West American Insurance Company, an Indiana Company v. Black Dog Consulting Inc., a Wyoming Corporation D/B/A C.H. Yarber Construction, a Wyoming Corporation

IN THE SUPREME COURT, STATE OF WYOMING

2023 WY 109

OCTOBER TERM, A.D. 2023

November 9, 2023

WEST AMERICAN INSURANCE
COMPANY, an Indiana company,

Appellant
(Plaintiff),

v.
S-23-0052
BLACK DOG CONSULTING INC., a
Wyoming corporation d/b/a C.H. YARBER
CONSTRUCTION, a Wyoming corporation,

Appellee
(Defendant).

Appeal from the District Court of Laramie County
The Honorable Peter H. Froelicher, Judge

Representing Appellant:
Richard R. Rardin, Denver, Colorado.

Representing Appellee:
Blaine F. Burgess and Sean W. Scoggin, Williams, Porter, Day & Neville, P.C.
Cheyenne, Wyoming. Argument by Mr. Burgess.

Before FOX, C.J., KAUTZ, BOOMGAARDEN, GRAY, and FENN, JJ.

NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third.
Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne,
Wyoming 82002, of any typographical or other formal errors so that correction may be made before
final publication in the permanent volume.
BOOMGAARDEN, Justice.

[¶1] West American Insurance Company (West) is the insurer of Profile Properties’
(Profile) commercial property in Cheyenne. Black Dog Consulting Inc., doing business as
C.H. Yarber Construction (C.H. Yarber), was the tenant leasing Profile’s commercial
property when the property sustained significant damage from a fire. West covered
Profile’s fire damages and proceeded against C.H. Yarber in subrogation asserting claims
of negligence and breach of contract. The district court granted summary judgment in
favor of C.H. Yarber after concluding West could not pursue its claims in subrogation
because C.H. Yarber was a co-insured under Profile’s insurance policy. We affirm,
concluding C.H. Yarber and Profile reasonably expected under the terms of their lease
agreement that Profile would look only to its insurer, West, for compensation for fire loss.
West therefore cannot pursue its claims against C.H. Yarber in subrogation.

ISSUE

[¶2] West raises one issue, which we simplify and rephrase as:

Whether West is precluded from filing claims in subrogation
against C.H. Yarber.

FACTS

[¶3] The material facts are undisputed. C.H. Yarber entered into an agreement with
Profile in 2014 to lease property in Cheyenne. The leased property contained an office
facility, two warehouses, and approximately 3.5 acres of fenced yard space encompassing
the buildings. Pursuant to the lease agreement, in addition to the $7,000 monthly rent, C.H.
Yarber agreed to pay the full expense of Profile’s blanket insurance policy, which included
general commercial liability insurance and “[f]ire and extended coverage insurance on the
Building[.]” Profile agreed to furnish a copy of the blanket insurance policy with the
invoiced expense to C.H. Yarber. The details of the lease will be discussed below as
necessary.

[¶4] C.H. Yarber ran a metal fabrication business on the leased property that involved
the welding, cutting, and grinding of metal. In the late afternoon on December 5, 2016,
C.H. Yarber’s employees detected a fire on the property and called the Laramie County
Fire District No. 1 (LCFD1). After making efforts to suppress the fire and taking thermal
readings, LCFD1 determined the fire was out and left the area. C.H. Yarber’s employees
left soon after. Several hours later, the property became engulfed in flames. The metal
fabrication shop was destroyed. 1

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The parties’ factual dispute over causation is not material to our determination whether West’s subrogation
claims may stand.

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[¶5] West paid the damages caused by the fire in accordance with Profile’s policy. In
November 2020, West filed a complaint in subrogation against C.H. Yarber alleging claims
of negligence and breach of contract. C.H. Yarber moved for summary judgment on
West’s claims. In granting summary judgment, the district court adopted the rule
articulated in Sutton v. Jondahl, 532 P.2d 478 (Okla. Civ. App. 1975) (“the Sutton rule”).
This rule holds a tenant, as a matter of law, is an implied co-insured under their landlord’s
fire insurance policy unless the landlord and tenant expressly agreed otherwise. Id. at 482.
The district court applied the Sutton rule and concluded Profile’s lease agreement with C.H.
Yarber did not expressly require C.H. Yarber to carry fire insurance and, because C.H.
Yarber was also required to pay for Profile’s blanket insurance policy which covered fire
losses, C.H. Yarber was an implied co-insured under Profile’s policy, thus precluding West
from filing its claims in subrogation.

[¶6] West timely appealed.

STANDARD OF REVIEW

[¶7] W.R.C.P. 56(a) states “[t]he court shall grant summary judgment if the movant
shows that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” We review a district court’s order granting summary
judgment de novo and may affirm on any basis in the record. Gates v. Memorial Hosp. of
Converse Cnty., 2023 WY 77, ¶ 14, 533 P.3d 493, 498 (Wyo. 2023) (citation omitted);
Primrose Ret. Cmtys., LLC v. Ghidorzi Constr. Co., 2023 WY 15, ¶ 8, 523 P.3d 1219, 1224
(Wyo. 2023).

We review a summary judgment in the same light as the district
court, using the same materials and following the same
standards. We examine the record from the vantage point most
favorable to the party opposing the motion, and we give that
party the benefit of all favorable inferences that may fairly be
drawn from the record. A material fact is one which, if proved,
would have the effect of establishing or refuting an essential
element of the cause of action or defense asserted by the
parties.

Gates, 2023 WY 77, ¶ 14, 533 P.3d at 498–99 (quoting Phyllis v. McDill Revocable Tr.,
2022 WY 40, ¶ 16, 506 P.3d 753, 759–60 (Wyo. 2022)).

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 DISCUSSION

I. The Subrogation Doctrine

[¶8] “[S]ubrogation is the substitution of one person in the place of another with
reference to a lawful claim so that the one who is substituted succeeds to the rights of the
other in relation to the debt or claim.” Tri-Par Invs., L.L.C. v. Sousa, 680 N.W.2d 190, 194
(Neb. 2004) (citation omitted). In the insurance context, “when an insurer pays the claim
of its insured, the insurer stands in the shoes of its insured, and the insurer may bring a
subrogation action against the tortfeasor to recover the amounts paid under the insurance
policy.” State Farm Florida Ins. v. Loo, 27 So. 3d 747, 748 (Fla. Dist. Ct. App. 2010)
(citation omitted). The purpose of the subrogation doctrine is “to prevent the party
primarily liable on the debt from being unjustly enriched when someone pays his debt.”
Rausch v. Allstate Ins., 882 A.2d 801, 807 (Md. 2005) (citation omitted).

[¶9] The doctrine of subrogation is equitable in nature, thus “in determining whether an
insurer may bring a subrogation action in a particular case, courts must weigh ‘the
principles of equity and good conscience.’” LBM Realty, LLC v. Mannia, 19 N.E.3d 379,
386 (Ind. Ct. App. 2014) (quoting RAM Mut. Ins. v. Rohde, 820 N.W.2d 1, 16 (Minn.
2012)); Dattel Fam. Ltd. P’ship v. Wintz, 250 S.W.3d 883, 887 (Tenn. Ct. App. 2007)
(“Subrogation is not appropriate in every circumstance; as an equitable doctrine, it is
applied only if its application achieves equity under the facts and circumstances of the case
at hand.” (citation omitted)). Importantly, an insurer “may not maintain a subrogation
action against its own insured even if the insured’s negligence caused the loss.” Loo, 27
So.3d at 748 (citations omitted); see also Sousa, 680 N.W.2d at 194 (citation omitted); 46A
C.J.S. Insurance § 2022 (Aug. 2023 update).

II. Three Approaches: Anti-Subrogation (the Sutton rule), Pro-Subrogation (the
anti-Sutton rule), and Case-by-Case Analysis

[¶10] For almost fifty years courts across the country have considered the issue of when
a landlord’s insurer can pursue a subrogation claim against a tenant who negligently caused
a fire loss. See generally Ro v. Factory Mut. Ins., 260 A.3d 811, 815–18 (N.H. 2021);
Liberty Mut. Fire Ins. v. Auto Spring Supply Co., 59 Cal. App. 3d 860, 865–67 (Cal Ct.
App. 1976). Three different approaches have emerged. Hoosier Ins. v. Riggs, 92 N.E.3d
685, 688 (Ind. Ct. App. 2018) (quoting LBM Realty, LLC, 19 N.E.3d at 383). The Sutton
rule the district court invoked is one approach. Which approach Wyoming should adopt is
a matter of first impression.

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A. Anti-Subrogation (the Sutton Rule)

[¶11] The categorical rule announced in Sutton provides that, as a matter of law, a tenant
is an implied co-insured under the landlord’s insurance policy absent an express agreement
to the contrary. Thus, the landlord’s insurer is precluded from filing a subrogation claim
against a tenant. Hoosier Ins., 92 N.E.3d at 688 (quoting LBM Realty LLC, 19 N.E.3d at
383). This rule has also been called the anti-subrogation approach. Ro, 260 A.3d at 814–
15; Joella v. Cole, 221 A.3d 674, 678 (Pa. 2019).

[¶12] The Sutton court explained:

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.

Sutton, 532 P.2d at 482. The court further reasoned the landlord could have agreed to
require the tenant to furnish fire insurance; however, prospective tenants ordinarily rely on
the owner of the property to provide such insurance for the real property. Id. The court
also acknowledged insurance companies themselves have accepted coverage of a tenant as
“a natural thing.” Id.

[¶13] The Connecticut Supreme Court offered an additional rationale for adopting the
Sutton rule. It reasoned:

[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

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 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.

DiLullo v. Joseph, 792 A.2d 819, 822–23 (Conn. 2002) (citation omitted); see also GNS
P’ship v. Fullmer, 873 P.2d 1157, 1162 (Utah Ct. App. 1994) (stating the Sutton rule “is
the most efficient way to allocate insurance costs” (citation omitted)).

[¶14] The Sutton rule has not been universally adopted by state courts, but it reflects the
modern trend. Tri-Par Invs., L.L.C., 680 N.W.2d at 195, 197–98 (citations omitted).

B. Pro-Subrogation (the anti-Sutton rule)

[¶15] The pro-subrogation approach employs reasoning contrary to that in Sutton.
Hoosier Ins., 92 N.E.3d at 688 (citation omitted); see also Page v. Scott, 567 S.W.2d 101,
103–04 (Ark. 1978); U.S. Fid. & Guar. Co. v. Let’s Frame It, Inc., 759 P.2d 819, 820
(Colo. App. 1988) (citation omitted). This approach categorically permits a landlord’s
insurer to bring a subrogation claim against a negligent tenant unless the parties expressly
contract to the contrary. Hoosier Ins., 92 N.E.3d at 688 (citation omitted). Courts applying
this approach pushed back against the underlying rationales of Sutton holding instead that
tenants should be held responsible for the consequences of their own negligence. Joella,
221 A.3d at 677–78. In Page, the Arkansas Supreme Court reasoned:

The fiction that by paying the rent, the lessee paid the insurance
premium is not appropriate. There is no evidence that appellee
paid any greater rent because of the insurance than he would
have paid had appellant not taken insurance. If the tenant paid
the insurance premium, he also paid the taxes on the property
and the cost of construction or purchase of the house, not to
mention cost of repairs and maintenance. Such a fiction
ignores the fact that more often than not the market, i. e., supply
and demand, is the controlling factor in fixing and negotiating
rents.

Page, 567 S.W.2d at 103–04.

[¶16] The Iowa Supreme Court also rejected the Sutton rationale that the landlord’s fire
insurance includes the interest of both landlord and tenant as a matter of law, stating this
assumption “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).
Courts adopting this approach have further expressed concern the Sutton rule “encroach[es]
upon the contractual relationship between a landlord and its insurer.” Tri-Par Invs.L.L.C.,

5
680 N.W.2d at 197 (citing 56 Associates ex rel. Paolino v. Frieband, 89 F. Supp. 2d 189
(D. R.I. 2000)).

C. Case-by-Case Analysis

[¶17] A greater number of courts have avoided categorical rules in favor of a case-by-case
approach. LBM Realty, LLC, 19 N.E.3d at 392–93; Rausch, 882 A.2d at 814; Tri-Par Invs.,
L.L.C., 680 N.W.2d at 196–98. This more flexible approach adopts the basic
underpinnings of Sutton but looks first to the lease, and any other admissible evidence, to
determine the parties’ reasonable expectations as to who should bear the risk of loss if a
tenant negligently damages the leased premises. Rausch, 882 A.2d at 814; Hoosier Ins.,
92 N.E.3d at 688 (citing LBM Realty, LLC, 19 N.E.3d at 393–94); Tri-Par Investments,
L.L.C., 680 N.W.2d at 197–98. Often a court will be able to determine the reasonable
expectations of the parties from the language of the lease alone. RAM Mut. Ins., 820
N.W.2d at 14–15 (citation omitted); Rausch, 882 A.2d at 814–15. For instance:

[I]f 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.” In such
a case, the insurer would again not be able to maintain a
subrogation action, because the landlord would be unable to
sue the tenant for the damage under the lease. If, however, 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.

RAM Mut. Ins., 820 N.W.2d at 15 (citation omitted); see also LBM Realty LLC, 19 N.E.3d
at 392–93 (citation omitted); Rausch, 882 A.2d at 816.

[¶18] Though not presented as a subrogation claim, our reasoning in Berger v. Teton
Shadows, Inc., 820 P.2d 176 (Wyo. 1991) aligns with this approach. Teton Shadows, the
owner of a condominium project, hired Mr. Berger as a subcontractor to do plumbing work.
Id. at 177. As part of Mr. Berger’s contract, Teton Shadows agreed “to carry fire, tornado
and other necessary insurance.” Id. at 177. Mr. Berger negligently caused a fire at the
project site resulting in $120,000 in damage. Id. at 176. Teton Shadows’ insurance carrier
covered $103,000 of the damage, resulting in Teton Shadows filing a negligence action to

6
recover the uninsured loss. See id. at 176 n.1, 177. The dispute on appeal centered on
whether Teton Shadows’ express agreement to carry fire insurance allocated the risk of
loss to the insurer and prevented Teton Shadows from recovering damages beyond the
insured loss. Id. at 177. Quoting a Florida case that analyzed the same contractual term,
we noted:

The owner had, as all owners always have, the right to insure
his own property for his own exclusive benefit without the
consent or agreement of the contractor or anyone else.
Therefore, the only reasonably conceivable purpose of a
construction contract provision placing an obligation on the
owner to carry insurance is to benefit the contractor by
providing him protection and exculpation from risk of liability
for the insured loss. Although the contractor was not named as
an insured, nor does the contract require this to be done, the
contract insurance provision is valuable to the contractor for
the very purpose this case exemplifies and serves to limit the
owner to insurance proceeds even though the loss was caused
by the negligence of the contractor.

Id. at 178 (quoting Housing Inv. Corp. v. Carris, 389 So.2d 689 (Fla. Dist. Ct. App. 1980)).
Accordingly, we looked at the plain language of Mr. Berger’s contract and concluded the
parties reasonably expected Teton Shadows to look only to its insurance to cover the fire
loss. See id. We held “[t]he contract provision, owner to carry fire insurance, clearly
expressed the parties’ intent to shift the risk to Teton Shadows’ insurance carrier.” Id.

[¶19] Considering our reasoning in Berger and the relative merits of the three subrogation
approaches, we, too, avoid the categorial approaches, believing instead the best analytical
framework to effectuate the parties’ intent with regard to allocation of risk of fire loss
begins with a case-by-case look at the lease itself. See Rausch, 882 A.2d at 814–15; see
also Joella, 221 A.3d at 678–79 (acknowledging the case-by-case approach best effectuates
the intent of the parties “by simply enforcing the terms of their contracts”). That we favor
such an approach should come as no surprise given that this Court has long employed
freedom of contract principles as the foundation for resolving contractual disputes. Finley
Res., Inc. v. EP Energy E&P Co. Ltd. P’ship, 2019 WY 65, ¶ 24, 443 P.3d 838, 846–47
(Wyo. 2019); Colton v. Town of Dubois, 2022 WY 138, ¶ 22, 519 P.3d 976, 982 (Wyo.
2022) (“We do not lightly interfere with this liberty.” (citations omitted)). This approach
moreover avoids the temptation or need for Wyoming courts to imply terms into the
parties’ lease or make presumptions based on conjecture. See Tri-Par Invs., LLC, 680
N.W.2d at 194–95, 197; Rausch, 882 A.2d at 814–15.

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 III. Profile’s lease agreement with C.H. Yarber.

[¶20] We begin our analysis with fundamental contract interpretation principles. See LBM
Realty, LLC, 19 N.E.3d at 394. Lease agreements are contracts, and we interpret them
using the same principles. Cheek v. Jackson Wax Museum, Inc., 2009 WY 151, ¶ 14, 220
P.3d 1288, 1291 (Wyo. 2009) (citation omitted). Our goal when interpreting a lease is to
determine the intent of the parties. See Colton, 2022 WY 138, ¶ 16, 519 P.3d at 980–81
(citations omitted). When the language of the lease is clear and unambiguous, we look
only to its four corners to determine the parties’ intent. See id. (quoting TEP Rocky
Mountain LLC v. Record T.J. Ranch L.P., 2022 WY 105, ¶ 45, 516 P.3d 459, 474 (Wyo.
2022)). “We use an objective approach when interpreting contracts, thus rendering the
parties’ subjective intent irrelevant.” Id. (citation omitted). Further, we “avoid interpreting
a contract so as to find inconsistent provisions or so as to render any provision
meaningless.” Pope v. Rosenberg, 2015 WY 142, ¶ 20, 361 P.3d 824, 830 (Wyo. 2015)
(citation omitted).

[¶21] Paragraph 12 of the lease directly addresses Profile’s and C.H. Yarber’s intent
concerning risk of fire loss. It states:

12. Commencing on the Commencement Date and continuing
during the Term hereof, Tenant shall bear the sole expense,
under Profile Properties, LLC blanket insurance policy and
at Tenant’s actual cost invoiced by Landlord, the following
insurance:

Property Insurance. Fire and extended coverage insurance
on the Building, improvements and fixtures on the
Premises in amounts equal to the replacement cost thereof.

Liability Insurance. Commercial general liability insurance
with a minimum combined single limit for bodily injury,
personal injury, loss of life and property damage of not less
than $1,000,000.

Tenant’s Insurance Policies. The original of the insurance
policy or policies shall remain in possession of Landlord;
provided, however, Landlord shall deliver a copy of the
policy with the invoiced amount to the Tenant upon
obtaining said insurance. A certificate of insurance shall be
issued naming Landlord as a loss payee and an additional
insured on the policy or policies, as applicable and providing
Landlord with thirty (30) days prior notice of any cancellation
or termination of the policy or policies. Tenant’s insurance

8
 policies shall be deemed primary over any policy maintained
by Landlord with respect to any act or omission caused by
Tenant or Tenant’s agents, employees or contractors. The
coverage required above may be maintained under one or more
blanket policies and may contain commercially reasonable
deductibles.

Tenant will furnish Landlord a Certificate of Insurance
annually reflecting the above.

[¶22] Paragraph 12 unambiguously required Profile to obtain a blanket insurance policy
that protected against fire losses in an amount equal to the replacement cost of “the
Building, improvements, and fixtures on the Premises.” C.H. Yarber had to pay the “sole
expense” of that policy. And Profile had to provide C.H. Yarber with a copy of the blanket
insurance policy along with an invoiced amount. Though the lease contains other
provisions that address C.H. Yarber’s general obligations to maintain the property in good
condition and hold Profile harmless for property damage C.H. Yarber may cause through
its negligence, this specific, plain language supports our conclusion that Profile intended
to look solely to its blanket insurance policy to cover any losses from fire. See e.g., Joella,
221 A.3d at 680 (citations omitted); RAM Mut. Ins., 820 N.W.2d at 15 (citation omitted);
Rausch, 882 A.2d at 816; supra, ¶ 17; see also Berger, 820 P.2d at 178 (citation omitted).
Because the lease evidences that Profile did not intend to look to C.H. Yarber to cover the
insured loss, West cannot pursue its claims against C.H. Yarber in subrogation.

[¶23] Affirmed.

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