Union Mut. Fire Ins. Co. v. Joerg, 01-336.

• Decision Date: 28 March 2003
• Docket Number: No. 01-336.,01-336.
• Citation: 824 A.2d 586
• Court: Vermont Supreme Court
• Parties: UNION MUTUAL FIRE INSURANCE COMPANY v. Elmer J. and Jacqueline JOERG.

824 A.2d 586

UNION MUTUAL FIRE INSURANCE COMPANY v. Elmer J. and Jacqueline JOERG.

No. 01-336.

Supreme Court of Vermont.

March 28, 2003.

Paul R. Bowles, Montpelier, for Plaintiff-Appellant.

Stephen J. Soule of Paul, Frank & Collins, Inc., Burlington, for Defendants-Appellees.

Present: AMESTOY, C.J., DOOLEY, MORSE¹, JOHNSON and SKOGLUND, JJ.

DOOLEY, J.

¶ 1. Plaintiff, Union Mutual Fire Insurance Company, appeals from the decision of the superior court granting defendants' motion to dismiss in its subrogation action against tenants of its insured and their guest. On appeal, plaintiff argues that the court erred by: (1) determining that defendants, Elmer and Jacqueline Joerg (tenants), were implied coinsureds under their landlord's fire insurance policy, thereby precluding a subrogation claim against them by plaintiff; (2) holding that the tenants had no duty to supervise Francis Roy, Jacqueline Joerg's father, who was living with them and who caused the fire underlying this case; and (3) concluding that no direct cause of action existed against Mr. Roy. We affirm.

¶ 2. This litigation arises from a fire that occurred on June 5, 1999 at a house owned by Mark Johnson (landlord) and rented to tenants pursuant to a lease-purchase contract. At the time of the fire, the tenants lived in the house with their two minor children and Francis Roy, Mrs. Joerg's seventy-three-year-old father. The fire was allegedly caused when Mr. Roy fell asleep or passed out while smoking. As a result of the fire, the house was severely damaged, and Mr. Roy was killed.

¶ 3. In accordance with the Union Mutual fire insurance policy that landlord maintained on the house, plaintiff paid approximately $97,000 to landlord. Plaintiff then instituted a subrogation claim against the defendants—the tenants individually and Mrs. Joerg as administratrix of her father's estate—alleging that Mr. Roy negligently caused the fire and that tenants were negligent in their supervision of Mr. Roy. Defendants filed a motion to dismiss pursuant to V.R.C.P. 12(b)(6), arguing that (1) plaintiff had no right of subrogation against tenants because they were implied coinsureds under the landlord's policy, (2) tenants were not negligent because they had no duty of care to supervise Mr. Roy, and (3) plaintiff had no right of subrogation against Mr. Roy as an invitee. The trial court granted the motion, and plaintiff subsequently brought this appeal.

¶ 4. A motion to dismiss a cause of action for failure to state a claim upon which relief may be granted should be denied "unless it appears beyond doubt that there exist no facts or circumstances that would entitle the plaintiff to relief." Amiot v. Ames, 166 Vt. 288, 291, 693 A.2d 675, 677 (1997) (internal quotation marks omitted). In reviewing the disposition of a V.R.C.P. 12(b)(6) motion to dismiss, "this Court assumes that all factual allegations pleaded in the complaint are true ... accept[s] as true all reasonable inferences that may be derived from plaintiff's pleadings and assume[s] that all contravening assertions in defendant's pleadings are false." Richards v. Town of Norwich, 169 Vt. 44, 48-49, 726 A.2d 81, 85 (1999). In this case, the allegations in the complaint were supplemented by a copy of the lease.²

¶ 5. Plaintiff's first argument on appeal is that the trial court erred in holding that tenants were implied coinsureds under landlord's insurance policy with plaintiff and therefore plaintiff was precluded from bringing a subrogation action against them. We reject this argument for the following reasons.

¶ 6. Subrogation is an equitable doctrine that is based on a theory of restitution and unjust enrichment. See Norfolk & Dedham Fire Ins. Co. v. Aetna Cas. & Sur. Co., 132 Vt. 341, 344, 318 A.2d 659, 661 (1974). Subrogation "enables a secondarily liable party who has been compelled to pay a debt to be made whole by collecting that debt from the primarily liable party, who, in good conscience, should be required to pay." Nationwide Mut. Fire Ins. Co. v. Gamelin, 173 Vt. 45, 52, 786 A.2d 1078, 1084 (2001). In the insurance context, subrogation allows an insurer in some situations to recover what it pays to an insured under a policy by "standing in the shoes" of the insured and suing the wrongdoer, even if the policy lacks an express provision providing for such a claim. See R. Keaton & A. Widiss, Insurance Law § 3.10(a)(1), at 219 (Practitioner's ed.1988); Ulm v. Ford Motor Co., 170 Vt. 281, 296, 750 A.2d 981, 992 (2000). However, "an insurer cannot recover by means of subrogation against its own insured." Peterson v. Silva, 428 Mass. 751, 704 N.E.2d 1163, 1164 (1999) (internal quotation marks omitted); Keaton & Widiss, supra, § 3.10(a)(1), at 221. This prohibition extends to coinsureds under the policy, both express and implied. See 6A J.A. Appleman & J. Appleman, Insurance Law & Practice § 4055, at 146 (1972) ("Subrogation cannot be obtained against another insured under the same policy, even if such protection is indirect." (footnotes omitted)).

¶ 7. Thus, if we find that the tenants are express or implied coinsureds under the landlord's fire insurance policy, plaintiff will not be able to exercise a right of subrogation against them. In reaching its decision that the tenants were implied coinsureds, the superior court adopted a per se rule, holding that a tenant, as a matter of law, is deemed a coinsured under a landlord's fire insurance policy, absent an express agreement to the contrary. This rule is best expressed in the leading case of Sutton v. Jondahl, 532 P.2d 478, 482 (Okla.Ct.App.1975), and has been followed by several courts. See Alaska Ins. Co. v. RCA Alaska Communications, Inc., 623 P.2d 1216, 1218 (Alaska 1981); Lexington Ins. Co. v. Raboin, 712 A.2d 1011, 1016 (Del.Super.Ct.1998); N. River Ins. Co. v. Snyder, 804 A.2d 399, 403-04 (Me.2002); Peterson, 704 N.E.2d at 1165; N.H. Ins. Group v. Labombard, 155 Mich.App. 369, 399 N.W.2d 527, 531 (1986); United Fire & Cas. Co. v. Bruggeman, 505 N.W.2d 87, 89 (Minn.Ct.App.1993); Safeco Ins. Co. v. Capri, 101 Nev. 429, 705 P.2d 659, 661 (1985); Cmty. Credit Union v. Homelvig, 487 N.W.2d 602, 605 (N.D.1992); GNS P'ship v. Fullmer, 873 P.2d 1157, 1163 (Utah Ct.App.1994).

¶ 8. We note, however, that the Sutton per se rule is only one of a number of alternative rules. Some courts have rejected the implied coinsured rationale and allowed the insurer to bring a subrogation claim against the tenant, absent an express agreement to the contrary. See Neubauer v. Hostetter, 485 N.W.2d 87, 89-90 (Iowa 1992); Zoppi v. Traurig, 251 N.J.Super. 283, 598 A.2d 19, 21 (Law Div.1990); Galante v. Hathaway Bakeries, Inc., 6 A.D.2d 142, 176 N.Y.S.2d 87, 92 (1958); Winkler v. Appalachian Amusement Co., 238 N.C. 589, 79 S.E.2d 185, 190 (1953). The majority of courts, however, have avoided per se rules and taken a more flexible case-by-case approach, holding 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. See Page v. Scott, 263 Ark. 684, 567 S.W.2d 101, 103 (1978); Fire Ins. Exch. v. Hammond, 83 Cal.App.4th 313, 99 Cal.Rptr.2d 596, 602 (2000); Continental Ins. Co. v. Kennerson, 661 So.2d 325, 327 (Fla.Dist.Ct.App.1995); Bannock Bldg. Co. v. Sahlberg, 126 Idaho 545, 887 P.2d 1052, 1055 (1994); Dix Mut. Ins. Co. v. LaFramboise, 149 Ill.2d 314, 173 Ill.Dec. 648, 597 N.E.2d 622, 625 (1992); Britton v. Wooten, 817 S.W.2d 443, 445-47 (Ky.1991); Rock Springs Realty, Inc. v. Waid, 392 S.W.2d 270, 277-78 (Mo.1965); Agra-By-Products, Inc. v. Agway, Inc., 347 N.W.2d 142, 146-50 (N.D.1984); United States Fire Ins. Co. v. Phil-Mar Corp., 166 Ohio St. 85, 139 N.E.2d 330, 332 (1956); 56 Assocs. v. Frieband, 89 F.Supp.2d 189, 194 (D.R.I. 2000); Tate v. Trialco Scrap, Inc., 745 F.Supp. 458, 467 (M.D.Tenn.1989); Monterey Corp. v. Hart, 216 Va. 843, 224 S.E.2d 142, 147 (1976); Rizzuto v. Morris, 22 Wash.App. 951, 592 P.2d 688, 691 (1979). Of the courts following this approach, most that have denied subrogation have done so because of the existence of specific provisions in the lease, such as a provision obligating the landlord to purchase fire insurance on the premises or a clause excepting fire damage from the tenant's responsibility to maintain or return the property in a good state and condition. See Continental Ins. Co.,661 So.2d at 328 (lease provided that damage caused by fire "shall be repaired by and at the expense of Lessor"); Safeco Ins. Cos. v. Weisgerber, 115 Idaho 428, 767 P.2d 271, 272 (1989) (lease required tenant to maintain premises in a good state and condition of repair "damage by ... fire excepted"); Rock Springs Realty, Inc.,392 S.W.2d at 271 (lease required tenant to maintain premises in good condition, "loss by fire ... excepted"); United States Fire Ins. Co., 139 N.E.2d at 333 (lease provided that tenant would pay possible increase in fire insurance premiums due to tenant's activities); Agra-By-Products, Inc.,347 N.W.2d at 144 (lease required lessor to keep insurance and lessee to reimburse lessor for premiums); Tate, 745 F.Supp. at 460 (lease required lessor to purchase insurance coverage on building); Monterey Corp.,224 S.E.2d at 144 (lease contained "except fire" provision); see also Britton, 817 S.W.2d at 446 (subrogation allowed because there was no clause requiring purchase of fire insurance by landlord); 56 Assocs.,89 F.Supp.2d at 194 (subrogation allowed where lease did not address question of fire insurance).

¶ 9. Although we noted in Aetna Casualty & Surety Co. v. Barasch, 158 Vt. 638, 638-39, 603 A.2d 380, 380-81 (1992) (mem.), that the Sutton rule is one possible approach, we 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...