This article was originally published in NASP’s Subrogator Spring/Summer 2010 publication. © 2010. Reprinted by permission.
In Florida, like nearly all jurisdictions, an insurer may not pursue subrogation against its own insured. But when a tenant causes damage to its landlord’s property, is the tenant treated as a presumptive “co-insured” under the landlord’s property insurance policy? The answer, at least in Florida, is “it depends.”
In some jurisdictions, a tenant is automatically presumed to be a coinsured under the landlord’s property insurance policy. Of course, this prevents the landlord’s insurer from pursuing subrogation against a negligent tenant, as the insurer would, in effect, be suing its own insured. This approach, commonly referred to as the “Sutton Rule,” arises from the Oklahoma case, Sutton v. ]ondahl.[1] I Under Sutton, a tenant enjoys the benefit of being a co-insured under the landlord’s fire insurance policy, unless the landlord and tenant expressly agree otherwise in the lease agreement. Florida does not follow the Sutton Rule. Instead, in cases involving a landlord’s insurer’s subrogation claim against a tenant, Florida courts have looked to the lease agreement to determine the parties’ intent with regard to risk of loss due to the tenant’s negligence. Where the lease indicates a clear intention to shift the risk of loss to the landlord (or the landlord’s insurance), only then is the tenant treated as a coinsured.
However, when the lease does not expressly state that the landlord will bear the risk of loss for the tenant’s negligence, the tenant should not be treated as a co-insured. A leading Florida case on this issue is Continental Insurance Company v. Kennerson.[2] In determining whether the tenant in Kennerson should be considered a co-insured under the landlord’s insurance policy, Florida’s First District Court of Appeal examined the lease to determine the parties’ intent regarding risk of loss. The lease contained express language requiring the landlord to purchase fire insurance, and requiring the tenant to pay for part of the policy’s premium. For this reason, the court found that the parties intended to shift the risk of loss to the landlord’s insurance policy. The landlord’s insurer was, therefore, prohibited from pursing its subrogation claim against the tenant.
Another Florida appellate court recently used the same approach as that in Kennerson. In State Farm Insurance Company v. Loo, [3] the Third District Court of Appeal held that the correct legal standard in Florida is not the Sutton approach, but instead, the “more flexible” case-by-case analysis, in which the lease is reviewed to determine the parties’ intent as to who should bear the risk of loss in the event of the tenant’s negligence. Under the case-by-case analysis, if the lease does not contain “unequivocal” language limiting the tenant’s liability for his negligent acts or shifting the loss to the landlord’s insurance, then subrogation is permitted.
The rationale in Kennerson and Loo is consistent with other Florida subrogation opinions in which the courts place a premium on following the contractual intention. Therefore, when dealing with subrogation claims against a tenant, always look to the lease!
[1] 352 P.2d 478 (Okla. App. 1975).
[2] 661 So. 2d 325 (Fla. 1st DCA 1995).
[3] 27 So. 3d 747 (Fla. 3d DCA 2010).