                                                                    FILED
                                                                Mar 07 2018, 5:52 am

                                                                    CLERK
                                                                Indiana Supreme Court
                                                                   Court of Appeals
                                                                     and Tax Court




      ATTORNEY FOR APPELLANT                                     ATTORNEY FOR APPELLEE
      Kevin L. Moyer                                             Richard K. Milam
      Moyer Law Firm, P.C.                                       Lebanon, Indiana
      Indianapolis, Indiana



                                                  IN THE
          COURT OF APPEALS OF INDIANA

      Hoosier Insurance Company,                                 March 7, 2018
      Appellant,                                                 Court of Appeals Case No.
                                                                 06A01-1708-CT-1969
              v.                                                 Appeal from the Boone Superior
                                                                 Court
      Nicole R. Riggs and Michael J.                             The Honorable Matthew C.
      Riggs,                                                     Kincaid, Judge
      Appellees.                                                 Trial Court Cause No.
                                                                 06D01-1704-CT-416



      Barnes, Judge.


                                              Case Summary
[1]   Hoosier Insurance Company (“Hoosier”) appeals the trial court’s order of

      dismissal entered in favor of Nicole R. Riggs and Michael J. Riggs (“the

      Riggses”). We reverse and remand with instructions.




      Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018               Page 1 of 10
                                                      Issue
[2]   The sole issue before us is whether the trial court erred in dismissing Hoosier’s

      subrogation claim because Hoosier was not a real party in interest for purposes

      of pursuing a breach of contract claim against the Riggses.


                                                      Facts
[3]   During the relevant period, Frank and Leah Harker (“the Harkers”) owned real

      property (“the Premises”) in Lebanon. The Premises were insured under an

      insurance policy underwritten by Hoosier. In June 2013, the Harkers leased the

      Premises to the Riggses pursuant to a written agreement (“Lease”). Dustin

      Blevins also resided on the Premises during the Riggses’ lease term. On April

      22, 2015, the Premises sustained $42,497.27 in fire damage after Blevins

      allegedly left burning incense unattended. The Lease provided, in part, as

      follows:


              5.     Use and Occupancy. [The Riggses] shall use the Leased
              Premises only for residential purposes and shall comply with all
              federal, state and local laws and ordinances. [The Riggses] shall
              commit no waste thereon, and shall deliver the premises to [the
              Harkers] at the end of the lease term in as good of condition as
              when the lease commenced, normal wear and tear excepted. . . .


                                                     *****


              7.     Insurance. [The Riggses are] responsible for obtaining fire
              and extended coverage, including public liability[ ] insurance
              with [the Harkers] to be listed as an additional insured under the
              policy. [The Riggses] shall also be responsible for renter’s

      Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018    Page 2 of 10
                 coverage on [the Riggses’] own personal property located on the
                 Leased Premises. [The Riggses] shall indemnify and hold [the
                 Harkers] harmless from all claims of thi9rd [sic] parties for bodily
                 injury, property damage or death arising from [the Riggses’] use
                 or occupancy of the Leased Premises.


      App. Vol. II pp. 9-10. After the fire, Hoosier paid $42,497.27 to or on behalf of

      the Harkers for repairs to the Premises.


[4]   On April 20, 2017, Hoosier filed a complaint for damages against the Riggses

      alleging breach of contract.1 Hoosier alleged that the Riggses had materially

      breached the Lease, causing $42,497.27 in damages. On April 27, 2017, the

      Riggses moved to dismiss on Indiana Trial Rule 12(B)(6) grounds, arguing that

      Hoosier was not a “landlord” as defined in Indiana Code Section 32-31-3-3

      and, therefore, was not a Trial Rule 17(A) “real party in interest” entitled to

      pursue a breach of contract claim against the Riggses. On May 19, 2017, the

      trial court granted the Riggses’ motion to dismiss. Hoosier now appeals.


                                                       Analysis
[5]   Hoosier argues that the trial court erred in granting the motion to dismiss

      because, by paying damages to or on behalf of the Harkers, Hoosier became

      subrogated to the Harkers’ landlord rights, including their right to seek damages

      from the Riggses for breach of the Lease. The Riggses counter that Hoosier’s

      subrogation claim was properly dismissed because Hoosier is not a “real party




      1
          Hoosier also brought a negligence claim against Blevins.


      Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018      Page 3 of 10
      in interest” pursuant to Indiana Trial Rule 17(A), which provides that “[e]very

      action shall be prosecuted in the name of the real party in interest.”2 We restate

      the issue before us as follows: When a landlord’s insurer pays insurance

      benefits to or on behalf of its insured (the landlord), does the landlord’s right to

      pursue damages for breach of contract from the liable party (i.e., a negligent

      tenant) inure to the insurer, such that the insurer is a “real party in interest” for

      purposes of pursuing subrogation relief?


[6]   A motion to dismiss under Trial Rule 12(B)(6) tests the legal sufficiency of the

      plaintiff’s claim, not the facts supporting it. Thornton v. State, 43 N.E.3d 585,

      587 (Ind. 2015). Dismissals are improper under Rule 12(B)(6) “unless it

      appears to a certainty on the face of the complaint that the complaining party is

      not entitled to any relief.” State v. American Family Voices, Inc., 898 N.E.2d 293,

      296 (Ind. 2008) (citations omitted). We review rulings on a Rule 12(B)(6)

      motion to dismiss de novo, with no deference to the trial court’s decision.

      Liberty Landowners Ass’n, Inc. v. Porter Cnty. Comm’rs, 913 N.E.2d 1245, 1249

      (Ind. Ct. App. 2009); Veolia Water Indianapolis, LLC v. Nat’l Trust Ins. Co., 3

      N.E.3d 1, 4 (Ind. 2014). In reviewing the complaint, we take the alleged facts

      to be true and consider the allegations in the light most favorable to the




      2
        A real party in interest is the person who is the true owner of the right sought to be enforced. Hammes v.
      Brumley, 659 N.E.2d 1021, 1030 (Ind. 1995). He or she is the person who is entitled to the fruits of the
      action. Id.




      Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018                           Page 4 of 10
      nonmoving party, drawing every reasonable inference in that party’s favor.

      Veolia Water Indianapolis, LLC, 3 N.E.3d at 4-5.


[7]   The equitable doctrine of subrogation “applies whenever a party, not acting as a

      volunteer, pays the debt of another that, in good conscience, should have been

      paid by the one primarily liable.” Erie Ins. Co. v. George, 681 N.E.2d 183, 186

      (Ind. 1997). The ultimate purpose of the doctrine, as with other equitable

      principles, is to prevent unjust enrichment. Id.


              Because subrogation is an equitable remedy, in determining
              whether an insurer may bring a subrogation action in a particular
              case, courts must weigh “the principles of equity and good
              conscience.” RAM Mut. Ins. Co. v. Rohde, 820 N.W.2d 1, 16
              (Minn. 2012) (citing Dix Mut. Ins. Co. v. LaFramboise, 149 Ill.2d
              314, 173 Ill.Dec. 648, 597 N.E.2d 622, 626 (1992) (explaining
              that the equities of the case should be considered in addition to
              examining “the provisions of the lease as a whole [and] the
              reasonable expectations of the parties”)); Am. Family Mut. Ins.
              Co., 757 N.W.2d at 595 (allowing landlord’s insurer to maintain
              a subrogation action against tenant’s liability insurer after
              examining the lease and “[c]onsidering the equitable
              underpinnings of subrogation”). When the insurer claims a right
              through subrogation, it stands in the shoes of the insured and
              takes no rights other than those which the insured had.


      LBM Realty, LLC v. Mannia, 19 N.E.3d 379, 386 (Ind. Ct. App. 2014) (internal

      citation omitted).


[8]   There are “three different approaches used by courts across the country to

      address subrogation claims of landlords’ insurers against negligent tenants”:



      Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018   Page 5 of 10
              (1) the no-subrogation (or implied co-insured) approach (i.e., the
              “Sutton rule”), in which, absent an express agreement to the
              contrary, a landlord’s insurer is precluded from filing a
              subrogation claim against a negligent tenant because the tenant is
              presumed to be a co-insured under the landlord’s insurance
              policy; (2) the pro-subrogation approach, in which, absent an
              express term to the contrary, a landlord’s insurer is allowed to
              bring a subrogation claim against a negligent tenant; and (3) the
              case-by-case approach, in which courts determine the availability
              of subrogation based on the reasonable expectations of the parties
              under the facts of each case.


      Id. at 383 (quoting LBM Realty, LLC v. Mannia, 981 N.E.2d 569, 573 (Ind. Ct.

      App. 2012)).


[9]   The Mannia panel advocated that Indiana should adopt the case-by-case

      approach, “finding that a tenant’s liability to the landlord’s insurer for damage-

      causing negligence depends on the reasonable expectations of the parties to the

      lease as ascertained from the lease as a whole and any other admissible

      evidence.” 19 N.E.3d at 393-94. The panel further reasoned:


              Although the case-by-case approach is said to provide less
              predictability than either the pro- or no-subrogation approaches,
              we find that this approach best effectuates the intent of the parties
              by simply enforcing the terms of their lease. In determining the
              expectations of the parties as articulated in the lease, courts
              should look for evidence indicating which party agreed to bear
              the risk of loss for a particular type of damage. For instance, if
              the lease indicates that the landlord has agreed to procure
              insurance covering a particular loss, a court “may properly
              conclude that, notwithstanding a general ‘surrender in good
              condition’ or ‘liability for negligence’ clause in the lease,” the
              landlord and tenant reasonably expected “that the landlord

      Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018    Page 6 of 10
                would look only to the policy, and not to the tenant, for
                compensation for . . . loss[es] covered by the policy.” Likewise,
                if a lease obligates a tenant to procure insurance covering a
                particular type of loss, such a provision will provide evidence that
                the parties reasonably anticipated that the tenant would be liable
                for that particular loss, which would allow another insurer who
                pays the loss to bring a subrogation action against the tenant.


       Id. at 394 (internal citations omitted).


[10]   In Mannia, a fire loss occurred to the insured premises—a multiunit apartment

       building. The landlord’s insurer, LBM Realty (“LBM”), paid benefits to or on

       behalf of its insured and subsequently sought subrogation relief from the

       tenant—Mannia. Mannia moved for summary judgment, which was granted.

       Although these cases are factually distinguishable in that the insured premises

       was a multiunit building,3 the Mannia panel’s reasoning is apposite.


[11]   In analyzing whether Mannia was liable to LBM for negligence-caused fire

       damage, the Mannia panel considered the following provisions within the

       parties’ lease: (1) “[LBM] recommends [Mannia] obtain renter’s insurance”;

       and (2) “[Mannia is liable for] any injury or damage done to the Leased

       Premises, common areas or any other property of [LBM]”. Id. at 395. The

       panel also addressed an omission from the lease noting,




       3
         Mannia provides that “with regard to tenants in a multiunit dwelling, . . . absent clear notice—ideally in the
       form of an unambiguous, enforceable lease provision—that a negligent tenant will be held liable for damages
       to areas of the building beyond the tenant’s leased premises, such liability would not be within the tenant’s
       reasonable expectations and is therefore barred.” Mannia, 19 N.E.3d at 394 (emphasis in original).

       Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018                            Page 7 of 10
               . . . [T]here is no clear and enforceable lease provision putting
               Mannia on notice that she would be held liable for damage
               caused by negligence to areas of the multiunit apartment building
               beyond the leased premises (and should obtain liability insurance
               to provide for that possibility).


       Id. Lastly, the panel considered Mannia’s prior deposition testimony that: (1)

       although she was told that LBM had insurance coverage for the building, she

       was notified that she was still obligated to obtain renter’s insurance; and (2) she

       did not believe, when she executed the lease, that she would be covered under

       LBM’s insurance policy.


[12]   In light of the evidence, as to fire loss to areas beyond the leased premises, the

       Mannia panel upheld the trial court’s entry of summary judgment in favor of

       Mannia; however, with respect to damage of the leased premises, the panel

       found that the trial court had erred in granting summary judgment in Mannia’s

       favor. Accordingly, the Mannia panel remanded to the trial court with

       instructions “to engage in the analysis of the case-by-case approach” as follows:


               First, that the court should consider the lease and any other
               relevant and admissible evidence, including . . . the insurance
               maintained by each party as evidence of each party’s
               expectations with respect to liability for damage to the leased
               premises. Second, because subrogation is an equitable remedy,
               the trial court must also weigh “the principles of equity and good
               conscience” . . . . In sum, the trial court should analyze all
               relevant and admissible evidence in order to determine the
               parties’ expectations and should weigh and balance the equities
               of the case—as well as addressing the issue of Mannia’s
               negligence—in order to determine Mannia’s liability for the
               damage to the leased premises.
       Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018   Page 8 of 10
       Id. at 395-96 (internal citations omitted).


[13]   Applying the case-by-case approach to addressing subrogation claims of

       landlords’ insurers against negligent tenants, and upon review of the Lease to

       determine the parties’ expectations with respect to liability for damage to the

       Premises, we cannot say that it appears to a certainty on the face of the

       complaint that Hoosier is not entitled to any relief on the related threshold

       questions of (1) whether the Lease manifests the parties’ intent regarding the

       appropriate party to bear the risk of fire loss; and (2) whether the Harkers’ right

       to pursue damages for breach of contract from the Riggses inures to Hoosier,

       such that Hoosier is a real party in interest entitled to pursue subrogation relief.

       See Mannia, 981 N.E.2d at 394 (“[I]f a lease obligates a tenant to procure

       insurance covering a particular type of loss, such a provision will provide

       evidence that the parties reasonably anticipated that the tenant would be liable

       for that particular loss, which would allow an[ ] insurer who pays the loss to

       bring a subrogation action against the tenant.”).


[14]   Based upon the foregoing, we reverse the trial court’s judgment dismissing

       Hoosier’s subrogation claim and remand for further proceedings. On remand,

       the trial court should analyze the Lease and all other relevant and admissible

       evidence to determine the parties’ expectations; and weigh and balance the

       equities—including the issue of the Riggses’ negligence—to determine the

       Riggses’ liability for the damage to the Premises.




       Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018    Page 9 of 10
                                                  Conclusion
[15]   The trial court erred in dismissing Hoosier’s subrogation claim. We reverse and

       remand with instructions.


[16]   Reversed and remanded with instructions.


       Najam, J., and Mathias, J., concur.




       Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018   Page 10 of 10
