by the policy.” Id. (citing
Rausch, 882 A.2d at 816). Likewise, if a lease obligates a tenant to procure insurance
covering a particular type of loss, such a provision will provide evidence that the parties
reasonably anticipated that the tenant would be liable for that particular loss, which would
allow another insurer who pays the loss to bring a subrogation action against the tenant.
Id. (citing Am. Family Mut. Ins. Co., 757 N.W.2d at 593).
23
However, with regard to tenants in a multiunit dwelling, we find that absent clear
notice—ideally in the form of an unambiguous, enforceable lease provision—that a
negligent tenant will be held liable for damages to areas of the building beyond the tenant’s
leased premises, such liability would not be within the tenant’s reasonable expectations
and is therefore barred. See Rausch, 882 A.2d at 816 (“Whatever general common law
liability a tenant may have for damage to another person’s property caused by the tenant’s
negligence, it is not likely, unless faced with a very clear contractual obligation to the
contrary, that the tenant is thinking beyond the leased premises or, as a practical matter,
would be able to afford, or possibly even obtain, sufficient liability insurance to protect
against such an extended loss.”). This approach also avoids the unreasonable expectation
and economic waste of requiring every tenant in a multiunit apartment building policy to
carry insurance coverage adequate to cover damage to the entire building, particularly
when the landlord presumably already maintains such coverage. Id. (“Nor should the law
encourage the economic waste that would result from multiple layers of insurance by the
individual tenants to cover the same loss.”).
IV. Summary-Judgment Review
On appeal, we review the grant of summary judgment de novo, applying the same
standard as the trial court: “Drawing all reasonable inferences in favor of . . . the non-
moving parties, summary judgment is appropriate ‘if the designated evidentiary matter
shows that there is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law.’” Williams v. Tharp, 914 N.E.2d 756, 761 (Ind.
2009) (quoting Ind. Trial Rule 56(C)). A fact is “material” if its resolution would affect
24
the outcome of the case, and an issue is “genuine” if a trier of fact is required to resolve the
parties’ differing accounts of the truth, or if the undisputed material facts support
conflicting reasonable inferences. Id. (internal citations omitted). In determining whether
there is a genuine issue of material fact precluding summary judgment, all doubts must be
resolved against the moving party and the facts set forth by the party opposing the motion
must be accepted as true. Hyperbaric Oxygen Therapy Sys., Inc. v. St. Joseph Med. Ctr. of
Ft. Wayne, Inc., 683 N.E.2d 243, 247 (Ind. Ct. App. 1997), trans. denied.
In the case before us, the parties’ lease includes a provision titled “Insurance,” which
is silent as to the issue of LBM’s obligation to maintain property insurance, but does state
in bold type: “Owner recommends the Resident obtain renter’s insurance.” Appellant’s
App. p. 7. In a deposition, Mannia testified that in “discussions with [a] lady representing
the management company,” she was told that the apartment complex would have property
insurance on the building, but Mannia also testified that she did not believe she would be
covered under the apartment complex’s insurance policy. Id. at 238-40. Mannia also
testified during this deposition that she was told to obtain—and did in fact obtain—renter’s
insurance. Id. at 239-40. According to the transcript from the summary-judgment hearing,
however, she did not obtain renter’s insurance but was instead covered by her parents’
homeowners’ policy. Tr. p. 12. Thus, it is unclear what insurance—if any—Mannia was
carrying at the time of the fire, and there are no insurance policies included in the record
before this Court today.
The lease also contains a provision holding Mannia liable for “any injury or damage
done to the Leased Premises, common areas or any other property of Owner . . . .”
25
Appellant’s App. p. 10. But there is no clear and enforceable lease provision putting
Mannia on notice that she would be held liable for damage caused by negligence to areas
of the multiunit apartment building beyond the leased premises (and should obtain liability
insurance to provide for that possibility); we find, therefore, no evidence that the parties
anticipated and reasonably expected that Mannia would be so liable. See Rausch, 882 A.2d
at 816. Hence, to the extent that the $743,402.86 insurance claim is for damage to areas
beyond the leased premises, we find that summary judgment was properly granted.
However, summary judgment was inappropriate with respect to damage to the
leased premises. On remand, we instruct the trial court to engage in the analysis of the
case-by-case approach.12 This means, first, that the court should consider the lease and any
other relevant and admissible evidence, including—among other things—the insurance
maintained by each party as evidence of each party’s expectations with respect to liability
for damage to the leased premises. See Am. Family Mut. Ins. Co., 757 N.W.2d at 594.
Second, because subrogation is an equitable remedy, the trial court must also weigh “the
principles of equity and good conscience” as applied to this particular case. See
12
Although the trial court found in its order that LBM’s subrogation claims would be barred under
even a case-by-case approach, it appears from the trial court’s discussion of this approach that the weighing
of relevant factors was too limited. See Appellant’s App. p. 246. To be specific, the trial court relied
primarily on the recommendation within the lease that Mannia obtain renter’s insurance, writing as follows:
By recommending that the resident only obtain renter’s insurance and not a fire policy on
the entire structure, a tenant is reasonably able to infer that they are only responsible for
the contents of their apartment and personal liability protection for someone injured and
associated with their limited leased space.
Id. But the trial court does not appear to give any weight to, for instance, the lease provision stating that
“Resident is and shall be liable for any injury or damage done to the Leased Premises, common areas or
any other property of Owner caused by [R]esident, any occupant, or any other person whom Resident
permits to be in or about the Leased Premises.” Id. at 10.
26
LaFramboise, 597 N.E.2d at 626. In sum, the trial court should analyze all relevant and
admissible evidence in order to determine the parties’ expectations and should weigh and
balance the equities of the case—as well as addressing the issue of Mannia’s negligence—
in order to determine Mannia’s liability for the damage to the leased premises.
We affirm in part, reverse in part, and remand with instructions.
FRIEDLANDER, J. and MAY, J., concur.
27
Lbm Realty, Llc, d/b/a Summer Place Apartments, an Indiana Corporation v. Hillary Mannia, an Indiana Resident
Combined Opinion