Indiana Announces Subrogation-Friendly Rule

By Gary Wickert | December 4, 2014

When Landlord’s Carrier Seeks Recovery Against Negligent Tenant

An Indiana Court of Appeals decision issued on October 28, 2014 changes the landscape of landlord/tenant subrogation in the Hoosier State. For years, Indiana allowed an insurer to bring a subrogation claim against a tenant. LBM Realty, LLC v. Mannia, 981 N.E.2d 569 (Ind. App. 2012). A 1996 Court of Appeals decision appeared to announce that Indiana had avoided an inflexible application of the “Sutton Rule” and taken a more flexible case-by-case approach, holding that a tenant’s liability to the landlord’s insurer for negligently causing a claim depends on the intent and reasonable expectations of the parties to the lease as ascertained from the lease as a whole. United Farm Bureau Mut. Ins. Co. v. Owen, 660 N.E.2d 616 (Ind. App. 1996).

However, in 2012, that same Court of Appeals backtracked and clarified that while Indiana law does not preclude a subrogation action by a landlord’s insurer against a tenant, the Court in Owen did not adopt a case-by-case approach. Rather, Owen merely affirmed a trial court’s entry of summary judgment in favor of a tenant and against an insurer who sought subrogation for a claim it paid to its insured (who was the tenant’s landlord) because the specific language of a lease provision at issue released the tenant from property damage liability to the landlord, thereby precluding the insurer – who steps into the shoes of its insured – from raising a subrogation claim. Mannia, supra. The Mannia decision was reviewing a trial court order which declared that Indiana had adopted the “no subrogation” approach and noted, that in Owen, the Court of Appeals did not discuss or adopt any of the three subrogation approaches, and the question of whether Indiana would adopt a rule regarding subrogation claims by a landlord’s insurer against a negligent tenant was never raised. The Mannia decision also noted that question had not been raised in other cases where an insurer brought a subrogation claim against an insured’s tenant for property damage. Cincinnati Ins. Co. v. Davis, 860 N.E.2d 915 (Ind. App. 2007); St. Paul Fire & Marine Ins. Co. v. Pearson Construction Co., 547 N.E.2d 853 (Ind. App. 1989), trans. denied.

On October 28, 2014, Indiana for the first time officially announced that whether a subrogation suit could be brought by a landlord’s insurer against a negligent tenant was to be determined by a case-by-case approach based on the reasonable expectations of the parties as reflected in the lease agreement. LBM Realty, LLC v. Mannia, 2014 WL 5461791 (Ind. App. 2014). The Indiana Court of Appeals held that whether a landlord’s insurer may bring a subrogation action against a negligent tenant for damage to tenant’s leased premises is determined under the case-by-case approach; a finding that a tenant’s liability to the 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. 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 in question.

In July 2010, a fire caused $743,402.86 in damages at the Summer Place Apartments in Granger, Indiana, owned by LBM. Mannia was a tenant in the Apartments, having signed a one-year lease in March 2010. Included within the lease were several relevant lease provisions, condensed and paraphrased as follows:

  • A provision titled “Insurance,” which is silent as to LBM’s obligation to maintain property insurance, but states in bold type: “Owner recommends the Resident obtain renter’s insurance.” This provision also states that in the event the leased premises are totally destroyed by some cause beyond the owner’s control, the lease will terminate as of that date (and to the extent that the premises are only partially destroyed, there will be an abatement in rent).
  • A provision titled “Rules,” which incorporates an attached list of “Rules and Regulations” into the lease, the most relevant of which reads as follows: (7) Resident must pay repair costs for all damages to Resident’s Apartment, Apartment Community facilities, and common areas caused by Resident or members of Resident’s household or guests …
  • A “Save Harmless Clause,” which states: “Resident shall indemnify and save harmless Owner from and against any and all claims or actions for damages to persons or property,” including claims in which it is asserted that Owner has been negligent.
  • A provision stating that “‘Premises’ shall mean only that portion of Owner’s property contained within the interior walls of the dwelling unit described herein …”
  • Within “Miscellaneous Provisions”: At the end of the term, Resident shall return the Leased Premises to Owner in the same good condition, reasonable wear and tear excepted. Resident is and shall be responsible and liable for any injury or damage done to the Leased Premises, common areas or any property of Owner caused by [R]esident, any occupant, or any other person whom Resident permits to be in or about the Leased Premises. This section also states, “Resident shall permit no waste of the Leased Premises nor allow the same to be done, but Resident shall take good care of the same …”

After the fire at the Apartments, the insurer filed a subrogation action in LBM’s name against Mannia, alleging in its complaint that Mannia breached her contract with LBM in “one or more of the following ways”:

  1. Carelessly and improperly disposed of smoking materials by placing same in a plastic bottle and in close proximity to the vinyl siding on the balcony patio wall of the leased premises; and/or
  2. Carelessly and improperly allowed guests to dispose of smoking materials by placing same in a plastic bottle and in close proximity to the vinyl siding on the balcony patio wall of the leased premises; and/or
  3. Otherwise failed to comply with her obligation to return the premises in the same condition as when she moved in, reasonable wear and tear excepted.

In regard to its negligence claim, LBM repeated (1) and (2) above and also alleged that Mannia had “otherwise acted carelessly and negligently.” Mannia filed a motion to dismiss LBM’s complaint, discussing the three different approaches used by courts around the country to address subrogation claims of landlord’s insurers against negligent tenants, including:

  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.

Mannia convinced the trial court to apply approach number one, dismissing the case because Mannia was an “additional insured” under LBM’s insurance policy. LBM appealed and, in 2012, the Court of Appeals reversed and remanded because the trial court did not test the complaint against the backdrop of the law that existed. Further discovery occurred, and it was agreed and stipulated that:

  1. The money received from rent (including Mannia’s rent from March 25, 2010 to July 3, 2010) was used to pay LBM’s operating expenses, including, but not limited to, procurement and maintenance of insurance covering the apartment complex at 825 Summer Place Lane, Granger, IN 46530 and all units included therein. However, LBM’s property insurance did not provide coverage to any of the belongings owned by Mannia.
  1. Furthermore, pursuant to the terms of the insurance policy that LBM obtained, LBM’s insurer has asserted a right of subrogation as to the claims asserted by LBM against Mannia based upon the insurer’s payment to LBM for damages resulting from the fire that occurred on July 3, 2010, which is the subject of this lawsuit.

In 2013, Mannia filed a Motion for Summary Judgment, which the trial court granted, and LBM appealed again. This time, the Court of Appeals rejected the legal fiction of the Sutton Rule and specifically adopted the “middle-ground” case-by-case approach, which eschews presumptions that a tenant is or is not a co-insured of the landlord, and requires an examination of the lease as a whole to determine the parties’ reasonable expectations as to who should bear the risk of loss when a tenant negligently damages the leased premises. Although it provides less predictability than either the pro- or no-subrogation approaches, the Court of Appeals found that this approach best effectuates the intent of the parties by simply enforcing the terms of their lease. It reversed the trial court again, allowing subrogation against Mannia, specifically because the lease in question permitted subrogation.

For a thorough review of the law regarding the ability of a landlord’s insurer to subrogate against a careless tenant, see the chart found on our website.

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About Gary Wickert

Gary Wickert is an insurance trial lawyer and a partner with Matthiesen, Wickert & Lehrer, S.C., and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and is a national and international speaker and lecturer on subrogation and motivational topics. He can be reached at More from Gary Wickert

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