Allstate Ins. Co. v. Palumbo, No. 18276.

• Decision Date: 18 May 2010
• Docket Number: No. 18276.
• Citation: 994 A.2d 174,296 Conn. 253
• Court: Connecticut Supreme Court
• Parties: ALLSTATE INSURANCE COMPANYv.Stephen PALUMBO et al.

296 Conn. 253

994 A.2d 174

ALLSTATE INSURANCE COMPANYv.Stephen PALUMBO et al.

No. 18276.

Supreme Court of Connecticut.

Argued Oct. 21, 2009.

Decided May 18, 2010.

Neil Johnson, Hartford, for the appellant (named defendant).

Jeremiah J. O'Connor, for the appellee (plaintiff).

ROGERS, C.J., and NORCOTT, KATZ, PALMER, VERTEFEUILLE, ZARELLA and McLACHLAN, Js.

KATZ, J.

The issue in this certified appeal is whether the Appellate Court properly affirmed the judgment of the trial court concluding that the plaintiff, Allstate Insurance Company, could hold the named defendant, Stephen Palumbo (defendant),¹ liable under the doctrine of equitable subrogation to recover damages the plaintiff had paid under a homeowner's insurance policy issued to its insured, the defendant's fiancée, with whom he lived. See Allstate Ins. Co. v. Palumbo, 109 Conn.App. 731, 952 A.2d 1235 (2008). The defendant contends that, in light of the particular facts of the relationship between himself and the plaintiff's insured: (1) he was a tenant of the insured and thus was not subject to equitable subrogation by the plaintiff; and (2) the public policy against economic waste, as well the expectations of the defendant and the plaintiff's insured, prohibit an action for equitable subrogation. We conclude that the equities clearly weigh against allowing the plaintiff to recover from the defendant under this doctrine and, therefore, we reverse the Appellate Court's judgment.

The record reveals the following facts, as found by the trial court, and procedural history. On January 31, 2002, a fire occurred at the single-family home owned by the plaintiff's insured, Lisa Deveau, the defendant's fiancée, a residence that she shared with her daughter and the defendant. The cause of the fire was a water heater that the defendant had installed improperly. After the fire, Deveau filed a claim under her homeowner's policy with the plaintiff, on which she was the sole named insured. The plaintiff ultimately paid Deveau $62,615.25 to cover damages and expenses she had incurred as a result of the fire.

In January, 2004, the plaintiff commenced an action for equitable subrogation against the defendant, alleging that his negligence had caused the fire and that the plaintiff was entitled to recover from him the sum that it had paid to Deveau under her homeowner's policy. In his amended answer, the defendant conceded that he negligently had installed the water heater that caused the fire, but asserted the following special defenses to preclude the action against him: (1) that he was an insured under the policy; (2) that he and Deveau were in a landlord-tenant relationship; (3) that he was a lodger; and (4) that subrogation was not equitable. In light of the defendant's concession of negligence, the trial to the court was limited to the special defenses and issues relating to damages.

The trial court rendered judgment in favor of the plaintiff.² The trial court concluded that the defendant's status as the fiance' of Deveau, the named insured, did not fall within the definition of covered persons under the policy.³ In rejecting the remaining special defenses, the trial court reasoned: “The defendant argues that by virtue of their having resided together for five and [one-half] years, and by their sharing of expenses, a landlord-tenant relationship was created between [Deveau and himself]. General Statutes § 47a-1 ( l) defines tenant as ‘the lessee, sublessee or person entitled under a rental agreement to occupy a dwelling unit or premises to the exclusion of others....' By his own admission, [the defendant] conceded that he did not occupy any part of the premises to the exclusion of others nor did he have a fixed amount of rent or a fixed period of occupancy. Based on the testimony, the court must conclude that it was never intended by the parties, either expressly or impliedly, that a landlord-tenant relationship would arise.... Black's Law Dictionary [3d Ed. (1933)] defines a houseguest as ‘a traveler who lodges at an inn or tavern with the consent [of] the keeper. A guest, as distinguished from a boarder, is bound for no stipulated time. He stops at the inn for as short or as long as he pleases, paying, while he remains, the customary charge.’ Just as ... Deveau could have brought an action in negligence against [the defendant], so too can [the plaintiff] by virtue of equitable subrogation. This was the analysis utilized by the court in Wasko v. Manella, 269 Conn. 527 (2004), which determined that a social houseguest who negligently caused a fire was liable to the insurer [that] paid the claim for the insured loss.” In light of its conclusion that the status of the defendant was dispositive, the trial court did not address the defendant's claim that it was inequitable, under the particular facts of this case, to allow a subrogation claim.

The defendant appealed from the trial court's judgment to the Appellate Court, which rejected the defendant's contention that he was not subject to equitable subrogation and affirmed the judgment. Allstate Ins. Co. v. Palumbo, supra, 109 Conn.App. at 733, 952 A.2d 1235. In so doing, the court relied on DiLullo v. Joseph, 259 Conn. 847, 792 A.2d 819 (2002), and Wasko v. Manella, supra, 269 Conn. at 527, 849 A.2d 777, as setting forth the controlling principles. Allstate Ins. Co. v. Palumbo, supra, at 737, 952 A.2d 1235. The Appellate Court noted that, in DiLullo, this court had held that, in the absence of an express agreement, there was no right of equitable subrogation against a tenant by a landlord's fire insurer. Id. By contrast, the Appellate Court noted that, in Wasko, this court had held that there was a right of equitable subrogation against a social guest by the homeowner's fire insurer. Id. In concluding that DiLullo did not control in the present case, the Appellate Court cited to definitions in the General Statutes applicable to landlord-tenant law, specifically, those for the terms “landlord,” “tenant,” “rental agreement” and “rent.” Id., at 738, 952 A.2d 1235 (citing to subsections of § 47a-1).⁴ In light of those definitions, the defendant's failure to pay a security deposit, and the absence of a fixed rent, a fixed period of occupancy or an area of the house over which he had exclusive possession, the Appellate Court concluded that the trial court properly had found that there was no express or implied landlord-tenant relationship. Id., at 739, 952 A.2d 1235. Instead, the Appellate Court determined that “[t]his case is but an extension of Wasko.... The defendant was more like a social houseguest of [Deveau] because he could remain as an occupant of [her] house for only as long as she chose to allow him to do so and because he had few characteristics of a tenant.” Id., at 741, 952 A.2d 1235. This certified appeal followed. ⁵

We begin with the general principles of equitable subrogation. “The object of [equitable] subrogation is the prevention of injustice. It is designed to promote and to accomplish justice, and is the mode which equity adopts to compel the ultimate payment of a debt by one who, injustice, equity, and good conscience, should pay it.... As now applied, the doctrine of ... equitable subrogation is broad enough to include every instance in which one person, not acting as a mere volunteer or intruder, pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter.” (Internal quotation marks omitted.) Wasko v. Manella, supra, 269 Conn. at 532-33, 849 A.2d 777.

Under the doctrine of equitable subrogation, “[a] subrogee has no rights against a third person beyond what the subrogor had.” Continental Ins. Co. v. Connecticut Natural Gas Corp., 5 Conn.App. 53, 60, 497 A.2d 54 (1985); accord 16 L. Russ & T. Segalla, Couch on Insurance (3d Ed. 2005) § 222:5, p. 222-19 (“a subrogated insurer stands in the shoes of an insured, and has no greater rights than the insured, for one cannot acquire by subrogation what another, whose rights he or she claims, did not have”). Similarly, “[t]he insurer ... is subject to any defenses the third party would have had against the insured.” 16 L. Russ & T. Segalla, supra, p. 222-21.

Although “[s]ubrogation is a highly favored doctrine ... which courts should be inclined to extend rather than restrict”; (internal quotation marks omitted) Wasko v. Manella, supra, 269 Conn. at 543, 849 A.2d 777; “[t]here is no general rule to determine whether a right of subrogation exists. Thus, ordering subrogation depends on the equities and attending facts and circumstances of each case.” 73 Am.Jur.2d 552, Subrogation § 10 (2001). “The determination of what equity requires in a particular case, the balancing of the equities, is a matter for the discretion of the trial court. Kakalik v. Bernardo, 184 Conn. 386, 395, 439 A.2d 1016 (1981); Robert Lawrence Associates, Inc. v. Del Vecchio, 178 Conn. 1, 18-19, 420 A.2d 1142 (1979); Gager v. Gager & Peterson, LLP, 76 Conn.App. 552, 560, 820 A.2d 1063 (2003).... When the trial court draws conclusions of law from its balancing of the equities, however, our review is plenary. Torres v. Waterbury, 249 Conn. 110, 118, 733 A.2d 817 (1999).” (Citations omitted; internal quotation marks omitted.) Wasko v. Manella, supra, at 542-43, 849 A.2d 777.

Turning to the case at hand, we agree with the Appellate Court that our decisions in Wasko and DiLullo provide the controlling principles to be applied in the present case. We disagree with the Appellate Court however, insofar as it determined that those cases required the trial court to categorize the relationship between the parties as either landlord-tenant or host-social guest and to decide whether an action in equitable subrogation could be brought on the basis of that characterization.

In DiLullo, the issue before this court was whether, in the absence of a specific agreement between the landlord and the tenant covering the matter,...