J-A22037-19

                                   2019 PA Super 313


    RONALD T. JOELLA                             :   IN THE SUPERIOR COURT OF
                                                 :        PENNSYLVANIA
                       Appellant                 :
                                                 :
                                                 :
                v.                               :
                                                 :
                                                 :
    ANNIE COLE                                   :   No. 396 EDA 2019

               Appeal from the Order Entered January 10, 2019
     In the Court of Common Pleas of Northampton County Civil Division at
                         No(s): C-48-CV-2018-02349


BEFORE: MURRAY, J., STRASSBURGER, J.*, and PELLEGRINI, J.*

OPINION BY PELLEGRINI, J.:                              FILED OCTOBER 18, 2019

        Ronald T. Joella (Landlord) appeals from the order entered in the Court

of Common Pleas of Northampton County (trial court) denying his motion for

partial judgment on the pleadings and granting the cross-motion for partial

judgment on the pleadings filed by Annie Cole (Tenant). We affirm.

        We derive the following facts and procedural history from our

independent review of the record.              On March 19, 2018, Landlord filed a

complaint against Tenant, a former tenant in a residential apartment building.1

The complaint included one count for negligence alleging that Tenant’s

negligent use of an extension cord caused a fire resulting in extensive damage

____________________________________________


*   Retired Senior Judge assigned to the Superior Court.

1 This is a subrogation action brought by Joella’s insurance company, Erie
Insurance Exchange.
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to Landlord’s property ($180,000.00).              Specifically, Landlord averred that

Tenant had run an extension cord across the hinges of a cabinet to a

microwave, causing damage to the cord, which eventually ignited nearby

combustibles.     Tenant filed an answer with new matter raising affirmative

defenses, including waiver and estoppel.

       Landlord then filed a motion for partial judgment on the pleadings

requesting the court to dismiss the waiver and estoppel defenses. Tenant

answered that motion and in turn filed a cross-motion for partial judgment on

the pleadings requesting the court to make a finding that Landlord and his

insurer are barred from recovering against Tenant for the fire loss at the

property. She argued that pursuant to the language of the lease, Landlord

was required to maintain fire insurance for her protection and that she was,

therefore, an implied co-insured under Landlord’s insurance policy.2

       The lease provides, in relevant part:

       10. UTILITIES AND SERVICES.

                                       *       *   *

       Landlord shall be responsible for the following utilities and
       services in connection with the above premises: . . . Insurance
       on the building only

       11. PROPERTY INSURANCE.       Tenant has the right to
       maintain fire and casualty insurance on the premises to
____________________________________________


2 Landlord maintains an insurance policy on the property through Erie
Insurance Exchange. Tenant is not mentioned in the policy. (See N.T.
Hearing, 11/06/18, at 5).


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       cover their personal possessions, which are not covered by
       the Landlord’s fire insurance. They can talk to an insurance
       company concerning renters insurance to cover their interests.

(Real Estate Lease, at 1-2) (emphases added).

       After hearing arguments, the trial court denied Landlord’s motion but

granted Tenant’s cross-motion, finding that Landlord could not maintain an

action against Tenant in subrogation for property damage because under the

terms of the lease, the reasonable expectation of the parties is that she would

be an implied co-insured under Landlord’s policy. Landlord then timely filed

this appeal.3




____________________________________________


3 Our standard of review for the grant or denial of judgment on the pleadings
is well-settled:

       The standard to be applied upon review of a motion for judgment
       on the pleadings accepts all well-pleaded allegations of the
       complaint as true. The question presented by the demurrer is
       whether, on the facts averred, the law says with certainty that no
       recovery is possible. Where a doubt exists as to whether a
       demurrer should be sustained, this doubt should be resolved in
       favor of overruling it.

Donaldson v. Davidson Bros., Inc., 144 A.3d 93, 100 (Pa. Super. 2016),
appeal denied, 169 A.3d 11 (Pa. 2017) (citation omitted).

Additionally, “contract construction and interpretation is generally a question
of law for the court to decide.” Pops PCE TT, LP v. R & R Rest. Grp., LLC.,
208 A.3d 79, 87 (Pa. Super. 2019) (citation omitted). The legal effect of a
contract provision presents a question of law accorded full appellate review
and is not limited to an abuse of discretion standard. See id.


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                                          I.

      On appeal, Landlord contends that the trial court erred in finding that

Tenant was an implied co-insured under Landlord’s insurance policy. Before

we address this issue, it is necessary to give some background of the various

approaches of whether a landlord, through its insurance company, can

maintain subrogation action against a negligent tenant.

                                          A.

      Subrogation is an equitable doctrine intended to place the ultimate

burden of a debt upon the party primarily responsible for the loss. See Prof’l

Flooring Co., Inc. v. Bushar Corp., 152 A.3d 292, 301 (Pa. Super. 2016),

appeal denied, 170 A.3d 1036 (Pa. 2017). “[S]ubrogation can arise only with

respect to the rights of an insured against third persons to whom the insurer

owes no duty.” Remy v. Michael D's Carpet Outlets, 571 A.2d 446, 452

(Pa. Super. 1990), aff’d sub nom. Kimco Dev. Corp. v. Michael D's Carpet

Outlets, 637 A.2d 603 (Pa. 1993) (citation omitted). An insurer, therefore,

cannot recover by means of subrogation against its own insured. See id.

      In a landlord-tenant relationship, absent a lease provision to the

contrary, a tenant is generally liable in tort to its landlord for damages to the

leased property caused by the tenant’s negligence. See 1 Milton R. Friedman

& Patrick A. Randolph, Jr., Friedman on Leases § 9:10 (5th ed.2004).

However, when the landlord has procured insurance for its property, the issue

then becomes whether the property insurer can file a subrogation claim


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against the tenant when the tenant negligently caused damages. State courts

have taken three different approaches to resolve this issue.

      The first approach is the pro-subrogation approach in which a landlord’s

insurer can bring a subrogation claim against a negligent tenant absent an

express provision in the lease to the contrary. Because the tenant is not an

express or implied co-insured, the insurance company can maintain a suit

against the tenant for property losses caused by the tenant’s conduct. Courts

that have adopted the pro-subrogation approach emphasize that a tenant has

the responsibility to exercise ordinary care and should not be exculpated from

the consequences of his own negligence unless the landlord and the tenant

have expressly agreed that the tenant will not be held liable for loss resulting

from the tenant’s negligence:

            [I]t is the duty of the tenant to exercise ordinary care, in
      the use of the leased premises or property, not to cause any
      material and permanent injury thereto over and above the
      ordinary wear and tear, and ... he is liable to the landlord in
      damages for any such injury unnecessarily resulting from his
      wrongful acts or his failure to exercise such care.

Williams, Insurers’ Rights of Subrogation, supra at 558 (quoting C.R.

McCorkle, Annotation, Liability of Tenant for Damage to the Leased Property

Due to His Acts or Neglect, 10 A.L.R.2d 1012, 1014 (1950)).

      This is essentially the position that Landlord is advancing.     Landlord

argues that public policy considerations serve as a basis for not making a

tenant an implied co-insured based on the lease agreement because it would

exculpate Tenant of responsibility for her negligent conduct, burden insurance

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J-A22037-19


carriers with exposure for tenant negligence — when such exposure

purportedly is not bargained for between carrier and property owner.

      The second approach is the anti-subrogation approach known as the

“Sutton Rule.” This approach is named after Sutton v. Jondahl, 532 P.2d

478 (Ok.Civ.App. 1975), a case where the ten-year-old son of a tenant took

an electric popcorn popper to his bedroom to heat up some chemicals that

caused the curtains to catch on fire, causing $2,382.57 in damages. In that

case, the court held that the owner’s insurance company could not maintain

an action against the tenant because “when fire insurance is provided for a

dwelling it protects the insurable interests of all joint owners including the

possessory interests of a tenant absent an express agreement by the latter to

the contrary.” Id. at 482.

      To the Sutton court, the special relationship between the landlord and

tenant placed the tenant in a substantially different position than a fire-

causing third party. While the court recognized that the carrier could have

subrogated against a third party, it held that the carrier should not be able to

shift the insurable risk to the negligent tenant. Id. at 482. Also weighing in

favor of adopting the implied coinsurance doctrine is that a portion of the

landlord’s insurance premiums are necessarily paid by the tenant as part of

the tenant’s rent, thereby purchasing their status as a co-insured under the

landlord’s policy.   Since Sutton, other state courts have adopted its strict

rationale that unless the lease agreement expressly requires a tenant to


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J-A22037-19


procure fire insurance, the tenant is an implied co-insured of the landlord’s

policy.

      The final approach is the case-by-case approach where courts determine

the availability of subrogation based on the reasonable expectations of the

parties as expressed in the lease under the facts of each case. Under this

approach, the court will look to the lease agreement between the landlord and

the tenant. The language of an insurance policy may also have an effect on

whether a subrogation action may be maintained. If, for example, an insurer

has waived its right to subrogation in an insurance policy, a court need look

no further than the language of that policy to determine that the insurer

cannot maintain a subrogation action against a negligent tenant. See RAM

Mut. Ins. Co. v. Rohde, 820 N.W.2d 1, 15 (Minn. 2012).

      In RAM Mut. Ins. Co, the Minnesota Supreme Court rejected the

Sutton Rule, stating that the case-by-case approach was the best approach

because:

             The question presented by [this] subrogation action arises
      at the intersection of insurance law and landlord-tenant law
      governing the relationship of landlords and tenants. Both areas
      of law are grounded in contractual relationships, making a rule
      that reaches a result by examining the parameters of the
      relationship between an insurer and insured and a landlord and
      tenant, as defined in the parties’ respective contracts, superior to
      one that makes legal assumptions that do not comport with the
      parties’ reasonable expectations. See Am. Family Mut. Ins.
      Co., 757 N.W.2d at 594 (concluding that the case-by-case
      approach “is the best approach to employ in the landlord-tenant
      context because it applies basic contract principles”).          By
      examining the reasonable expectations of the contracting parties
      to determine whether subrogation is appropriate in a particular

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J-A22037-19


       case, the case-by-case approach avoids the legal assumptions of
       the other approaches, and thus best effectuates the intent of the
       parties by eliminating presumptions altogether. While the case-
       by-case approach does not provide the same kind of predictability
       that accompanies either the pro- or no-subrogation approaches,
       the case-by-case method provides more predictability to parties
       by simply enforcing the terms of their contracts.4

       This is the approach that Tenant advanced and the trial court adopted

in holding that under the terms of the lease, the reasonable expectation of the

parties is that Tenant would be an implied co-insured.

                                               B.

       As to what approach is used in Pennsylvania, the only case that

addresses this issue is our decision in Remy, and then only indirectly, but a

case both Landlord and Tenant contend supports their position. In Remy, a

fire broke out in the landlord’s building and the landlord’s insurer made

payments to the landlord for the fire loss. The landlord’s insurer, through its

insured, brought a subrogation action against a tenant for the tenant’s alleged

negligence in causing the fire.          On appeal, the tenant argued that the

landlord’s action, an action sounding in subrogation, could not be maintained

because the tenant was an implied co-insured under the landlord’s policy of

fire insurance.


____________________________________________


4 In footnotes 7, 8, and 9 of its opinion in RAM, the Minnesota Supreme Court
stated that approximately 14 state courts have adopted the Sutton Rule no
subrogation approach; 12 jurisdictions have adopted the pro-subrogation
approach, either explicitly or implicitly; and “many” courts have adopted the
case-by-case approach.


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J-A22037-19


       In finding that the landlord’s insurer could subrogate against the tenant,

we noted that the lease between the landlord and the tenant did not require

the landlord to purchase fire insurance for the protection of the tenant, but

required the tenant to purchase and maintain its own liability insurance,

including coverage for property damage. See id. at 452. We also noted that

the terms of the landlord’s fire insurance policy did not name the tenant as a

co-insured.

       While we did not specifically state that we were applying the case-by-

case approach to our analysis in Remy, it is obvious that that is exactly what

we did because we did not apply the bright line pro or anti-subrogation

approach.5 Instead, we looked to the circumstances of the particular case and

examined the terms of the landlord’s insurance policy in conjunction with the

provisions of the lease in finding that the landlord or its fire insurance carrier

were not barred from recovering against the tenant whose negligence caused

fire damage.




____________________________________________


5Other courts have come to a similar conclusion. See Greater N.Y. Mut. v.
Caraballo, 2013 Pa. Dist. & Cnty. Dec. LEXIS 919, at *1-2 (C.P. Lehigh Jan.
25, 2013) (“If Pennsylvania had adopted a per se rule protecting tenants from
subrogation, a demurrer might be appropriate in this case.          However,
Pennsylvania does not adopt a per se rule on subrogation, but instead adopts
a case by case analysis.”) (citing Remy, 571 A.2d 446); see also Dattel
Family Ltd. P'ship, 250 S.W.3d at 888 (noting that Pennsylvania follows the
case-by-case approach); State Farm Fla. Ins. Co. v. Loo, 27 So. 3d 747,
750 n.5 (Dist. Ct. App. 2010) (same).

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J-A22037-19


                                         C.

      Even if Pennsylvania uses a case-by-case analysis, Landlord then

contends that Tenant did not have reasonable expectation that her negligence

would be covered because she should have reasonably expected to be held

liable for fire damage caused by her negligent actions pursuant to the

language of the lease itself. Landlord contends that the lease states that the

“Landlord shall be responsible for . . . insurance on the building only.” (See

Record Previously Produced, R. 104a, Paragraph 10).        He further states,

“Tenant has the right to maintain fire and casualty insurance on the premises

to cover their personal possessions, which are not covered by the Landlord’s

fire insurance. They can talk to an insurance company concerning renters

insurance to cover their interests.”   (See id. Paragraph 11). Under those

provisions, Landlord argues that pursuant to the lease, Tenant should have

reasonably anticipated that she might be held liable for fire damage caused

by her negligence.

      In finding that it was the reasonable expectation of the parties that

Tenant would be an implied co-insured on the policy, the trial court ably

addressed that issue, holding:

            Here, [unlike in Remy] Paragraph 10 of the lease provides
      that Landlord shall be responsible for insurance on the building.
      Real Estate Lease ¶ 10. Meanwhile, Paragraph 11 states that
      “[t]enant has the right to maintain fire and casualty insurance on
      the premises to cover their personal possessions, which are not
      covered by the Landlord’s fire insurance.” Id. ¶ 11 (emphasis
      added). Reading these two paragraphs together with all of the
      other lease provisions, and construing the terms of the lease

                                    - 10 -
J-A22037-19


     against Landlord, the drafter, in order to protect the reasonable
     expectations of Tenant, the adhering party, we conclude that it
     was reasonable for Tenant to expect that she would be a co-
     insured under the terms of the lease for any damage caused to
     the Property. See Ross, 333 A.2d at 754; Bushar Corp., 152
     A.3d at 300. We find this to be the most reasonable interpretation
     because a natural reading of the lease supports the position that
     everything, except for Tenant’s personal possessions, is covered
     under Landlord’s insurance policy. See Gaffer Ins. Co. v.
     Discover Reinsurance Co., 936 A.2d 1109, 1113 (Pa. Super.
     2007) (“[A] preferred contract interpretation ascribes under all
     circumstances the most reasonable, probable, and natural
     conduct to the parties.”) (emphasis added) (internal quotations
     omitted).

           We also believe this to be a proper conclusion when looking
     at other jurisdictions that employ the case-by-case approach. In
     Rausch v. Allstate Insurance Co., 882 A.2d 801, 816 (Md.
     2005), the Maryland Court of Appeals stated:

       If, under the lease or by some other commitment, the
       landlord has communicated to the tenant an express or
       implied agreement to maintain fire insurance on the leased
       premises, absent some compelling provision to the contrary,
       the court may properly conclude that, notwithstanding a
       general “surrender in good condition” or “liability for
       negligence” clause in the lease, their reasonable expectation
       was that the landlord would look only to the policy, and not
       to the tenant, for compensation for fire loss covered by the
       policy.   That expectation would constitute an implied
       commitment in the lease to relieve the tenant of liability to
       the extent of the policy coverage and it, too, would therefore
       preclude a subrogation claim.

     Id. Although Paragraph 8(f) of the lease states that the tenant
     shall not negligently damage the premises, that provision does not
     impart liability. See Real Estate Lease ¶ 8(f). Even if Paragraph
     8(f) of the lease were construed as a general liability for
     negligence clause, the language of Paragraphs 10 and 11 of the
     lease creates the reasonable expectation that Landlord would look
     only to his insurance policy for compensation for fire loss covered
     by his policy. See Rausch, 882 A.2d at 816 (noting that absent
     some compelling provision to the contrary and notwithstanding
     any general provision imposing liability for negligence, the

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J-A22037-19


      reasonable expectation of the parties is that landlord would look
      only to the insurance policy for compensation for fire loss); Union
      Mut. Fire Ins. Co. v. Joerg, 824 A.2d 586, 591 (Vt. 2003)
      (holding that tenant is an implied co-insured where the lease
      requires landlord to carry fire insurance because it is reasonable
      to expect that landlord will look only to insurance for loss
      coverage.).

(Trial Court Opinion, at 7-9) (footnote omitted.)

      As stated, while the terms of Landlord’s insurance policy do not mention

Tenant, the parties’ lease specifically states that Landlord would obtain

insurance for the building and that Tenant had the right to maintain her own

insurance to cover her personal possessions. (See Real Estate Lease, at 2).

Under the circumstances of this particular case, where the lease provision

requires Landlord to maintain insurance on the building, we agree with the

trial court that based on the reasonable expectations of the parties as

expressed in the lease, Tenant is an implied co-insured under Landlord’s

insurance policy and that Erie Insurance Exchange cannot maintain a

subrogation action against Tenant.

      Order affirmed.

      Judge Murray joins the opinion

      Judge Strassburger concurs in the result.




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J-A22037-19




Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary



Date: 10/18/19




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