Travelers Indemnity Co. v. Deguise, No. S1253-04 CnC (Norton, J., July
27, 2005)

[The text of this Vermont trial court opinion is unofficial. It has been
reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is
not guaranteed.]




STATE OF VERMONT                                     SUPERIOR COURT
Chittenden County, ss.:                          Docket No. S1253-04 CnC



TRAVELERS INDEMNITY CO.

v.

DEGUISE




                                  ENTRY

       Following this court’s denial of defendant tenants’ motion to
dismiss, both parties have moved for summary judgment on plaintiff
insurance company’s subrogation claim.

      This case arises out of a fire and the subsequent damage that it
caused to the Northgate apartment buildings. Insurance company
compensated Northgate for the damages and now steps into Northgate’s
shoes to seek compensation from tenants, who the insurer holds responsible
for the fire. Tenants do not deny their responsibility but argue that they
were the co-beneficiaries of Northgate’s insurance policy, and insurance
company cannot bring a subrogation claim against a coinsured. Union Mut.
Fire Ins. Co. v. Joerg, 2003 VT 27, ¶6.

        When faced with the issue of an owner’s insurer bringing a
subrogation claim against a tenant, courts have responded in several ways.
As Joerg, notes a minority of jurisdictions have chosen to adopt a per se,
default rule. These courts have adopted the position that a tenant either is
or is not a coinsured for the purposes of the owner’s fire liability insurance.
Compare Sutton v. Jondahl, 532 P.2d 478, 482 (Okla. Ct. App. 1975)
(tenant is a coinsured under a landlord’s fire insurance as a matter of law),
with Neubauer v. Hostetter, 485 N.W.2d 87, 89–90 (Iowa 1992) (tenant is
not coinsured as a matter of law); but see Seaco v. Barbosa, 761 N.E.2d
946, 949–50 (Mass. 2002) (criticizing the per se approach). In both cases,
parties to a lease may modify this per se arrangement by including express
terms to the contrary in their agreement, but short of such express, and
presumably clear, language a court in these jurisdictions will apply the
default rule, either granting or refusing co-insured status.

       Vermont, through the Joerg case, has adopted a slightly more open
position followed by a majority of jurisdictions. This approach analyzes a
tenant’s coinsured status on a lease-by-lease basis. Under this method, a
court looks to the intent of the parties and their reasonable expectations as
ascertained from the lease. Joerg, at ¶ 8. The Vermont Supreme Court has
noted that jurisdictions applying this analysis tend to deny subrogation
claims against tenants when they are based on a specific provision either
obligating the landlords to obtain fire insurance or excepting fire damage
from tenant responsibility. Id. (“[M]ost [courts] 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 . . . or a clause excepting fire damage from the tenant's
responsibility . . . .”). The converse is that without such a provision, the
question of insurance coverage, while open to the language of the lease, is
less likely to prohibit subrogation.

        This court denied tenants’ initial Rule 12(b)(6) motion to dismiss for
several reasons, the primary being that tenants’ argument was premised on
a lease that had not been submitted. See Joerg, at ¶ 11 (centering the
determination of coinsured status on what the parties intended and expected
from their lease). Both parties have rectified that problem by including a
copy of tenants’ lease in their respective motions for summary judgment.
The question now becomes whether paragraph 28 of tenants’ lease, as they
argue, makes them coinsured beneficiaries under Northgate’s fire insurance
policy. Because neither party disputes the content of the lease and because
there is no ambiguity in its language, summary judgment is proper on this
issue. Rogers v. Wells, 174 Vt. 492, 494 (2002) (“Absent ambiguity,
contract interpretation is a matter of law.”).

       The paragraph in question reads:

                                      Hazards
       The Resident shall not undertake, or permit his/her family or
       guests to undertake any hazardous acts or do anything that will
       increase the development’s insurance premiums. If the unit is
       damaged by fire, wind, or rain to the extent that the unit cannot be
       lived in and the damage is not caused or made worse the Resident,
       the Resident will be responsible for rent only up to the date of the
       destruction. Additional rent will not accrue until the unit had been
       repaired to a livable condition.
(Def. Mot. for Summ. J., Ex. A, at 18 Apr. 29, 2005.) While tenants do not
specify which part of paragraph 28 they rely upon, the second and third
sentences of this paragraph deal with an issue extrinsic to the present case.
See generally Annot., Modern Status of Rule as to Tenant’s Rent Liability
After Injury to or Destruction of Demised Premises, 99 A.L.R.3d 738
(1980, Supp. 2004). That leaves the first sentence of the paragraph. Upon
examination, it does not exclude tenants from responsibility for fire damage
or obligate owner to purchase insurance, but it does require tenants and
their guests to refrain from any activity that will raise owner’s insurance
premiums. Tenants argue, however, that this clause is the functional
equivalent of an obligation for Northgate to provide fire insurance and vests
them with implied coinsured status.

       As paragraph 8 of Joerg recommends, this court looks for specific
obligations in a lease, which illuminate parties’ intent. These tend to come
in two potential forms. See Joerg, at ¶ 8 (citing cases using surrender
clauses or clauses obligating the purchase of insurance). The first, and
overwhelmingly prevalent type, are the so-called surrender clauses where
the lease states that the tenant shall surrender the property at the end of the
term in good condition, “loss by fire excluded.” See generally Annot.,
Validity, Construction, and Effect of Provision of Lease Exempting
Landlord or Tenant from Liability on Account of Fire, 15 A.L.R.3d 786, §
7 (1968, Supp. 2004). As this court noted in its earlier entry, surrender
clause language has been the almost exclusive basis for any court’s denial
of subrogation because it prospectively excludes fire damage and implicitly
suggests that the tenant’s responsibilities are covered. Id.; see also Parson
Mfr. Corp. v. Superior Court, 203 Cal. Rptr. 419, 424 (Cal. App. 1984);
United States Fire Ins. Co. v. Phil-Mar Corp., 139 N.E.2d 330, 332 (Ohio
1956);Rizzuto v. Morris, 592 P.2d 688, 690 (Wash. App. 1979). Here,
tenants are not arguing that paragraph 28 creates such a surrender clause or
similar exclusion of responsibility for fire damage.

       Instead, tenants expand on the primary holding of Joerg to argue that
any mention of an owner’s insurance policy in the lease creates reliance in
the tenants and a presumption that the costs of such insurance are being
passed on to them. Joerg, at ¶ 11. This misinterprets the holding of Joerg,
which concerns the second form of obligation in a lease that may create
coinsured status in the tenant. The Court in Joerg held that where a lease
requires a landlord to carry fire insurance on the leased premises, it
implicitly was for the benefit of the tenant; the costs of which were mostly
likely passed on to the tenant; and thereby made the tenant a coinsured. Id.
at ¶¶ 9–11 (discussing the policy behind Fairchild Square Co. v. Green
Mountain Bagel, Inc., 163 Vt. 433 (1995)). While tenants’ argument latches
onto the underlying equity arguments in this situation, their position in
regards to the lease is different. Paragraph 28 does not create any
obligation in Northgate to carry fire insurance. Instead, it merely notes that
Northgate may have insurance. It lacks any language that would even
imply that the insurance was carried for mutual benefit, and it is not even
clear what type of insurance paragraph 28 means. If any obligation comes
out of paragraph 28, it would be for the tenants, whom the paragraph
requires to do nothing to raise Northgate’s premiums—presumably by
refraining from dangerous or destructive activities in the apartment.

       Looking elsewhere in the lease, there is a conspicuous lack of any
language that would extend coverage to or exclude responsibility from
tenants. In fact, the lease when taken as a whole explicitly prohibits tenants
from several broad and enumerated categories of behavior (¶ 10(B)
Maintenance; ¶ 11, Damages; ¶ 13 General Restrictions) and holds them
explicitly responsible for any damage resulting (¶ 8, Security Deposit; ¶
11, Damages). Taken together, there is no language either in paragraph 28
or the lease as a whole to suggest that Northgate was obliged to carry fire
insurance for tenants benefit. Nor could tenants have reasonably expected
such a benefit from the language of the lease. There is nothing in the lease
which would have caused tenants to suspect that they were freed of the
responsibility of obtaining their own insurance to cover their property and
their own acts of negligence. As such, the lease and paragraph 28 do not
give tenants the status of coinsured or prevent insurer from bring its present
subrogation claim.

        Furthermore, since tenants do not dispute that they caused the fire in
their apartment, summary judgment on the claim of negligence is also
proper. Tenants were obligated by paragraph 10(B) of their lease to avoid
damaging or destroying the premises. Under paragraph 11, they were
obligated to repay for any damage resulting from carelessness, misuse, or
neglect. On January 6, 2002, tenants negligently caused a fire in their
apartment by dumping smoldering material in a trash can. This led to
$10,000 in damage their unit and others. Therefore, insurer may recover as
a right of subrogation for the damages sustained by Northgate as a result of
tenants’ negligence.

      Based on the foregoing, Plaintiff’s motion for summary judgment is
Granted. Defendants’ motion for summary judgment is Denied.

       Dated at Burlington, Vermont________________, 2005.
