Connecticut Appellate Court Holds Landlord's Property Insurer Has Right Of Subrogation Against Duplex Tenant For Fire Damages Caused By Houseguest
December, 2005
The Appellate Court of Connecticut recently held that a landlord’s property insurer has a right of subrogation against a duplex tenant for a fire caused by the tenant’s houseguest. Hartford Fire Insurance Company v. Warner, et al., 91 Conn.App. 685, 881 A.2d 1065 (2005). This appeal required the Court to decide whether a tenant in a duplex residence may be liable in a subrogation action brought by the owner’s property insurer to recover payments made for damages caused by the negligence of the tenant’s houseguest -- where the tenant’s lease agreement made her responsible for property damages arising from her negligence, and where the owner’s insurance policy contained a subrogation provision.
Dana A. Taylor (“Taylor”) owned a residential duplex located at 2-4 North Walnut Street, Plainfield, Connecticut. Id. at 686. In May, 2000, Taylor entered into a written lease agreement with Defendant Linda Warner for 2 North Walnut Street (the “Premises”). Id. The lease agreement included the following provision: “Landlord is not liable for loss, expense or damage to any person or property unless it is due to Landlord’s negligence. Tenant must pay for damages suffered and money spent by Landlord relating to any claim arising from any act or neglect of the Tenant. Tenant is responsible for all acts of Tenant’s family, employees, guests, and invitees.” Id. at 686-87.
On December 5, 2000, Scott Warner, Defendant’s nephew and houseguest, negligently started a fire in the Premises resulting in property damages in the amount of $43,951.00. Id. at 687. At the time of the loss, Plaintiff, the Hartford Fire Insurance Company (“Hartford”), insured the Premises. Id. Pursuant to the terms of the insurance policy, Hartford paid Taylor the amount of the property damages and an additional sum for lost rental income. Id.
The insurance agreement between Hartford and Taylor contained a subrogation provision which read, in part: “You may waive in writing before a loss all rights of recovery against any person. If not waived, we may require an assignment of rights of recovery for a loss to the extent that payment is made by us.” Id. Pursuant to this provision, Hartford brought the instant subrogation action against Defendant and Scott Warner. Id. After trial, the court entered judgment in favor of Defendant, concluding that Hartford did not have a right of subrogation against her. Id. This appeal followed. Id.
In evaluating whether Hartford had a right of subrogation against Defendant, the Appellate Court reviewed two pertinent Connecticut Supreme Court decisions: DiLullo v. Joseph, 259 Conn. 847, 792 A.2d 819 (2002) and Wasko v. Manella, 269 Conn. 527, 849 A.2d 777 (2004). In DiLullo, the Supreme Court analyzed an insurer’s right of subrogation where the tortfeasor was a tenant in a multi-tenant commercial building and where there were no agreements between the tenant and landlord regarding insurance, liability for damages or rights of subrogation. Id. at 849-50. The Court opined that a rule requiring every tenant to carry liability insurance for an entire building, irrespective of the portion of the building occupied by the tenant, would constitute economic waste. Id. at 854. Moreover, the Court found no evidence indicating that there was any expectation that the tenant would be held liable in subrogation to his landlord’s insurer. Id. Based upon these two factors -- economic waste and tortfeasor expectations -- the Court determined that the insurer had no right of subrogation. Id. at 851, 854-55.
In Wasko v. Manella, the Supreme Court held that the two rationales behind its DiLullo decision did not exist in Wasko. 269 Conn. 527, 545-46, 849 A.2d 777 (2004). In Wasko, the tortfeasor was a houseguest in a single-family residence. Id. The Court found that the risk of economic waste was not present where a guest was likely to have a third-party liability policy to protect himself against claims arising from his negligence while staying in another’s home. Id. Moreover, the Court opined that “most social guests fully expect to be held liable for their negligent conduct in another’s home-whether that conduct constitutes breaking the television, causing physical injury, or burning the house down.” Id. In addition, the Wasko Court noted that based upon its facts, the landlord could have pursued the tenant directly for damages to the premises caused by the tenant’s houseguest. Id. at 548. Accordingly, the Court found that a right of subrogation exists when a houseguest negligently causes a fire that damages a host’s insured property. Id. at 545-46.
Evaluating the case at bar, the Court found its facts to be more akin to Wasko than DiLullo. Hartford Fire Ins. Co., 91 Conn.App. at 691. The Court found the duplex residence more comparable to the single-family residence in Wasko, than to the multi-tenant building in DiLullo. Id. As such, the concern for economic waste was not reasonably implicated. Id. At most, a right of subrogation may require two insurance policies on the same property, “admittedly an overlap but not palpably wasteful as in DiLullo.” Id. at 691-92.
Moreover, the lease agreement between the parties belied any claim by Defendant that she did not expect to be held accountable for her negligent acts or those of her houseguests. Id. at 692. As noted, the express terms in the lease agreement indicated that it was plainly within Defendant’s contemplation that she would be liable for damages caused by her acts and those of her guests. Id.
In addition, as in Wasko, “it would be inequitable to permit the landlord to make a claim against the tortfeasor, but not to permit the landlord’s insurer, who has paid the claim, to step into the shoes of the property owner in order to attempt to recoup its losses.” Id. at 693-94. For these reasons, the Court held that Plaintiff has a right of subrogation against the duplex tenant for fire damages caused by her houseguest. Id. at 694.
Learning Point:
The law governing the right to subrogate in Connecticut has become more refined. Subrogation will exist in favor of a property insurer who has a subrogation agreement with a property owner, where a tortfeasor has a reasonable expectation that he will be liable for consequences of his negligence, and where, to do so, will not violate public policy against economic waste, but will instead further a public policy that favors subrogation.
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