Indiana Court of Appeals Clarifies Insurers’ Subrogation Rights in Landlord/Tenant

On March 7, 2018, the Indiana Court of Appeals reversed a trial court ruling that a subrogated insurer was not a “real party in interest” for purposes of pursuing a breach of contract claim against its insured’s tenant.  In Hoosier Insurance Co. v. Riggs, the court held this type of subrogation action should be considered on a case-by-case approach, instead of there being an absolute rule, with consideration being given to the terms of the lease existing between the parties.

In Hoosier, a landlord’s insurer sought to recover for fire damage allegedly caused by the defendant tenants.  Pursuant to the lease agreement between the landlord and tenants, the premises were to be returned at the end of the lease term in as good condition as when the lease commenced, and the tenants were required to obtain fire insurance which listed the landlord as an additional insured under the policy.

In the underlying action, the trial court dismissed the breach of contract claim, determining that a subrogated insurer was not a landlord as defined by Indiana Code Section 32-31-3-3 and, therefore, was not a Trial Rule 17(A) “real party in interest” entitled to pursue a breach of contract claim.

Upon review, the Indiana Court of Appeals determined it was not a certainty the plaintiff was not entitled to any relief, as the lease needed to be considered to evaluate the parties’ intent regarding the appropriate party to bear the risk of fire loss.  The Hoosier court relied upon LBM Realty, LLC v. Mannia, which stated:  “if a lease obligates a tenant to procure insurance covering a particular 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.”

The Hoosier court remanded and directed the trial court to analyze the lease and all other relevant and admissible evidence to determine the parties’ expectations and weigh and balance the equities to determine the Defendants’ liability for the damage to the premises.

In evaluating the subrogation potential for landlord/tenant claims, insurers must first obtain and examine the lease.  If the lease does not clearly place the risk of loss on the tenant, an insurer might be precluded from seeking recovery even in cases of clear negligence.  Residential leases are often cobbled together by landlords from form contracts and sometimes simply do not address the risk of loss and the maintenance of fire insurance.

Attorneys at Rolfes Henry have decades of experience in handling subrogation actions all across the United States.  We look forward to assisting you on future subrogation matters.

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