J-A21017-23
2023 PA Super 272
WESTMINSTER AMERICAN : IN THE SUPERIOR COURT OF
INSURANCE COMPANY A/S/O : PENNSYLVANIA
ANDROULLA M. TOFALLI :
:
Appellant :
:
:
v. :
: No. 538 EDA 2023
:
AMY S. BOND A/K/A AMY S. SAFIN :
AND AMY S. BOND A/K/A AMY S. :
SAFIN T/A BLONDIE'S SALON :
Appeal from the Order Entered February 3, 2023
In the Court of Common Pleas of Monroe County Civil Division at No(s):
161-CV-2021
BEFORE: BENDER, P.J.E., DUBOW, J., and NICHOLS, J.
CONCURRING OPINION BY BENDER, P.J.E.: FILED DECEMBER 26, 2023
I am constrained by current case law to agree with the Majority’s
conclusion that, because the Leases did not obligate the Landlord to obtain
fire insurance on the Property, the Tenants had no reasonable expectation
that they were co-insureds on the Landlord’s insurance policy. However, I
write separately to voice my concerns about our case law and the approach
Pennsylvania employs to determine whether a landlord’s insurer may pursue
a subrogation action against a negligent tenant. I also encourage our Court,
en banc, or our Supreme Court to review this issue.
In Joella v. Cole, 221 A.3d 674 (Pa. Super. 2019), our Court outlined
three approaches jurisdictions have taken to resolve the issue of whether a
J-A21017-23
landlord’s insurer can file a subrogation claim against a tenant when the
tenant negligently caused damage to the landlord’s property. We explained:
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.
***
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. … Also weighing in favor of adopting the
implied coinsurance doctrine is that a portion of the landlord’s
-2-
J-A21017-23
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 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. 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.4
-3-
J-A21017-23
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.
Joella, 221 A.3d at 677-78 (some internal citations omitted).
In Joella, this Court — after analyzing our prior decision in Remy v.
Michael D’s Carpet Outlets, 571 A.2d 446 (Pa. Super. 1990) — ascertained
that Pennsylvania applies the case-by-case approach to determine if
subrogation is permitted. Under this approach, to discern if subrogation is
allowed, we consider the circumstances of the particular case and examine
the terms of the landlord’s insurance policy in conjunction with the provisions
of the lease agreement. Joella, 221 A.3d at 679.
In my view, one of the problems with this approach is that, often, as in
the case sub judice, the terms of the lease are ambiguous and/or silent as to
who is responsible for obtaining fire insurance on the dwelling, leading to
confusion.1 For instance, it is not unusual for a lease to only state that the
tenant must obtain renter’s insurance, leading the tenant to believe that (1)
____________________________________________
1 To illustrate this confusion, here, the Insurance Company seems to suggest
that the Leases required the Landlord to insure the building, in contravention
of the Majority’s conclusion. See Insurance Company’s Brief at 20 (stating
that the Leases in this case required the Landlord to maintain fire insurance
on the building); Insurance Company’s Reply Brief at 2 (“It is true that the
[L]eases required the [L]andlord to insure the building and that the [T]enants
were not required to insure it.”); but see Majority Op. at 2 (stating that the
Leases’ insurance provisions do not require the Landlord to obtain fire
insurance on the Property).
-4-
J-A21017-23
he/she only has to obtain renter’s insurance to protect himself/herself and
his/her interests; (2) the landlord is insuring the structure; and that (3) the
tenant is protected by the landlord’s insurance on the structure because the
lease did not require the tenant to obtain such insurance or advise otherwise.
In such scenarios, when a tenant later accidentally causes a fire to start,
burning down the building, the tenant understandably does not anticipate
being sued by the landlord’s insurer for the extensive damages to the
structure. Accord DiLullo v. Joseph, 792 A.2d 819, 822 (Conn. 2002) (“The
possibility that a lessor’s insurer may proceed against a lessee almost certainly
is not within the expectations of most landlords and tenants unless they have
been forewarned by expert counseling.”) (quoting R. Keeton & A. Widiss,
Insurance Law (1988) § 4.4(b), pp. 340–41).2
____________________________________________
2 The DiLullo Court also pointed out the economic waste involved where such
subrogation is permitted:
[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. See Peterson v. Silva, … 704 N.E.2d 1163[,
1166 (Mass. 1999)] (“[I]t surely is not in the public interest to
(Footnote Continued Next Page)
-5-
J-A21017-23
Nevertheless, as the Majority concludes, Joella and Remy support
allowing subrogation in such instances, as both decisions placed emphasis on
whether the lease required the landlord to purchase fire insurance. See
Joella, 221 A.3d at 681 (“Under the circumstances of this particular case,
where the lease provision requires [the l]andlord 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, [the t]enant is an implied
co-insured under [the l]andlord’s insurance policy.”); Remy, 571 A.2d at 452
(noting, among other things, that the lease did not require the landlord to
purchase fire insurance for the protection of the tenant, and determining that
the tenant was not an implied co-insured).3
____________________________________________
require all the tenants to insure the building which they share,
thus causing the building to be fully insured by each tenancy[.]”).
DiLullo, 792 A.2d at 822-23.
3 Another case from our Court, Thomas v. Jones, 2021 WL 462025 (Pa.
Super. filed Feb. 9, 2021) (unpublished memorandum), likewise supports such
a result. In Thomas, the appellant leased a third-floor apartment with a
roommate. Id. at *1. The appellant and his roommate entered into a lease
that set forth the following: “It is agreed that [the l]andlord is leasing said
apartment to [the appellant] & [his roommate] and they are responsible for
acquiring [r]enter’s insurance and keeping said apartment damage free during
the course of this leasing agreement.” Id. Subsequently, a fire started in the
roommate’s bedroom, and burned down the property. Id. Although not
captioned as a subrogation action, the landlord’s insurer brought a
subrogation action against the appellant, and a $100,000.00 judgment —
representing the policy limits of the landlord’s insurance on the property —
was entered against the appellant. Id. The appellant appealed, arguing that
the word ‘damage’ in the lease is overly broad and ambiguous. Id. The
Thomas Court affirmed the trial court’s judgment. In affirming the trial
(Footnote Continued Next Page)
-6-
J-A21017-23
Relatedly, another problem with the case-by-case approach is that it is
not uncommon, as in Joella, for leases to state both that the landlord is
responsible for maintaining insurance on the building and that the tenant shall
not negligently damage the premises. Which contractual provision controls?
The Joella Court indicated that the insurance provision carries more weight.
See Joella, 221 A.3d at 680 (quoting favorably the proposition that “[i]f,
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”) (quoting the trial court’s reference to Rausch v.
Allstate Insurance Co., 882 A.2d 801, 816 (Md. 2005); emphasis added).
But, what if there is more than one clause in the lease holding the tenant liable
for damages? Is the tenant then liable despite the insurance provision? And,
____________________________________________
court’s judgment, the Thomas Court determined that the lease’s language
was plain and unambiguous. Id. It further observed that “[a] landlord’s
expectation interest in renting an apartment is that the tenants will surrender
the premises in the same condition as when they took possession. Instead,
[the appellant] returned a charred leasehold and building in need of extensive
restorations. Having contractually assumed responsibility for all the damage
to the apartment during his occupancy, [the appellant] is strictly liable for ‘the
actual loss’ that [the landlord] suffered from the fire.” Id. (citation omitted).
-7-
J-A21017-23
what would make a provision so compelling as to override a tenant’s
expectation that the landlord would look only to the policy for compensation?4
As such, in practice, I do not find the case-by-case approach to be very
predictable or clear for landlords and tenants — most of whom are not legal
or insurance experts — or for insurance companies.5 I also think it is difficult
for courts to apply. In the interests of avoiding financially devastating
____________________________________________
4 This issue very recently arose in Mutual Benefit Insurance Co. v. Koser,
-- A.3d --, 2023 PA Super 252 (filed Dec. 4., 2023), a case in which I authored
the majority opinion. There, our Court recognized that this scenario presented
a close question, and ultimately determined that the tenants were implied co-
insureds based on the proposition in Joella discussed supra. See page 7,
supra. Notably, the appellant in that case — the insurance company — did
not argue on appeal that Pennsylvania should apply an approach other than
the case-by-case approach, and/or that our existing case law should be
overruled. In addition, “[u]nder the doctrine of stare decisis, a three-judge
panel of this Court cannot overrule another.” Commonwealth v. Burke, 261
A.3d 548, 551 (Pa. Super. 2021) (internal quotation marks and citation
omitted). Consequently, the Court did not assess the wisdom of the case-by-
case approach and our current case law, and simply applied the law as it
presently stands.
5 Accord Insurance Company’s Brief at 9 (“Some courts, including those in
Pennsylvania, have taken a case-by-case approach to determine the
availability of subrogation based on the reasonable expectations of the parties
as expressed in the lease under the facts of each case. This approach has
been criticized because it leads to unstable, unpredictable, and unacceptable
results. Indeed, Pennsylvania cases are inconsistent in their outcomes.”); id.
at 15-16 (“It appears that Pennsylvania courts have taken the middle ground
approach, deciding whether to allow subrogation on a case-by-case basis.
However, two of the three Pennsylvania cases, Thomas and Remy[,] allow
subrogation, whereas, Joella does not. As a result, Pennsylvania has fallen
into the trap of having unstable and unpredictable results whenever a
landlord’s insurer brings a subrogation action. … [T]his is an unacceptable
result.”) (citation omitted); see also id. at 19-20 (“It is respectfully submitted
that Joella should be overruled as being inconsistent with the other
decisions….”).
-8-
J-A21017-23
surprises and for judicial consistency, I think we should reconsider the
approach we have taken, as the Insurance Company suggests. See footnote
5, supra. A reading of Remy reveals that the Remy Court gave little analysis
as to what approach our Commonwealth should employ. See Joella, 221
A.3d at 679 (acknowledging that, “[a]s to what approach is used in
Pennsylvania, the only case that addresses this issue is our decision in Remy,
and then only indirectly”). Our Court, en banc, or our Supreme Court, should
rectify that now by giving it more thorough and thoughtful consideration.6
____________________________________________
6 The Tenants assert that the Insurance Company has waived the arguments
that the case-by-case approach leads to inconsistent results, and that Joella
should be overruled, because the Insurance Company did not raise these
claims below. See Tenants’ Brief at 35-36 (“[The Insurance Company] also
argue[s] that … Joella … should be overruled since the case-by-[case
]approach leads to inconsistent results. [It relies] upon a student law review
article … to support [its] argument that a pro-subrogation approach is
preferred, but this argument was not raised before the trial court and has
therefore[] been waived.”) (citation and internal quotation marks omitted);
see also Pa.R.A.P. 302(a) (“Issues not raised in the trial court are waived and
cannot be raised for the first time on appeal.”). In response, the Insurance
Company explains that it did not argue below that Joella was wrongly decided
and should be overruled because it would have been pointless to do so, as the
trial court “could not overrule Joella, even if it had been asked to do so.”
Insurance Company’s Reply Brief at 3 n.1.
I observe that the purpose of Rule 302(a) is to “to provide the trial court
with the opportunity to consider the issue, rule upon it correctly, and obviate
the need for appeal.” See Murray v. Lafrance, LLC, 234 A.3d 782, 786 (Pa.
Super. 2020) (cleaned up). Here, the trial court could not have overruled
Joella, or considered an approach other than the case-by-case approach, as
it is bound by our current case law. Thus, had the Insurance Company raised
these arguments below, the purpose of Rule 302(a) could not have been
fulfilled. In addition, the trial court’s input on these issues is not necessary as
“[t]he 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.”
(Footnote Continued Next Page)
-9-
J-A21017-23
Judge Nichols joins this concurring opinion.
Date: 12/26/2023
____________________________________________
See Joella, 221 A.3d at 676 n.3 (citation omitted); see also Clarke v. MMG
Ins. Co., 100 A.3d 271, 275 (Pa. Super. 2014) (“The standard of review of
questions of law is de novo, and the scope of review is plenary. Thus, in
interpreting a contract, this Court need not defer to the trial court.”) (citations
omitted).
- 10 -