J-A22037-19
2019 PA Super 313
RONALD T. JOELLA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
:
v. :
:
:
ANNIE COLE : No. 396 EDA 2019
Appeal from the Order Entered January 10, 2019
In the Court of Common Pleas of Northampton County Civil Division at
No(s): C-48-CV-2018-02349
BEFORE: MURRAY, J., STRASSBURGER, J.*, and PELLEGRINI, J.*
OPINION BY PELLEGRINI, J.: FILED OCTOBER 18, 2019
Ronald T. Joella (Landlord) appeals from the order entered in the Court
of Common Pleas of Northampton County (trial court) denying his motion for
partial judgment on the pleadings and granting the cross-motion for partial
judgment on the pleadings filed by Annie Cole (Tenant). We affirm.
We derive the following facts and procedural history from our
independent review of the record. On March 19, 2018, Landlord filed a
complaint against Tenant, a former tenant in a residential apartment building.1
The complaint included one count for negligence alleging that Tenant’s
negligent use of an extension cord caused a fire resulting in extensive damage
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* Retired Senior Judge assigned to the Superior Court.
1 This is a subrogation action brought by Joella’s insurance company, Erie
Insurance Exchange.
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to Landlord’s property ($180,000.00). Specifically, Landlord averred that
Tenant had run an extension cord across the hinges of a cabinet to a
microwave, causing damage to the cord, which eventually ignited nearby
combustibles. Tenant filed an answer with new matter raising affirmative
defenses, including waiver and estoppel.
Landlord then filed a motion for partial judgment on the pleadings
requesting the court to dismiss the waiver and estoppel defenses. Tenant
answered that motion and in turn filed a cross-motion for partial judgment on
the pleadings requesting the court to make a finding that Landlord and his
insurer are barred from recovering against Tenant for the fire loss at the
property. She argued that pursuant to the language of the lease, Landlord
was required to maintain fire insurance for her protection and that she was,
therefore, an implied co-insured under Landlord’s insurance policy.2
The lease provides, in relevant part:
10. UTILITIES AND SERVICES.
* * *
Landlord shall be responsible for the following utilities and
services in connection with the above premises: . . . Insurance
on the building only
11. PROPERTY INSURANCE. Tenant has the right to
maintain fire and casualty insurance on the premises to
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2 Landlord maintains an insurance policy on the property through Erie
Insurance Exchange. Tenant is not mentioned in the policy. (See N.T.
Hearing, 11/06/18, at 5).
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cover their personal possessions, which are not covered by
the Landlord’s fire insurance. They can talk to an insurance
company concerning renters insurance to cover their interests.
(Real Estate Lease, at 1-2) (emphases added).
After hearing arguments, the trial court denied Landlord’s motion but
granted Tenant’s cross-motion, finding that Landlord could not maintain an
action against Tenant in subrogation for property damage because under the
terms of the lease, the reasonable expectation of the parties is that she would
be an implied co-insured under Landlord’s policy. Landlord then timely filed
this appeal.3
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3 Our standard of review for the grant or denial of judgment on the pleadings
is well-settled:
The standard to be applied upon review of a motion for judgment
on the pleadings accepts all well-pleaded allegations of the
complaint as true. The question presented by the demurrer is
whether, on the facts averred, the law says with certainty that no
recovery is possible. Where a doubt exists as to whether a
demurrer should be sustained, this doubt should be resolved in
favor of overruling it.
Donaldson v. Davidson Bros., Inc., 144 A.3d 93, 100 (Pa. Super. 2016),
appeal denied, 169 A.3d 11 (Pa. 2017) (citation omitted).
Additionally, “contract construction and interpretation is generally a question
of law for the court to decide.” Pops PCE TT, LP v. R & R Rest. Grp., LLC.,
208 A.3d 79, 87 (Pa. Super. 2019) (citation omitted). The legal effect of a
contract provision presents a question of law accorded full appellate review
and is not limited to an abuse of discretion standard. See id.
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I.
On appeal, Landlord contends that the trial court erred in finding that
Tenant was an implied co-insured under Landlord’s insurance policy. Before
we address this issue, it is necessary to give some background of the various
approaches of whether a landlord, through its insurance company, can
maintain subrogation action against a negligent tenant.
A.
Subrogation is an equitable doctrine intended to place the ultimate
burden of a debt upon the party primarily responsible for the loss. See Prof’l
Flooring Co., Inc. v. Bushar Corp., 152 A.3d 292, 301 (Pa. Super. 2016),
appeal denied, 170 A.3d 1036 (Pa. 2017). “[S]ubrogation can arise only with
respect to the rights of an insured against third persons to whom the insurer
owes no duty.” Remy v. Michael D's Carpet Outlets, 571 A.2d 446, 452
(Pa. Super. 1990), aff’d sub nom. Kimco Dev. Corp. v. Michael D's Carpet
Outlets, 637 A.2d 603 (Pa. 1993) (citation omitted). An insurer, therefore,
cannot recover by means of subrogation against its own insured. See id.
In a landlord-tenant relationship, absent a lease provision to the
contrary, a tenant is generally liable in tort to its landlord for damages to the
leased property caused by the tenant’s negligence. See 1 Milton R. Friedman
& Patrick A. Randolph, Jr., Friedman on Leases § 9:10 (5th ed.2004).
However, when the landlord has procured insurance for its property, the issue
then becomes whether the property insurer can file a subrogation claim
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against the tenant when the tenant negligently caused damages. State courts
have taken three different approaches to resolve this issue.
The first approach is the pro-subrogation approach in which a landlord’s
insurer can bring a subrogation claim against a negligent tenant absent an
express provision in the lease to the contrary. Because the tenant is not an
express or implied co-insured, the insurance company can maintain a suit
against the tenant for property losses caused by the tenant’s conduct. Courts
that have adopted the pro-subrogation approach emphasize that a tenant has
the responsibility to exercise ordinary care and should not be exculpated from
the consequences of his own negligence unless the landlord and the tenant
have expressly agreed that the tenant will not be held liable for loss resulting
from the tenant’s negligence:
[I]t is the duty of the tenant to exercise ordinary care, in
the use of the leased premises or property, not to cause any
material and permanent injury thereto over and above the
ordinary wear and tear, and ... he is liable to the landlord in
damages for any such injury unnecessarily resulting from his
wrongful acts or his failure to exercise such care.
Williams, Insurers’ Rights of Subrogation, supra at 558 (quoting C.R.
McCorkle, Annotation, Liability of Tenant for Damage to the Leased Property
Due to His Acts or Neglect, 10 A.L.R.2d 1012, 1014 (1950)).
This is essentially the position that Landlord is advancing. Landlord
argues that public policy considerations serve as a basis for not making a
tenant an implied co-insured based on the lease agreement because it would
exculpate Tenant of responsibility for her negligent conduct, burden insurance
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carriers with exposure for tenant negligence — when such exposure
purportedly is not bargained for between carrier and property owner.
The second approach is the anti-subrogation approach known as the
“Sutton Rule.” This approach is named after Sutton v. Jondahl, 532 P.2d
478 (Ok.Civ.App. 1975), a case where the ten-year-old son of a tenant took
an electric popcorn popper to his bedroom to heat up some chemicals that
caused the curtains to catch on fire, causing $2,382.57 in damages. In that
case, the court held that the owner’s insurance company could not maintain
an action against the tenant because “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.” Id. at 482.
To the Sutton court, the special relationship between the landlord and
tenant placed the tenant in a substantially different position than a fire-
causing third party. While the court recognized that the carrier could have
subrogated against a third party, it held that the carrier should not be able to
shift the insurable risk to the negligent tenant. Id. at 482. Also weighing in
favor of adopting the implied coinsurance doctrine is that a portion of the
landlord’s insurance premiums are necessarily paid by the tenant as part of
the tenant’s rent, thereby purchasing their status as a co-insured under the
landlord’s policy. Since Sutton, other state courts have adopted its strict
rationale that unless the lease agreement expressly requires a tenant to
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procure fire insurance, the tenant is an implied co-insured of the landlord’s
policy.
The final approach is the case-by-case approach where 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. Under this
approach, the court will look to the lease agreement between the landlord and
the tenant. The language of an insurance policy may also have an effect on
whether a subrogation action may be maintained. If, for example, an insurer
has waived its right to subrogation in an insurance policy, a court need look
no further than the language of that policy to determine that the insurer
cannot maintain a subrogation action against a negligent tenant. See RAM
Mut. Ins. Co. v. Rohde, 820 N.W.2d 1, 15 (Minn. 2012).
In RAM Mut. Ins. Co, the Minnesota Supreme Court rejected the
Sutton Rule, stating that the case-by-case approach was the best approach
because:
The question presented by [this] subrogation action arises
at the intersection of insurance law and landlord-tenant law
governing the relationship of landlords and tenants. Both areas
of law are grounded in contractual relationships, making a rule
that reaches a result by examining the parameters of the
relationship between an insurer and insured and a landlord and
tenant, as defined in the parties’ respective contracts, superior to
one that makes legal assumptions that do not comport with the
parties’ reasonable expectations. See Am. Family Mut. Ins.
Co., 757 N.W.2d at 594 (concluding that the case-by-case
approach “is the best approach to employ in the landlord-tenant
context because it applies basic contract principles”). By
examining the reasonable expectations of the contracting parties
to determine whether subrogation is appropriate in a particular
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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.4
This is the approach that Tenant advanced and the trial court adopted
in holding that under the terms of the lease, the reasonable expectation of the
parties is that Tenant would be an implied co-insured.
B.
As to what approach is used in Pennsylvania, the only case that
addresses this issue is our decision in Remy, and then only indirectly, but a
case both Landlord and Tenant contend supports their position. In Remy, a
fire broke out in the landlord’s building and the landlord’s insurer made
payments to the landlord for the fire loss. The landlord’s insurer, through its
insured, brought a subrogation action against a tenant for the tenant’s alleged
negligence in causing the fire. On appeal, the tenant argued that the
landlord’s action, an action sounding in subrogation, could not be maintained
because the tenant was an implied co-insured under the landlord’s policy of
fire insurance.
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4 In footnotes 7, 8, and 9 of its opinion in RAM, the Minnesota Supreme Court
stated that approximately 14 state courts have adopted the Sutton Rule no
subrogation approach; 12 jurisdictions have adopted the pro-subrogation
approach, either explicitly or implicitly; and “many” courts have adopted the
case-by-case approach.
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In finding that the landlord’s insurer could subrogate against the tenant,
we noted that the lease between the landlord and the tenant did not require
the landlord to purchase fire insurance for the protection of the tenant, but
required the tenant to purchase and maintain its own liability insurance,
including coverage for property damage. See id. at 452. We also noted that
the terms of the landlord’s fire insurance policy did not name the tenant as a
co-insured.
While we did not specifically state that we were applying the case-by-
case approach to our analysis in Remy, it is obvious that that is exactly what
we did because we did not apply the bright line pro or anti-subrogation
approach.5 Instead, we looked to the circumstances of the particular case and
examined the terms of the landlord’s insurance policy in conjunction with the
provisions of the lease in finding that the landlord or its fire insurance carrier
were not barred from recovering against the tenant whose negligence caused
fire damage.
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5Other courts have come to a similar conclusion. See Greater N.Y. Mut. v.
Caraballo, 2013 Pa. Dist. & Cnty. Dec. LEXIS 919, at *1-2 (C.P. Lehigh Jan.
25, 2013) (“If Pennsylvania had adopted a per se rule protecting tenants from
subrogation, a demurrer might be appropriate in this case. However,
Pennsylvania does not adopt a per se rule on subrogation, but instead adopts
a case by case analysis.”) (citing Remy, 571 A.2d 446); see also Dattel
Family Ltd. P'ship, 250 S.W.3d at 888 (noting that Pennsylvania follows the
case-by-case approach); State Farm Fla. Ins. Co. v. Loo, 27 So. 3d 747,
750 n.5 (Dist. Ct. App. 2010) (same).
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C.
Even if Pennsylvania uses a case-by-case analysis, Landlord then
contends that Tenant did not have reasonable expectation that her negligence
would be covered because she should have reasonably expected to be held
liable for fire damage caused by her negligent actions pursuant to the
language of the lease itself. Landlord contends that the lease states that the
“Landlord shall be responsible for . . . insurance on the building only.” (See
Record Previously Produced, R. 104a, Paragraph 10). He further states,
“Tenant has the right to maintain fire and casualty insurance on the premises
to cover their personal possessions, which are not covered by the Landlord’s
fire insurance. They can talk to an insurance company concerning renters
insurance to cover their interests.” (See id. Paragraph 11). Under those
provisions, Landlord argues that pursuant to the lease, Tenant should have
reasonably anticipated that she might be held liable for fire damage caused
by her negligence.
In finding that it was the reasonable expectation of the parties that
Tenant would be an implied co-insured on the policy, the trial court ably
addressed that issue, holding:
Here, [unlike in Remy] Paragraph 10 of the lease provides
that Landlord shall be responsible for insurance on the building.
Real Estate Lease ¶ 10. Meanwhile, Paragraph 11 states that
“[t]enant has the right to maintain fire and casualty insurance on
the premises to cover their personal possessions, which are not
covered by the Landlord’s fire insurance.” Id. ¶ 11 (emphasis
added). Reading these two paragraphs together with all of the
other lease provisions, and construing the terms of the lease
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against Landlord, the drafter, in order to protect the reasonable
expectations of Tenant, the adhering party, we conclude that it
was reasonable for Tenant to expect that she would be a co-
insured under the terms of the lease for any damage caused to
the Property. See Ross, 333 A.2d at 754; Bushar Corp., 152
A.3d at 300. We find this to be the most reasonable interpretation
because a natural reading of the lease supports the position that
everything, except for Tenant’s personal possessions, is covered
under Landlord’s insurance policy. See Gaffer Ins. Co. v.
Discover Reinsurance Co., 936 A.2d 1109, 1113 (Pa. Super.
2007) (“[A] preferred contract interpretation ascribes under all
circumstances the most reasonable, probable, and natural
conduct to the parties.”) (emphasis added) (internal quotations
omitted).
We also believe this to be a proper conclusion when looking
at other jurisdictions that employ the case-by-case approach. In
Rausch v. Allstate Insurance Co., 882 A.2d 801, 816 (Md.
2005), the Maryland Court of Appeals stated:
If, under 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, their reasonable expectation
was that the landlord would look only to the policy, and not
to the tenant, for compensation for fire loss covered by the
policy. That expectation would constitute an implied
commitment in the lease to relieve the tenant of liability to
the extent of the policy coverage and it, too, would therefore
preclude a subrogation claim.
Id. Although Paragraph 8(f) of the lease states that the tenant
shall not negligently damage the premises, that provision does not
impart liability. See Real Estate Lease ¶ 8(f). Even if Paragraph
8(f) of the lease were construed as a general liability for
negligence clause, the language of Paragraphs 10 and 11 of the
lease creates the reasonable expectation that Landlord would look
only to his insurance policy for compensation for fire loss covered
by his policy. See Rausch, 882 A.2d at 816 (noting that absent
some compelling provision to the contrary and notwithstanding
any general provision imposing liability for negligence, the
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reasonable expectation of the parties is that landlord would look
only to the insurance policy for compensation for fire loss); Union
Mut. Fire Ins. Co. v. Joerg, 824 A.2d 586, 591 (Vt. 2003)
(holding that tenant is an implied co-insured where the lease
requires landlord to carry fire insurance because it is reasonable
to expect that landlord will look only to insurance for loss
coverage.).
(Trial Court Opinion, at 7-9) (footnote omitted.)
As stated, while the terms of Landlord’s insurance policy do not mention
Tenant, the parties’ lease specifically states that Landlord would obtain
insurance for the building and that Tenant had the right to maintain her own
insurance to cover her personal possessions. (See Real Estate Lease, at 2).
Under the circumstances of this particular case, where the lease provision
requires Landlord to maintain insurance on the building, we agree with the
trial court that based on the reasonable expectations of the parties as
expressed in the lease, Tenant is an implied co-insured under Landlord’s
insurance policy and that Erie Insurance Exchange cannot maintain a
subrogation action against Tenant.
Order affirmed.
Judge Murray joins the opinion
Judge Strassburger concurs in the result.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 10/18/19
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