Tenant Subject to Only Partial Subrogation Despite Negligence

By Don R. Sampen, published, Chicago Daily Law Bulletin, September 17, 2024

The 1st District Appellate Court recently held that a tenant was a partial co-insured on her landlord’s fire insurance policy, despite her alleged negligence causing damage to both her own apartment unit and elsewhere in the apartment building. The tenant therefore was not liable for full subrogation recovery.

The case is Philadelphia Indemnity Insurance Co. v. Gonzalez, 2024 IL App (1st) 230833 (Aug. 23). The insurer, Philadelphia, was represented by Cozen O’Connor of Chicago. Michael D. Gallo & Associates of Chicago represented the tenant, Norinaica Gonzalez.

A fire occurred in the kitchen of Gonzalez’s apartment in Chicago in 2020, allegedly due to her negligence. The fire spread and eventually caused about $200,000 in damages to her own unit and other units and common areas in the apartment building. The building landlord submitted a claim to its insurer, Philadelphia, which paid in excess of $50,000 for repairs and lost rent.

Philadelphia brought suit as subrogee against Gonzalez seeking reimbursement. It relied in part on various provisions of the lease between Gonzalez and the landlord. For example, the lease identified the landlord’s insurer as Philadelphia while the space for identifying the tenant’s insurer was left blank.

Another provision of the lease stated that the landlord could apply the security deposit to repair any damage to the landlord’s property caused by the tenant. A further section — section 19 — stated that the tenant would be liable for damage done to “the premises” as a result of the tenant’s negligence or actions of others “authorized to reside in the Premises.”

The tenant moved to dismiss the subrogation action, arguing that she was an implied co-insured of the landlord under Dix Mutual Insurance Co. v. LaFramboise, 149 Ill. 2d 314 (1992). The trial court ultimately disagreed but held that, based on the terms of the lease, Philadelphia could recover only for the damage to Gonzalez’s individual living unit, which amounted to about $19,000.

Upon entry of a consent judgment to that effect, Philadelphia took this appeal.

Analysis

In an opinion by Justice Carl Anthony Walker, the 1st District affirmed. He initially addressed the Dix Mutual decision, which he interpreted as holding that a tenant will not be responsible for damages to a landlord’s property caused by the tenant’s negligence unless the parties’ contrary intent is clear from the terms of the lease.

Dix Mutual itself, like the instant case, was a subrogation action where the Supreme Court found that the parties had not intended for the tenant to be responsible for damage to the landlord’s property. Rather, the court construed the tenant as a co-insured on the landlord’s policy, as a result of which the court denied subrogation on the ground that an insurer may not obtain subrogation from its own insured.

Similarly, here, Walker found that Philadelphia and Gonzalez, under the terms of the lease, did not intend for Gonzalez to be generally liable for negligently caused fire damage outside her individual unit. Thus, the parties intended that the landlord had general insurance responsibility, with the only exception being for damage to Gonzalez’s own unit.

Philadelphia disagreed, arguing that the term “premises,” lower case, referred to something different from “Premises,” upper case, which was defined in the lease to refer to Gonzalez’s individual unit. Thus, in paragraph 19, for example, which made the tenant responsible for damage to “the premises,” lower case, Gonzalez became liable for damages caused to common areas of the building.

Walker, however, pointed out at least one section of the lease that used an upper- and lowercase version of “P/premises,” and both appeared to refer to a tenant’s individual unit. In his view, moreover, the lease used the term “property,” not “premises,” to refer to common areas of the apartment building, and used the term “premises” — upper- and lowercase — to refer to Gonzalez’s unit.

He further suggested that, even if Gonzalez was not a co-insured, as the trial court had held, that would not necessarily cause her to incur common law liability for damages outside her own unit. The reason was that the lease imposed on the landlord the responsibility to maintain insurance, and that language was controlling.

The 1st District therefore affirmed in favor of Gonzalez.

Key Point

Under Dix Mutual, a tenant is not responsible for damages to the property caused by the tenant’s own negligence unless the parties’ contrary intent is clear from the terms of the lease.