September 25, 2018 – James Ringold, John Conway
On April 10, 2018, the Connecticut Supreme Court released its opinion in Amica Mutual Insurance Company v. Muldowney, 328 Conn. 428 (2018), affirming a $61,302.70 verdict for a landlord’s insurer in a subrogation claim against that landlord’s tenant for water damage from frozen pipes. In reaching this conclusion, the Connecticut Supreme Court answered a question left previously unanswered, opening the door for subrogation actions by insurers against their insureds’ tenants in a much broader array of circumstances.
In brief, the Supreme Court held that lease terms (i) informing a tenant they are responsible for damages to the premises and (ii) directing them to obtain insurance for that purpose were sufficient to allow a landlord’s insurer to make a subrogation claim against a tenant. Thus, to protect your interests as an insurer of landlords, we would advise insurers to ensure that their clients include such language in future leases and put in place a process to periodically confirm that their tenants are actually maintaining such insurance.
In Connecticut, “[s]ubrogation is a highly favored doctrine . . . which courts should be inclined to extend rather than restrict.” Westchester Fire Ins. Co. v. Allstate Ins. Co., 236 Conn. 362, 372 (1996). However, our Supreme Court has “applied the doctrine in a more limited manner in the context of actions brought by a landlord’s insurer against a tenant.”Muldowney, 328 Conn. at 435-36 (citingDiLullo v. Joseph, 259 Conn. 847 (2002) and Middlesex Mut. Assur. Co. v. Vaszil, 279 Conn. 28 (2006)).
In brief, those prior cases generally prohibited subrogation claims against tenants, holding that allowing such claims would be economically wasteful-incentivizing each tenant to buy insurance overlapping and duplicating that of the landlord and/or other tenants-and that tenants would not generally expect such a claim. Although each landlord and tenant could contract for a different rule on subrogation in their own lease, the Court held “that, as a default rule, no such right of subrogation exists in the absence of a specific agreement to the contrary.”Muldowney, 328 Conn. at 436 (quotingDiLullo). Although those prior cases “did not expressly spell out what the ‘specific agreement’ must consist of to overcome application of th[is] default rule,” Muldowney resolved that question. Muldowney, 328 Conn. at 436.
In Muldowney, two people had leased a single-family home from an Amica insured. They left the property at one point for an extended winter vacation but failed to ensure that the home had sufficient heating oil. The oil ran out; temperatures fell; and pipes froze and burst, causing tens of thousands of dollars in damages. Amica paid its insured for his damages and lost rent, and then brought a subrogation action against these tenants regarding those payments. The trial court allowed the claim-rejecting multiple arguments by the defendants based on this “default rule”-and ultimately entered judgment for Amica.
Although a “specific agreement” in a lease can overcome this general rule and allow subrogation claims, no one knew exactly what this agreement might look like. InVaszil, for example, the Court had rejected an argument that a certain mix of terms in a given lease was sufficient. Vaszil did not provide an example of a satisfactory term, instead saying only (in quoting a dissenting opinion below) that the lease “d[id] not contain the word subrogation or any other express language” about the landlord’s insurer suing a tenant in subrogation and that “[t]hat acknowledgment alone is sufficient” to find no such specific agreement, reiterating that “DiLullo does not permit the inference of such an agreement.” Vaszil, 279 Conn. at 36-37.
So, does a lease need to quite literally say the word subrogation for Connecticut courts to allow a subrogation claim against a tenant? Muldowney says no, we do not require “an agreement specifically about subrogation.”Muldowney, 328 Conn. at 440 n.5. Instead, the Court explained that its concern is, and always has been, “whether the parties’ agreement had put the tenant on notice that he would be responsible for any damage he caused and that he should obtain insurance coverage for this purpose.”Id. at 440-41. Muldowney reviewed the terms of the subject lease-particularly those requiring the tenant to purchase liability insurance and imposing liability on the tenant to the landlord for damage-and held that such terms were sufficient to satisfy this concern, to overcome the general rule, and to allow a claim for subrogation.
By specifying the type of lease terms that can constitute a “specific agreement”, the Connecticut Supreme Court answered a long-open question and allowed a much broader array of subrogation actions. We would, of course, always suggest clear contract language wherever possible. However, even if a lease does not specifically discuss subrogation or use that word, Connecticut courts should now allow such subrogation claims based on much more common lease terms: those (i) informing a tenant they are responsible for damages and (ii) directing them to obtain insurance for this purpose. Moreover, we would advise directing landlord-insureds to put in place systems to ensure that tenants actually maintain any such insurance for the duration of their tenancy.
Subrogation is a unique area of law with its own complex legal issues. If you have any questions regarding a subrogation claim, we’re here to help. You can contact our experienced subrogation attorneys by filling out our convenient online contact form, or by phone at (203) 265-2035.