Travelers Indem. Co. of America v. Deguise

• Decision Date: 18 August 2006
• Docket Number: No. 05-353.,05-353.
• Citation: 2006 VT 87,914 A.2d 499
• Parties: The TRAVELERS INDEMNITY COMPANY OF AMERICA v. Bruce DEGUISE and Kristy Deguise.
• Court: Vermont Supreme Court

Page 499

914 A.2d 499

2006 VT 87

The TRAVELERS INDEMNITY COMPANY OF AMERICA v. Bruce DEGUISE and Kristy Deguise.

No. 05-353.

Supreme Court of Vermont.

August 18, 2006.

A. Jeffry Taylor of Abatiell Asociates, P.C., Rutland, for Plaintiff-Appellee.

Paul R. Morwood, South Burlington, for Defendants-Appellants.

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

¶ 1. BURGESS, J.

In this subrogation action, plaintiff ("insurer") seeks to recover from defendants ("tenants") the amount it paid under its fire insurance policy with tenants' landlord as a result of a fire in tenants' apartment. The superior court granted summary judgment in favor of insurer, denied tenants' cross-motion for summary judgment, and — because tenants' negligence and the amount of damages were uncontested — entered judgment for insurer. Tenants argue on appeal that the superior court erred in concluding they were not implied coinsureds under landlord's insurance policy. We affirm.

¶ 2. We review the trial court's grant of summary judgment de novo, applying the same standard as the trial court. Hardwick Recycling & Salvage, Inc. v. Acadia Ins. Co., 2004 VT 124, ¶ 14, 177 Vt. 421, 869 A.2d 82. Summary judgment is appropriate where the undisputed facts demonstrate that either party is entitled to judgment as a matter of law. V.R.C.P. 56(c)(3).

¶ 3. The undisputed facts can be briefly summarized. Tenants, pursuant to a written agreement, leased an apartment in the Northgate/Greenfield Apartments in Burlington from landlord Northgate Housing Limited Partnership. The apartment is one of several in a multi-unit building in a multi-building complex. Tenants admitted that, on January 6, 2002, they emptied smoldering materials from an ashtray into a trash can or wastebasket, causing a fire that damaged their apartment. As a result of a claim filed by landlord with insurer, insurer paid $10,711.66 for property damaged by the fire.

¶ 4. The legal question posed by tenants on appeal — whether a tenant is an implied coinsured under a landlord's fire insurance policy — is one we recently addressed in another decision, albeit under different factual circumstances. See Town of Stowe v. Stowe Theatre Guild, 2006 VT 79, ¶ 7, ___ Vt. ___, 908 A.2d 447 (affirming trial court's conclusion that nonprofit theater group leasing performance space in town building under oral lease was not implied coinsured under town's fire insurance policy on the building). As we stated in Stowe Theatre Guild, an insurer in a subrogation action stands in its insured's shoes when seeking to recover amounts the insurer has paid its insured as a result of a third party's tortious conduct. Id. ¶ 5. Our analysis in Stowe Theatre Guild, as in this case, was guided by our decision in Union Mutual Fire Insurance Co. v. Joerg, where we concluded that "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." Union Mut. Fire Ins. Co. v. Joerg, 2003 VT 27, ¶ 8, 175 Vt. 196, 824 A.2d 586.

¶ 5. In Joerg, we held that where the lease required the landlord to carry fire insurance on the premises, the insurance was for the mutual benefit of the parties and the tenant was therefore deemed a coinsured and protected against an insurer's subrogation claim. 2003 VT 27, ¶ 11, 175 Vt. 196, 824 A.2d 586. While an express requirement in a lease that a landlord procure insurance is not necessary to a finding that the parties agreed a tenant would not be responsible for particular damages covered by insurance, the approach we adopted in Joerg requires an examination of the lease agreement to determine whether the terms reflect that landlord intended to limit its own recovery against tenants, to relieve tenants from their traditional tort obligations, or to procure insurance for the parties' mutual benefit.

¶ 6. Tenants rely primarily on a lease provision titled "Hazards," which states that tenants "shall not undertake, or permit [their] family or guests to undertake any hazardous acts or do anything that will increase the development's insurance premiums."¹ Tenants argue that while the provision does not expressly obligate either party to maintain insurance, the provision sufficiently demonstrates the parties' implied expectation that landlord would maintain an insurance policy.

¶ 7. The superior court concluded that the "Hazards" provision neither created an obligation on the part of landlord to procure insurance nor implied that insurance would be procured for tenants' benefit, and that other provisions in the lease did not support a conclusion that tenants would not be held responsible for fire damage. Rather, the court concluded that any obligation stemming from the "Hazards" provision is on tenants, not landlord. The court categorized and rejected tenants' argument as based on an erroneous assumption that any mention of an insurance policy is enough to create reliance in tenants and a presumption that insurance costs would be passed on to them.

¶ 8. We agree with the superior court that the mere mention of insurance in the "Hazards" provision of the lease is insufficient to overcome other express provisions in the lease that clearly outline tenants' responsibility to pay for damages caused by their negligence. Even if tenants might have had a reasonable expectation that landlord would procure some kind of insurance on the building, there is nothing in the "Hazards" provision that would lead tenants to expect that the presence of insurance would relieve them of their responsibility to pay for damages caused by their negligence. The lease provides that the landlord may retain tenants' security deposit to the extent necessary to pay for damages beyond normal wear and tear and also specifies that tenants are "responsible ... for paying all charges required by Section 11." Section 11, titled "Damages," provides that "[w]henever damage is caused by carelessness, misuse, or neglect on the part of the Resident, a member of the Resident's household, or guests, the Resident agrees to pay . . . [t]he cost of all repairs . . . [and] [r]ent for the period the unit is damaged, whether or not the unit is habitable."

¶ 9. Tenants support their argument by citation to United States Fire Insurance Co. v. Phil-Mar Corp., 166 Ohio St. 85, 139 N.E.2d 330 (1956), which, tenants argue, held a lease provision "similar" to the "Hazards" provision in the instant case sufficient to deny an insurer's subrogation claim. Tenants' reliance on Phil-Mar is misplaced. While tenants here rely solely upon the "Hazards" provision to bar subrogation, the primary question before the Ohio Supreme Court was whether the surrender clause of a lease, which excepted "loss by fire" from the lessee's duty to surrender the premises in good condition at the expiration of the lease, included circumstances where the fire loss was due to the lessee's negligence. Id. at 331. The Phil-Mar court also considered a provision that held the lessee responsible for increased fire insurance premiums if the rate was increased because of the lessee's occupancy to be indicative of an understanding that the lessor would look to the insurance for compensation. The court viewed that provision, however, in accordance with the lease as a whole — including the fact that the "loss by fire" exception in the surrender clause was "unqualified and unlimited" — to conclude that the purpose of the "loss by fire" exception was to relieve the lessee from its common law liability to the lessor for fire loss. Id. at 333. In contrast, the "Hazards" provision tenants rely on in this case to bar their responsibility for negligently-caused fire damage expressly relieves a tenant from payment of rent when the unit is damaged by fire and cannot be lived in — but only when "the damage is not caused or made worse by the [tenant]." See supra, ¶ 6, n. 1. Hence, there is nothing unqualified or unlimited in this lease with regard to when the lessee is relieved from financial responsibility for damages to the leased premises.²

¶ 10. Tenants also argue that we should be guided by public policy considerations we discussed in Joerg to conclude that tenants are implied coinsureds, arguing that landlord here would certainly take its insurance costs into account when setting rent. See Joerg, 2003 VT 27, ¶ 10, 175 Vt. 196, 824 A.2d 586 (concluding that, where landlord is obligated to purchase insurance, landlord would take insurance cost into account in setting rent, and economic inefficiency of multiple insurance policies would thus be prevented). Unlike the lease in Joerg, however, this lease does not place an insurance obligation on landlord. The parties' agreement spans twenty-one pages with numerous provisions establishing each party's obligations in great detail. The lease here, in express and unqualified language, obligates tenants to pay for the damage caused by their negligence. In reviewing the lease as a whole, we cannot imply from the provisions that landlord intended to obligate itself to provide insurance for the benefit of tenants or to relieve tenants from liability for negligently damaging the leased premises, and we find nothing in the language of the lease that would reasonably lead tenants to imply a contrary intent. While public policy considerations are helpful in balancing the equities of the parties in light of the agreement they reached, we cannot elevate public policy considerations to override or contradict the terms of the parties' agreement. It is the role of courts to enforce the contract the parties made, "not one we wish they made.'" Joerg, 2003 VT 27, ¶ 9, 175 Vt. 196, 824 A.2d 586 (quoting Fairchild Square Co. v. Green Mountain Bagel Bakery, Inc., 163 Vt. 433, 444, 658 A.2d 31, 38 (1995) (Dooley, J., dissenting)).

¶ 11. Finally, tenants claim that the circumstances of this particular housing...