Opinion
No. CV 04-4001536S
August 2, 2006
MEMORANDUM OF DECISION ON MOTION FOR SUMMARY JUDGMENT (#110)
The plaintiff, Vermont Mutual Insurance Company, is the insurer of the owner of a building in which the defendant leased commercial space. The plaintiff brought this action in subrogation of the rights of its insured against the defendant, seeking to recover compensation it had paid the owner for damages to the premises resulting from a fire which the plaintiff claims was a result of the defendant's negligence.
The defendant moved for summary judgment on the ground that the plaintiff has no right of subrogation because the provisions of the lease did not create an express agreement obligating the defendant to the landlord's insurer for the fire loss. Summary judgment is appropriate when "the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Hurley v. Heart Physicians, P.C., 278 Conn. 305, 314, 898 A.2d 777 (2006).
The defendant relies on the holding in DiLullo v. Joseph, 259 Conn. 847, 792 A.2d 819 (2002), that the insurer's right of subrogation against a tenant should be left "to the specific agreement of the parties Id., 854. "When lease provisions are either silent or ambiguous in this regard . . . courts should adopt a rule against allowing the lessor's insurer to proceed against the tenant." Id., 852. The court in DiLullo reasoned that "subrogation, as an equitable doctrine, invokes matters of policy and fairness . . . [I]t would be inappropriate to create a default rule that allocates to the tenant the responsibility of maintaining sufficient insurance to cover a claim for subrogation by his landlord's insurer. Such a rule would create a strong incentive for every tenant to carry liability insurance in an amount necessary to compensate for the value, or perhaps even the replacement cost, of the entire building, irrespective of the portion of the building occupied by the tenant. That is precisely the same value or replacement cost insured by the landlord under his fire insurance policy . . . [O]ur law would be better served by having the default rule of law embody this policy against economic waste, and by leaving it to the specific agreement of the parties if they wish a different rule to apply to their, or their insurers,' relationship." Id., 853-54.
The plaintiff argues in its memorandum in opposition that the language in the lease constitutes an express agreement on the part of the tenant to be held liable for any harm to the landlord resulting from the tenant's actions and/or negligence. The plaintiff maintains that because DiLullo bars subrogation only where the lease provisions are silent or ambiguous, and. in this case there is an express agreement, the DiLullo bar does not apply here. For further support, the plaintiff relies on the appellate court decision in Middlesex Mutual Assurance Co. v. Vaszil, 89 Conn.App. 482, 873 A.2d 1030 (2005). In that case, the appellate court considered "whether the language of the defendants' lease with the landlord was sufficient to permit the landlord's insurance company to subrogate against the defendants when the lease contained no express provision that the insurance company would have that right" Id., 484. The trial court granted summary judgment, finding that the lease created no right of subrogation. The appellate court reversed the decision of the trial court, holding that "subrogation exists in favor of the landlord's insurer when the lease contains specific language making the tenant liable for damage he causes to the premises." Id. The court found support in the plaintiff's argument that "the written lease terms demonstrate the defendants' expectations that the tenant would be liable to the landlord for damage caused to the premises, thereby making subrogation appropriate." Id.
At the hearing in the present case on the motion for summary judgment, the parties informed the court that the Supreme Court granted cert in Middlesex. See Middlesex Mutual Assurance Co. v. Vaszil, 275 Conn. 911 (2005). On July 11, 2006, the Supreme Court issued its decision, addressing "whether the Appellate Court properly determined that the residential lease in question created a right of subrogation and a consequent obligation by the tenant to the landlord's insurance company for a fire loss that the tenant allegedly had caused to the landlord's apartment building." Middlesex Mutual Assurance Co. v. Vaszil, 279 Conn. 28, 30 A.2d (2006). The lease "required that the tenant not damage the apartment, repair any damage prior to leaving the building and reimburse [the landlord] for any amount expended to fix damage. The lease did not contain the word subrogation or a specific provision stating that [the landlord's] insurer had a right of subrogation." Id., 31-32.
The Court found that "the language of the defendants' lease with [the landlord] was not sufficient to permit the plaintiff to bring a subrogation claim against the defendants because the lease contained no express provision establishing such a right." Id., 31. In so holding, the Court reaffirmed DiLullo's default position that in the absence of an express agreement, subrogation is inappropriate. The Court agreed with the dissenting opinion of Judge Dranginis in Middlesex that "neither the law of equitable subrogation, as expressed in DiLullo, nor the tenets of contract construction supported a right of subrogation in the present case." Id., 33.
Neither DiLullo nor Middlesex, however, categorically states that the word "subrogation" must appear in the lease or that the clear and unambiguous agreement of the parties cannot be implied from the language of the lease. In Middlesex, the lease provisions did not express the right and none could be unambiguously implied. In this case, the plaintiff relies on paragraph 9 of the lease which states: "9. Tenant agrees to keep, save and hold harmless Landlord from any and all damages and liability for anything and everything whatever arising from, or out of, the occupancy by or under Tenant, and from any loss or damage arising from any fault or negligence of tenant, Tenant's agents, servants or employees, or of any failure on the Tenant's part to comply with any of the covenants, terms and conditions herein contained. Tenant, at Tenant's own expense, agrees to procure comprehensive public liability insurance protecting both the interest of Tenant and Landlord, and to furnish Landlord with certificates or memoranda of the same."
Both parties have filed with their pleadings a copy of the lease, but neither party has submitted an authenticated copy as required by Practice Book § 17-45. See also New Haven v. Pantani, 89 Conn.App. 675, 679, 874 A.2d 849 (2005). Nevertheless, this court will consider the lease provisions because both parties rely on or refer to them.
There is no express language in that paragraph that informs the defendant that it would be liable to its landlord's insurer, the plaintiff herein, for any casualty fire damages to the landlord's building. The lease does not contain any express provision of subrogation; the word "subrogation" does not appear in the lease. Further, there is ambiguity in that the landlord maintains the fire insurance and all risk insurance while the defendant is required to maintain liability insurance naming the landlord as a comsured. As in Middlesex, these provisions imply that the landlord has procured casualty and property insurance. Furthermore, these provisions suggest, when read in conjunction with Paragraph 9 of the lease, which requires only that the defendant procure comprehensive liability insurance, that only the landlord will carry the property and casualty insurance.
Paragraph 6 of the lease provides that "Landlord shall carry all risk insurance for said office building including replacement cost coverage." Paragraph 3 of the Lease provides, "If solely because of the tenant's activities on the premises, there shall be an increase in the fire insurance rate, Tenant agrees to reimburse Landlord therefor."
The portion of Paragraph 9 requiring the tenant to procure comprehensive public liability insurance protecting both the interest of Tenant and Landlord, quoted above, does not inform the defendant of the need to obtain all risk insurance in an amount sufficient to cover casualty to the value of the entire premises. Moreover, the requirement that the tenant's liability insurance protect the interest of the landlord appears contrary to a suggestion that the landlord's insurer enjoys the right of subrogation, as the landlord might well be subject to defenses under the liability policy. The plaintiff subrogee stands in the shoes of the landlord and would be subject to the same defenses. Aetna Casualty Surety Co. v. Jones (Estate of Manfredi), 220 Conn. 285, 596 A.2d 414 (1991).
In accordance with the lease in this case, the defendant's obligation to provide insurance was limited to liability insurance. Liability insurance is defined as "[a]n agreement to cover a loss resulting from the insured's liability to a third party. The insured's claim under the policy arises once the insured's liability to a third party has been asserted. Also termed third party insurance, public-liability insurance." Black's Law Dictionary (8th Ed. 2004). Although it might be possible to construe the contract and to resolve these ambiguities, as this court reads the Appellate Court dissenting opinion in Middlesex with which the Supreme Court agreed, it is the presence of an ambiguity that results in application of the default rule that the lessor's insurer may not proceed against the tenant. The default rule advances the public policy considerations of minimizing economic waste and comporting with the expectations of the tenant.
Applying the reasoning and analysis of the Court in Middlesex, the court grants the defendant's motion for summary judgment. The lease does not contain the word "subrogation" or any express language indicating that the plaintiff has the right to proceed against the defendant for damage negligently cause to the landlord's property. Moreover, the lease, at best, is ambiguous as to the tenant's responsibility for damage negligently caused. CT Page 13973