Town of Stowe v. Stowe Theatre Guild

• Decision Date: 04 August 2006
• Docket Number: No. 05-060.,05-060.
• Parties: TOWN OF STOWE v. STOWE THEATRE GUILD.
• Court: Vermont Supreme Court

908 A.2d 447

2006 VT 79

TOWN OF STOWE v. STOWE THEATRE GUILD.

No. 05-060.

Supreme Court of Vermont.

August 4, 2006.

William W. Cobb of Williams and Green, P.C., Morrisville, and David S. Huberman of White and Williams L.L.P., Philadelphia, Pennsylvania, for Plaintiff-Appellee.

Gregory S. Clayton of Aten Clayton & Eaton P.L.L.C., Littleton, New Hampshire, for Defendant-Appellant.

Present: REIBER, C.J., and DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

BURGESS, J.

¶ 1. In this subrogation action, the Town of Stowe's insurer, Royal Insurance Co. (Royal), seeks to recover damages from defendant, Stowe Theatre Guild, for negligently causing a fire in a town building where defendant leased performance space. Defendant claims the superior court erred in denying its motion for summary judgment and holding that it is not a coinsured under the Town of Stowe's property insurance policy. We granted the parties' joint request for interlocutory review of the superior court's summary judgment ruling, and we affirm.

¶ 2. We review de novo the superior court's denial of summary judgment. Concord Gen. Mut. Ins. Co. v. Woods, 2003 VT 33, ¶ 5, 175 Vt. 212, 824 A.2d 572. Summary judgment is appropriate only where the moving party demonstrates that there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. Id. The following facts are not in dispute.

¶ 3. Defendant is a nonprofit community theater group, managed by a board comprised mostly of Stowe taxpayers, that has used the auditorium of the Akely Memorial Building in Stowe since 1995 under an oral lease agreement. The building houses various town offices and the Stowe Historical Society as well as the auditorium. In exchange for seasonal use of the auditorium, defendant agreed to pay the Town one dollar annually and to make various improvements to the auditorium and stage that would remain with the building. The agreement contained no other express terms. Since the inception of the agreement, defendant's improvements to the auditorium have included a new air conditioning system, lighting, sound equipment, curtains, electrical upgrades, refinished paneling, and refurbished dressing rooms. The Town purchased fire insurance from Royal. Defendant purchased its own liability insurance.

¶ 4. In July 2000, defendant used a pyrotechnic device—theatrical flash powder— during a musical production. Defendant's negligent use of the flash powder resulted in a fire that activated the sprinkler system and caused significant water damage to the building.¹ Royal paid the Town's claim for damages and then commenced this subrogation action against defendant in the Town's name. Defendant moved for summary judgment, arguing, as it does now on appeal, that the subrogation action was barred because defendant should be treated as a coinsured under the Town's insurance. Defendant argues that it should be deemed a coinsured as a matter of equity, by virtue of its lease with the Town, and because defendant is a member of the public.

¶ 5. Because defendant invokes equity to support its claimed protection against the subrogation claim of the landlord's insurer, we briefly review the equitable principles of subrogation. As explained in Union Mutual Fire Insurance Co. v. Joerg, 2003 VT 27, 175 Vt. 196, 824 A.2d 586, the doctrine of subrogation is premised on theories of promoting restitution and avoiding unjust enrichment. Id. ¶ 6. Subrogation allows an insurer to "stand[] in the shoes" of the insured in a lawsuit and thereby collect the amounts the insurer has been compelled to pay for losses caused by the actual wrongdoer, "who, in good conscience, should be required to pay." Id. (internal quotations omitted). Subrogation prevents unjust enrichment to the insured that would result from double recovery, and it prevents unjust enrichment to the tortfeasor that would result if the tortfeasor were absolved from liability, despite its wrongful actions, just because of the insured's foresight in obtaining insurance protection. 16 L. Russ & T. Segalla, Couch on Insurance 3d § 222:8, at 222-31 to 222-32 (3d ed.2000). As a general rule, an insurer has no greater rights against a third party than its insured enjoys, while the third party retains any limitations on, and defenses to, liability against the insurer that existed against the insured. Id. § 222:5, at 222-19 to 222-21.

¶ 6. This derivative nature of subrogation—that an insurer "stands in the shoes" of an insured—is reflected in our decision in Joerg, where we looked to the lease agreement to determine the landlord's and tenant's expectations and concluded that

where the lease requires the landlord to carry fire insurance on the leased premises, such insurance is for the mutual benefit of landlord and tenant, and, as a result, the tenant is deemed a coinsured under the landlord's insurance policy and is protected against subrogation claims by the landlord's insurer.

2003 VT 27, ¶ 11, 175 Vt. 196, 824 A.2d 586. In Joerg, we declined to adopt the so-called Sutton rule, followed in a number of jurisdictions, which provides that a tenant is, per se, a coinsured under a landlord's fire insurance policy unless the parties expressly agree otherwise. Id. ¶¶ 7-9 (citing Sutton v. Jondahl, 532 P.2d 478, 482 (Okla. Ct.App.1975)). Recognizing the Sutton rule as just one of several alternatives, we adopted instead a more flexible, case-by-case approach, whereby determination of "a tenant's liability to the landlord's insurer for negligently causing a fire depends on the intent and reasonable expectations of the parties to the lease as ascertained from the lease as a whole." Id. ¶ 8; see also id. ¶ 9 (explaining that the case-by-case approach, also followed in numerous jurisdictions, is most consistent with Vermont law).

¶ 7. In keeping with the Joerg approach, we first consider defendant's claim that it should be deemed a coinsured under the lease. While the trial court emphasized defendant's purchase of its own liability policy as a reason for concluding it was not an implied coinsured on the Town's fire insurance, we reach the same conclusion for a different reason: there is no evidence whatsoever to suggest that either party considered any particular allocation of responsibility or risks beyond, or different from, the duties or liabilities ordinarily attending their relationship at common law. Negligence liability arises from breach of duty of care, independent from the purchase of insurance. The lease was not ambiguous about insurance, but simply silent. There is no missing term in the contract for the court to equitably divine, since insurance is not a necessary element to a binding landlord-tenant relationship. Rather, the lease left defendant and its landlord entirely free to choose whether or not to purchase insurance against their respective risks or liabilities.

¶ 8. Defendant urges the Court to reconsider what we declined to do three years ago in Joerg: import the per se rule of Sutton deeming tenants to be coinsureds under a landlord's insurance policy unless the parties expressly agree otherwise. Defendant argues that the Sutton approach is consistent with general landlord-tenant expectations and discourages the economic inefficiency of redundant insurance policies on the same risk. Defendant also submits that, since Joerg was decided, the Sutton rule now represents the view in a majority of jurisdictions.

¶ 9. We remain unpersuaded that the per se rule of Sutton better reflects the reasonable expectations of the parties, or better promotes economic efficiency, than the case-by-case analysis endorsed by Joerg. Because there is no reason to suspect a landlord and tenant cannot express insurance expectations in their lease, there is no need to adopt the per se rule of Sutton to impose an insurance term when the parties are silent. Nor does any economic efficiency appear from adopting a per se rule to immunize a tenant from tort liability by virtue of the landlord's purchase of insurance when, as here, the premiums were obviously not included in the token rent. Assuming, arguendo, that Joerg no longer represents the majority view on this matter,² we still "find the case-by-case approach to be the most consistent with Vermont law. In determining the rights of the parties to a lease, this Court has consistently looked to the intent of the contracting parties as ascertained from the terms of the lease." Joerg, 2003 VT 27, ¶ 9, 175 Vt. 196, 824 A.2d 586. This approach also emphasizes, correctly, the court's role to "enforce the contract that was made [by the parties], not one we wish they made." Id. (internal quotations omitted).

¶ 10. Even under the Joerg standard, argues defendant, it is the silence of the lease that proves the parties' implied intent that the Town would assume what defendant characterizes as the "obligation" of insuring the building as a customary landlord expense. Because the lease expressly required tenant to pay only nominal rent and to assume the cost of improvements, defendant reasons, the Town implicitly retained responsibility for utilities, heat, maintenance, and all other typical carrying costs of building ownership, including insurance. Having not obligated defendant to buy insurance, defendant's logic continues, the parties must have left that obligation to the Town. It is not apparent, however, and defendant fails to explain, why such insurance would be obligatory, rather than remain elective, for either party.

¶ 11. Defendant's proposition would invert our decision in Joerg to require an inquiry into whether the lease obligated the tenant, rather than the landlord, to purchase insurance and, if not, to infer as a matter of law that the landlord's purchase of insurance coverage was for the benefit of the tenant. First, this approach merely imitates the rejected Sutton per se rule, except that instead of presuming the landlord's insurance is for the mutual benefit of...