W. Am. Ins. Co. v. Black Dog Consulting Inc.

• Citation: 2023 WY 109
• Docket Number: S-23-0052
• Decision Date: 09 November 2023
• Parties: WEST AMERICAN INSURANCE COMPANY, an Indiana company, Appellant (Plaintiff), v. BLACK DOG CONSULTING INC., a Wyoming corporation d/b/a C.H. YARBER CONSTRUCTION, a Wyoming corporation, Appellee (Defendant).
• Court: United States State Supreme Court of Wyoming

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2023 WY 109

WEST AMERICAN INSURANCE COMPANY, an Indiana company, Appellant (Plaintiff),
v.
BLACK DOG CONSULTING INC., a Wyoming corporation d/b/a C.H. YARBER CONSTRUCTION, a Wyoming corporation, Appellee (Defendant).

No. S-23-0052

Supreme Court of Wyoming

November 9, 2023

Appeal from the District Court of Laramie County The Honorable Peter H. Froelicher, Judge

Representing Appellant: Richard R. Rardin, Denver, Colorado.

Representing Appellee: Blaine F. Burgess and Sean W. Scoggin, Williams, Porter, Day & Neville, P.C. Cheyenne, Wyoming. Argument by Mr. Burgess.

Before FOX, C.J., KAUTZ, BOOMGAARDEN, GRAY, and FENN, JJ.

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BOOMGAARDEN, JUSTICE.

[¶1] West American Insurance Company (West) is the insurer of Profile Properties' (Profile) commercial property in Cheyenne. Black Dog Consulting Inc., doing business as C.H. Yarber Construction (C.H. Yarber), was the tenant leasing Profile's commercial property when the property sustained significant damage from a fire. West covered Profile's fire damages and proceeded against C.H. Yarber in subrogation asserting claims of negligence and breach of contract. The district court granted summary judgment in favor of C.H. Yarber after concluding West could not pursue its claims in subrogation because C.H. Yarber was a co-insured under Profile's insurance policy. We affirm, concluding C.H. Yarber and Profile reasonably expected under the terms of their lease agreement that Profile would look only to its insurer, West, for compensation for fire loss. West therefore cannot pursue its claims against C.H. Yarber in subrogation.

ISSUE

[¶2] West raises one issue, which we simplify and rephrase as:

Whether West is precluded from filing claims in subrogation against C.H. Yarber

FACTS

[¶3] The material facts are undisputed. C.H. Yarber entered into an agreement with Profile in 2014 to lease property in Cheyenne. The leased property contained an office facility, two warehouses, and approximately 3.5 acres of fenced yard space encompassing the buildings. Pursuant to the lease agreement, in addition to the $7,000 monthly rent, C.H. Yarber agreed to pay the full expense of Profile's blanket insurance policy, which included general commercial liability insurance and "[f]ire and extended coverage insurance on the Building[.]" Profile agreed to furnish a copy of the blanket insurance policy with the invoiced expense to C.H. Yarber. The details of the lease will be discussed below as necessary.

[¶4] C.H. Yarber ran a metal fabrication business on the leased property that involved the welding, cutting, and grinding of metal. In the late afternoon on December 5, 2016, C.H. Yarber's employees detected a fire on the property and called the Laramie County Fire District No. 1 (LCFD1). After making efforts to suppress the fire and taking thermal readings, LCFD1 determined the fire was out and left the area. C.H. Yarber's employees left soon after. Several hours later, the property became engulfed in flames. The metal fabrication shop was destroyed.^[1]

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[¶5] West paid the damages caused by the fire in accordance with Profile's policy. In November 2020, West filed a complaint in subrogation against C.H. Yarber alleging claims of negligence and breach of contract. C.H. Yarber moved for summary judgment on West's claims. In granting summary judgment, the district court adopted the rule articulated in Sutton v. Jondahl, 532 P.2d 478 (Okla.Civ.App. 1975) ("the Sutton rule"). This rule holds a tenant, as a matter of law, is an implied co-insured under their landlord's fire insurance policy unless the landlord and tenant expressly agreed otherwise. Id. at 482. The district court applied the Sutton rule and concluded Profile's lease agreement with C.H. Yarber did not expressly require C.H. Yarber to carry fire insurance and, because C.H. Yarber was also required to pay for Profile's blanket insurance policy which covered fire losses, C.H. Yarber was an implied co-insured under Profile's policy, thus precluding West from filing its claims in subrogation.

[¶6] West timely appealed.

STANDARD OF REVIEW

[¶7] W.R.C.P. 56(a) states "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." We review a district court's order granting summary judgment de novo and may affirm on any basis in the record. Gates v. Memorial Hosp. of Converse Cnty., 2023 WY 77, ¶ 14, 533 P.3d 493, 498 (Wyo. 2023) (citation omitted); Primrose Ret. Cmtys., LLC v. Ghidorzi Constr. Co., 2023 WY 15, ¶ 8, 523 P.3d 1219, 1224 (Wyo. 2023).

We review a summary judgment in the same light as the district court, using the same materials and following the same standards. We examine the record from the vantage point most favorable to the party opposing the motion, and we give that party the benefit of all favorable inferences that may fairly be drawn from the record. A material fact is one which, if proved, would have the effect of establishing or refuting an essential element of the cause of action or defense asserted by the parties.

Gates, 2023 WY 77, ¶ 14, 533 P.3d at 498-99 (quoting Phyllis v. McDill Revocable Tr., 2022 WY 40, ¶ 16, 506 P.3d 753, 759-60 (Wyo. 2022)).

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DISCUSSION

I. The Subrogation Doctrine

[¶8] "[S]ubrogation is the substitution of one person in the place of another with reference to a lawful claim so that the one who is substituted succeeds to the rights of the other in relation to the debt or claim." Tri-Par Invs., L.L.C. v. Sousa, 680 N.W.2d 190, 194 (Neb. 2004) (citation omitted). In the insurance context, "when an insurer pays the claim of its insured, the insurer stands in the shoes of its insured, and the insurer may bring a subrogation action against the tortfeasor to recover the amounts paid under the insurance policy." State Farm Florida Ins. v. Loo, 27 So.3d 747, 748 (Fla. Dist. Ct. App. 2010) (citation omitted). The purpose of the subrogation doctrine is "to prevent the party primarily liable on the debt from being unjustly enriched when someone pays his debt." Rausch v. Allstate Ins., 882 A.2d 801, 807 (Md. 2005) (citation omitted).

[¶9] The doctrine of subrogation is equitable in nature, thus "in determining whether an insurer may bring a subrogation action in a particular case, courts must weigh 'the principles of equity and good conscience.'" LBM Realty, LLC v. Mannia, 19 N.E.3d 379, 386 (Ind.Ct.App. 2014) (quoting RAM Mut. Ins. v. Rohde, 820 N.W.2d 1, 16 (Minn. 2012)); Dattel Fam. Ltd. P'ship v. Wintz, 250 S.W.3d 883, 887 (Tenn. Ct. App. 2007) ("Subrogation is not appropriate in every circumstance; as an equitable doctrine, it is applied only if its application achieves equity under the facts and circumstances of the case at hand." (citation omitted)). Importantly, an insurer "may not maintain a subrogation action against its own insured even if the insured's negligence caused the loss." Loo, 27 So.3d at 748 (citations omitted); see also Sousa, 680 N.W.2d at 194 (citation omitted); 46A C.J.S. Insurance § 2022 (Aug. 2023 update).

II. Three Approaches: Anti-Subrogation (the Sutton rule), Pro-Subrogation (the anti-Sutton rule), and Case-by-Case Analysis

[¶10] For almost fifty years courts across the country have considered the issue of when a landlord's insurer can pursue a subrogation claim against a tenant who negligently caused a fire loss. See generally Ro v. Factory Mut. Ins., 260 A.3d 811, 815-18 (N.H. 2021); Liberty Mut. Fire Ins. v. Auto Spring Supply Co., 59 Cal.App.3d 860, 865-67 (Cal Ct. App. 1976). Three different approaches have emerged. Hoosier Ins. v. Riggs, 92 N.E.3d 685, 688 (Ind.Ct.App. 2018) (quoting LBM Realty, LLC, 19 N.E.3d at 383). The Sutton rule the district court invoked is one approach. Which approach Wyoming should adopt is a matter of first impression.

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A. Anti-Subrogation (the Sutton Rule)

[¶11] The categorical rule announced in Sutton provides that, as a matter of law, a tenant is an implied co-insured under the landlord's insurance policy absent an express agreement to the contrary. Thus, the landlord's insurer is precluded from filing a subrogation claim against a tenant. Hoosier Ins., 92 N.E.3d at 688 (quoting LBM Realty LLC, 19 N.E.3d at 383). This rule has also been called the anti-subrogation approach. Ro, 260 A.3d at 814- 15; Joella v. Cole, 221 A.3d 674, 678 (Pa. 2019).

[¶12] The Sutton court explained:

This principle is derived from a recognition of a relational reality, namely, that both landlord and tenant have an insurable interest in the rented premises-the former owns the fee and the latter has a possessory interest. Here the landlords (Suttons) purchased the fire insurance from Central Mutual Insurance Company to protect such interests in the property against loss from fire. This is not uncommon. And as a matter of sound business practice the premium paid had to be considered in establishing the rent rate on the rental

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