Melrose Gates, LLC v. Moua
| Decision Date | 13 April 2015 |
| Docket Number | A14-1131 |
| Court | Minnesota Court of Appeals |
| Parties | Melrose Gates, LLC, Appellant, v. Chor Moua, et al., Respondents. |
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2014).
Reversed and remanded
Hennepin County District Court
Steven L. Theesfeld, Yost & Baill, L.L.P., Minneapolis, Minnesota (for appellant)
Mark K. Hellie, Regional Legal Staff Attorney, Eden Prairie, Minnesota (for respondents)
Considered and decided by Stauber, Presiding Judge; Schellhas, Judge; and Hooten, Judge.
UNPUBLISHED OPINION
On appeal from summary judgment dismissing appellant-landlord's insurer's subrogation action against respondent-tenants to recover damages from a fire, appellant-landlord argues that the district court misapplied the case-by-case analysis set forth in RAM Mut. Ins. Co. v. Rohde, 820 N.W.2d 1 (2012). Because the parties' lease agreementclearly reflects that it was reasonably anticipated by the parties that respondent-tenants would be liable for a property loss caused by respondent-tenants and paid for by appellant-landlord's insurer, we reverse and remand.
The facts of this case are undisputed. In September 2008, respondents Chor Moua and Maisse Xiong entered into a lease agreement with appellant Melrose Gates, LLC to rent and occupy an apartment located in Brooklyn Center. The apartment was located in a building having approximately 36 residential units, which was part of an apartment complex consisting of seven buildings. The parties' lease agreement expired in April 2009, but the agreement was extended under its original terms on a month-to-month basis.
In June 2012, respondents' apartment and another unit in the same building were damaged by a fire. For the purposes of this appeal, the parties agree that respondents caused the fire by negligently disposing of cigarettes on their deck. Appellant's insurance policy of approximately $19 million covered all seven buildings in the complex and appellant's insurer paid approximately $470,000 to repair the damage.
Respondents had a renter's insurance policy with a limit of $300,000 for personal liability. Appellant's insurer commenced this subrogation action against respondents in November 2013. After cross-motions for summary judgment, the district court granted respondents' motion and dismissed appellant's subrogation action with prejudice. The district court concluded that under the standard set forth in Rohde, 820 N.W.2d at 14-16, appellant "may not maintain a subrogation action against [respondents] because theparties did not reasonably expect that [respondents] would be liable for their losses." This appeal followed.
A district court must grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, . . . show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law." Minn. R. Civ. P. 56.03. An appellate court reviews a "district court's legal decisions on summary judgment under a de novo standard, and view[s] the evidence in the light most favorable to the party against whom judgment was granted." Rohde, 820 N.W.2d at 6 (quotations and citation omitted).
"Subrogation 'is the substitution of another person in place of the creditor to whose rights he or she succeeds in relation to the debt, and gives to the substitute all the rights, priorities, remedies, liens, and securities of the person for whom he or she is substituted.'" Id. at 5 (quoting 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 222:5 (3d ed. 1995)). Subrogation in the insurance context "involves the substitution of an insurer (subrogee) to the rights of the insured (subrogor)." Medica, Inc. v. Atl. Mut. Ins. Co., 566 N.W.2d 74, 76 (Minn. 1997). "Upon payment of a loss, the insurer is subrogated in a corresponding amount to the insured's right of action against any third party whose wrongful conduct caused the loss." Rohde, 820 N.W.2d at 5-6. But, subrogation "arises only with respect to rights of the insured against third persons to whom the insurer owes no duty." Id. at 6 (quotations omitted). Thus, the general rulehas been "that no right of subrogation can arise in favor of an insurer against its own insured." Id. (quotations omitted).
Until recently, this general rule has been applied in Minnesota to prohibit a landlord's insurer from maintaining a subrogation action against the landlord's tenants because the tenant was a co-insured under the landlord's policy. United Fire & Casualty Co. v. Bruggeman, 505 N.W.2d 87, 89-90 (Minn. App. 1993), review denied (Minn. Oct. 19, 1993), overruled by Rohde, 820 N.W.2d at 13. In Bruggeman, a landlord's insurer brought a subrogation action against tenants occupying the landlord's property, alleging negligence in causing fire damage to the building. Bruggeman, 505 N.W.2d at 88. This court determined that because both the tenant and the landlord had an insurable interest in the building structure (i.e., the possessory interest of the tenant and the ownership interest of the landlord), the tenant was essentially a co-insured on the landlord's fire insurance policy with respect to the building structure. Id. at 89-90. This court then concluded that because the tenants were effectively co-insureds under the landlord's policy, and because an insurer cannot subrogate against its own insured, the insurer could not recover amounts paid to the landlord under its policy against the co-insured tenants. Id. In so concluding, this court reasoned:
If . . . each tenant is responsible for all damages arising from its negligence in causing a fire and if each tenant was therefore responsible for its own fire insurance, the same property would be insured many times over. While this may provide insurance companies a welcome windfall, it would be contrary to economic logic and common sense.
In 2012, the supreme court in Rohde overruled the rule set forth in Bruggeman, and adopted a to ascertain whether an insurer may maintain a subrogation action against the negligent tenant of its insured. Rohde, 820 N.W.2d at 13-14. Under this approach, an insurer is able to maintain a subrogation action against a negligent tenant when:
Based on the lease as a whole, along with any other relevant and admissible evidence, the district court determines that it was reasonably anticipated by the landlord and the tenant that the tenant would be liable, in the event of a tenant-caused property loss paid by the landlord's insurer, to a subrogation claim by the insurer.
Id. at 16 (quotations omitted).
Here, after applying the standard set forth in Rohde, the district court declined to allow appellant to maintain a subrogation action against respondents based on several factors. First, the district court determined that the lease "as a whole" did not show that the parties "intended or reasonably expected" that respondents would be liable because the lease (1) did not "allocate the risk of loss such as that caused by fire; it merely provides that [appellant] may decide to terminate the Lease in the event of catastrophic damage that destroys the apartment" and (2) the lease did not require either party to purchase insurance, it merely recommended it. Second, the district court referenced the $19 million dollar insurance policy purchased by appellant, and the renter's insurance policy with a $300,000 coverage limit purchased by respondents, and concluded that the "types of insurance purchased by the parties do not support the conclusion that the parties reasonably expected that [respondents] would be held responsible for [the] losses."Third, the district court concluded that the "principles of equity do not permit" the subrogation action to proceed because the apartment complex was large and it was "unlikely that [respondents] had an insurable interest in the property outside their unit or would have been permitted to purchase an insurance policy intended to cover fire damage to the complex." Finally, the district court concluded that appellant's insurer could not have reasonably expected to recover from respondents because, at the time the parties signed the lease in 2008, Bruggeman, which barred subrogation actions, was the law.
Appellant argues that the district court erred by concluding that it was not allowed to maintain its subrogation action. In making this argument, appellant argues that our standard of review is de novo. Conversely, respondents argued in their brief that the applicable standard of review is an abuse of discretion.1
We acknowledge that our supreme court has held that "[g]ranting equitable relief is within the sound discretion of the [district] court [and] [o]nly a clear abuse of that discretion will result in reversal." Nadeau v. Cty. of Ramsey, 277 N.W.2d 520, 524 (Minn. 1979); see also Citizens State Bank v. Raven Trading Partner, Inc., 786 N.W.2d 274, 277 n.2 (Minn. 2010) (). But in SCI Minn. Funeral Servs., Inc. v. Washburn-McReavy Funeral Corp., the supreme court held that a de novo standard applies when reviewing summary judgment on equitable issues and that Citizens is not necessarily controlling on the standard of review. 795 N.W.2d 855, 860-61 (Minn. 2011). And in discussing the applicable standard of review, the supreme court in Rohde quoted SCIMinn. Funeral Servs. in noting that "[w]hile subrogation is an equitable remedy, a standard of review more deferential than de novo, which may be applicable on appeal from summary judgment 'where after balancing the equities, the district court determines not to award equitable relief,' is not applicable here where the district court determined as a matter of law that [the landlord] could not maintain a subrogation action." Rohde, 820...
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