Fire Ins. Exchange v. Hammond, D033347.

Citation99 Cal.Rptr.2d 596,83 Cal.App.4th 313
Decision Date25 August 2000
Docket NumberNo. D033347.,D033347.
CourtCalifornia Court of Appeals
PartiesFIRE INSURANCE EXCHANGE, Plaintiff and Appellant, v. Reginald HAMMOND, et al., Defendants and Respondents.

Johnson & Edwards, Daniel B. McCarthy and Jared P. Hanson, San Diego, for Plaintiff and Appellant.

Shifflet, Kane & Konoske, Gregory P. Konoske and Kirk M. Nuzum; Law Offices of Bryce O. Willett, San Diego, Jonathan A. Brenner, for Defendants and Respondents.

HALLER, J.

As a lessor's insurer, plaintiff Fire Insurance Exchange (FIE) seeks reversal of a summary judgment denying its subrogation claim against the lessees, defendants Reginald Hammond and Sevilla Hammond, for fire damages it attributes to their negligence or the negligence of their guests or invitees. The trial court relied on Parsons Manufacturing Corp. v. Superior Court (1984) 156 Cal.App.3d 1151, 203 Cal.Rptr. 419 (Parsons), in which subrogation was denied on the ground the lessor's fire policy was for the mutual benefit of the lessor and lessee. We reverse the judgment, concluding the rental agreement here expresses no intent of the parties to insure the Hammonds under the lessor's policy or to exculpate them from negligence liability.

BACKGROUND

In October 1995 the Hammonds rented a home from Henry Dawson. The rental agreement did not expressly require Dawson or the Hammonds to maintain fire insurance and they did not discuss the matter. Dawson obtained a fire policy from FIE. Additionally, the Hammonds obtained a renters' policy covering fire damages to the premises caused by their negligence. In December 1995 the home was damaged by fire and FIE was required to pay Dawson approximately $52,465 in repair costs.

FIE sued the Hammonds for negligence and breach of contract under a subrogation theory. FIE alleged the Hammonds or their guests or invitees "negligently left an upholstered chair on top of a floor heater grate in the living room of the [house] and caused a fire to occur."1 FIE also alleged the lease "required [the Hammonds] to be responsible for and to pay any and all damages caused by [them], guests or invitees." The rental agreement provides in pertinent part:

"MAINTENANCE, REPAIRS, OR ALTERATIONS: Tenant shall, at his own expense, and at all times, maintain the premises in a clean and sanitary manner including all equipment, appliances, furniture and furnishings therein and shall surrender the same, at termination hereof, as in good condition as received, normal wear and tear excepted. Tenant shall be responsible for damages caused by his negligence and that of his family or invitees and guests. Tenant shall not paint, paper or otherwise redecorate or make alterations to the premises without the prior written consent of the Owner. Tenant shall irrigate and maintain any surrounding grounds, including lawns and shrubbery, and keep the same clear of rubbish or weeds if such grounds are a part of the premises and are exclusively for the use of the Tenant. Tenant shall not commit any waste upon the premises, or any nuisance or any act which may disturb the quiet enjoyment of any tenant in the building. [¶] ... [¶] "DAMAGES TO PREMISES: if the premises are ... damaged by fire or from any other cause as to render them untenantable, then either party shall have the right to terminate this Lease as of the date on which such damage occurs, through written notice to the other party, to be given within fifteen ... days after the occurrence of such damage; except that should such damage or destruction occur as a result of the abuse or negligence of Tenant, or its invitees, then Owner only shall have the right of termination. Should this right be exercised by either Owner or Tenant, then rent for the current month shall be prorated between the parties as of the date the damage occurred and any prepaid rent and unused security deposit shall be refunded to Tenant. If this lease is not terminated, the Owner shall promptly repair the premises and there shall be a proportionate deduction of rent until the premises are repaired and ready for Tenant's occupancy. The proportionate reduction shall be based on the extent to which the making of repairs interferes with Tenant's reasonable use of the premises." (Italics added.)

The Hammonds moved for summary judgment, arguing that under Parsons, supra, 156 Cal.App.3d 1151, 203 Cal.Rptr. 419, subrogation was unavailable as a matter of law. Relying on Parsons, the court ruled in the Hammonds' favor, finding the "DAMAGES TO PREMISES" section of the agreement "adverts to fire damage ... and there is no specific obligation placed upon [them] to obtain insurance[.]" (See id. at p. 1162, 203 Cal.Rptr. 419.) Judgment was entered on January 5, 1999.

DISCUSSION
I. Standard of Review

Summary judgment is proper only where there is no triable issue of material fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) "On review of a summary judgment in favor of the defendant, we review the record de novo to determine whether the defendant has conclusively negated a necessary element of the plaintiffs case or demonstrated that under no hypothesis is there a material issue of fact that requires the process of trial. [Citation.]" (Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 673-674, 25 Cal.Rptr.2d 137, 863 P.2d 207.)

II. Insurer's Right of Subrogation
A

"In the case of insurance, subrogation takes the form of an insurer's right to be put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured and paid." (Fireman's Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal. App.4th 1279, 1291-1292, 77 Cal.Rptr.2d 296.) "The right of subrogation is purely derivative. An insurer entitled to subrogation is in the same position as an assignee of the insured's claim, and succeeds only to the rights of the insured. The subrogated insurer is said to `"stand in the shoes"' of its insured, because it has no greater rights than the insured and is subject to the same defenses assertable against the insured. Thus, an insurer cannot acquire by subrogation anything to which the insured has no rights, and may claim no rights which the insured does not have." (Id. at p. 1292, 77 Cal.Rptr.2d 296.)

B

In California, courts have held a lessee is not responsible for negligently caused fire damages where the lessor and lessee intended the lessor's fire policy to be for their mutual benefit. In Fred A Chapin Lumber Co. v. Lumber Bargains, Inc. (1961) 189 Cal.App.2d 613, 618-619, 622, 11 Cal.Rptr. 634, the court inferred the lessor's policy was for the mutual benefit of the lessor and lessee where the lease expressly required the lessor to maintain fire insurance. (Accord Gordon v. J.C. Penney Co. (1970) 7 Cal.App.3d 280, 282, 284, 86 Cal.Rptr. 604.)

In Liberty Mutual Fire Ins. Co. v. Auto Spring Supply Co. (1976) 59 Cal.App.3d 860, 131 Cal.Rptr. 211 (Liberty Mutual), the lessee's insurer was denied subrogation against the sublessee. Under the lease agreements, the sublessee's rent covered the premium on the lessee's fire policy and proceeds of the policy were to be used to repair fire damages. The court held it was "... quite obvious the parties to the lease and the sublease all intended that the proceeds of Liberty's fire insurance policy, maintained by the lessee at [the sublessee's] expense, were to constitute the protection of all parties to the lease documents against the fire loss[.] This was the commercial expectation of these parties. Stated otherwise, under the facts of this case, we regard the subtenant ... as an implied in law co-insured of [the lessee], absent an express agreement between them to the contrary." (Id. at p. 865, 131 Cal.Rptr. 211.)

The Liberty Mutual court relied on General Mills v. Goldman (8th Cir.1950) 184 F.2d 359, 365-366 (General Mills,) for the proposition that "even an implied provision for fire insurance in a lease represents the agreement of the parties thereto that nonintentional loss by fire shall be paid .. . only from the proceeds of the policy." (Liberty Mutual, supra, at p. 866, 131 Cal.Rptr. 211.) In General Mills, "the lease relieved the tenant ... from liability for fire loss through its provision that on termination of the lease the tenant should return the property in good condition, `"loss by fire ... excepted."' [Citation.]"2 (Liberty Mutual, supra, at p. 866, fn. 6, 131 Cal.Rptr. 211, quoting General Mills, supra, at p. 366.)

In Parsons, supra, the court reversed a partial summary judgment for the insurer and the denial of summary judgment for the lessee. There, the lease's yield-up clause provided "for [the lessee's] return of the premises in the same condition as received, `... damage by fire, act of God or by the elements excepted[.]'" (Id. at p. 1155, 203 Cal.Rptr. 419.) The agreement also required the lessor to rebuild after fire loss under certain (unspecified) circumstances. (Id. at p. 1162, 203 Cal.Rptr. 419.)

In the court's view, "the lease agreement alone was a sufficient showing by lessee [for summary judgment], because it was rife with hints that lessor would procure insurance on the premises .... [T]he lessee was entitled to expect that such insurance would be for its benefit as well as for the lessor's." (Id. at pp. 1162-1163, 203 Cal.Rptr. 419, italics added.) The court explained: "We do not mean our opinion to state that a lessor may never shift to the lessee the burden of insuring against the lessee's negligence. We state only that, at least where the [lease] agreement adverts to the possibility of fire and there is no clear language or other admissible evidence showing an agreement to the contrary, a lease agreement should be read to place on the lessor the burden of insuring the premises (as distinguished from the lessee's personal property) against lessor and lessee negligence...

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