Opinion
538 EDA 2023 J-A21017-23
12-26-2023
WESTMINSTER AMERICAN INSURANCE COMPANY A/S/O ANDROULLA M. TOFALLI Appellant v. AMY S. BOND A/K/A AMY S. SAFIN AND AMY S. BOND A/K/A AMY S. SAFIN T/A BLONDIE'S SALON
Appeal from the Order Entered February 3, 2023 In the Court of Common Pleas of Monroe County Civil Division at No(s): 161-CV-2021
BEFORE: BENDER, P.J.E., DUBOW, J., and NICHOLS, J.
OPINION
DUBOW, J.
Appellant, Westminster American Insurance Company ("Insurance Company"), appeals from the February 3, 2023 order entering summary judgment in favor of Amy S. Bond ("Bond") trading as Blondie's Salon (collectively, "Tenants"), in this subrogation action. After careful review, we reverse.
The parties and the court also sometimes refer to "Blondie's Salon" as "Blondie Salon."
On December 7, 2023, Insurance Company filed an Application for Post-Submission Communication. We grant Insurance Company's Application and accept the post-submission communication as filed.
The relevant facts and procedural history are as follows. Androulla M. Tofalli ("Landlord") owns property located at 501 Sarah Street in Stroudsburg, Monroe County (the "Property"). Insurance Company issued a fire insurance policy on the Property to Landlord, which was effective at all relevant times.
Bond operated Blondie's Salon on the ground floor of the building on the Property and, in her capacity as the operator of Blondie's Salon, rented the ground floor from Landlord pursuant to a written commercial lease ("Commercial Lease"). Bond also rented and resided in a second-floor apartment in the building pursuant to a residential lease ("Residential Lease") (collectively "the Leases").
The Leases contained provisions delineating Tenants' responsibility for obtaining insurance for personal items. We highlight, however, that these insurance provisions do not require the Landlord to obtain fire insurance on the Property.
The Residential Lease provides, in relevant part:
21. Insurance and Release
(A)Tenant understands that Landlord's insurance does not cover Tenant, Tenant's property, or Tenant's guests. Tenant is advised to obtain property and liability insurance to protect Tenant, Tenant's property, and Tenant's guests who may be injured while on the property.
X If checked, Tenant must have insurance policies providing at least $10,000 property insurance and $100,000 liability insurance to protect Tenant, Tenant's property, and Tenant's guests who may be injured while on the Property. Tenant must maintain this insurance through the entire Term and any Renewable Term. Tenant will provide proof of insurance upon request. Tenant will notify Landlord within 10 days of changes to or cancellation of these policies.
(B) Landlord is not legally responsible for injury or damage to Tenant or Tenant's guests that occurs on the property.
(C) Tenant is responsible for any loss to Landlord caused by Tenant, Tenant's family or Tenant's guests, including attorney's fees associated with that loss.Residential Lease, 3/31/18.
The Commercial Lease provides, in relevant part:
18. INSURANCE AND RELEASE: TENANT MUST HAVE LIABILITY RENTAL INSURANCE
A. Tenants understand that:
1. LANDLORD'S INSURANCE DOES NOT COVER TENANTS, TENANT'S PROPERTY, OR GUESTS.
2. TENANTS SHALL HAVE FIRE AND LIABILITY INSURANCE TO PROTECT TENANTS, TENANTS' PROPERTY, GUESTS, AND BUSINESS INVITEES WHO ARE INJURED ON THE PROPERTY AND PROVIDE PROOF OF SAME TO LANDLORD.
B. Landlord is not legally responsible for any injury or damage that occurs on the property and Tenants agree to pay any loss or claim, including attorney's fees that result from the damage or injury.
C. Tenants are responsible for any loss to Landlord that Tenants, Tenant[s'] family, guests, or invitees cause.Commercial Lease, 12/1/09.
Sometime prior to May 10, 2020, Bond began using and remodeling the attic space of the building even though neither she nor her business had rented it. Bond removed the door between the attic space and her apartment, used various electrical power sources, burned candles and sage, and smoked in the attic.
On May 10, 2020, a fire broke out in the Property resulting in significant structural damage to the building. Landlord submitted a claim to Insurance Company as the Property's insurer and Insurance Company paid Landlord approximately $375,872.
On April 11, 2022, Insurance Company filed a Complaint against Tenants, in the form of a subrogation claim, to recover from Tenants the amount that Insurance Company paid to Landlord.
On October 25, 2022, Tenants filed a Motion for Summary Judgment. Tenants argued in the motion that Insurance Company's claims failed as a matter of law because Tenants are "co-insureds" under the Leases and the law precludes an insurer from filing a subrogation action against a "co-insured." In particular, Tenants relied on Joella v. Cole, 221 A.3d 674 (Pa. Super. 2019), and argued that since the Leases did not require them to obtain fire insurance for the Premises, they possessed the reasonable expectation that they were implied "co-insureds" under Landlord's fire insurance policy.
On November 28, 2022, Insurance Company filed a response to Tenants' Motion for Summary Judgment. Insurance Company argued that Tenants were not "co-insureds" under the Landlord's fire insurance policy because the Leases contained no provision requiring the Landlord to obtain fire insurance.
Following consideration of briefs submitted by the parties, on February 2, 2023, the trial court granted Tenants' motion, entered summary judgment in their favor, and dismissed the Amended Complaint.
Insurance Company appealed. Both Insurance Company and the trial court complied with Pa.R.A.P. 1925.
In its Rule 1925(a) Opinion, the trial court directed us to its February 2, 2023 Order and Opinion for an explanation of its reasons for granting Tenants' Motion for Summary Judgment and dismissing the Complaint.
Insurance Company raises the following issue on appeal:
Whether a landlord's fire insurer can bring a subrogation action against the tenants whose alleged negligence and breaches of the lease destroyed the demised premises when the landlord's insurance policy was silent on the subject and when the leases stipulated that the landlord was not legally responsible for any damage to the landlord that the tenants may cause, and that the tenants were required to maintain fire and liability insurance?Insurance Company's Brief at 3.
A.
Insurance Company challenges the entry of summary judgment in favor of Tenants. Our Supreme Court has clarified our role as the appellate court as follows:
On appellate review, []an appellate court may reverse a grant of summary judgment if there has been an error of law or an abuse of discretion. But the issue as to whether there are no genuine issues as to any material fact presents a question of law, and therefore, on that question our standard of review is de novo. This means we need not defer to the determinations made by the lower tribunals. To the extent that this Court must resolve a question of law, we shall review the grant of summary judgment in the context of the entire record.Summers v. Certainteed Corp., 997 A.2d 1152, 1159 (Pa. 2010) (citations and quotation marks omitted).
A trial court may grant summary judgment "only in those cases where the record clearly demonstrates that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Id. (citation omitted); see also Pa.R.C.P. 1035.2(1). "When considering a motion for summary judgment, the trial court must take all facts of record and reasonable inferences therefrom in a light most favorable to the non-moving party." Summers, 997 A.2d at 1159. "In so doing, the trial court must resolve all doubts as to the existence of a genuine issue of material fact against the moving party, and, thus, may only grant summary judgment where the right to such judgment is clear and free from all doubt." Id. (citation and internal quotation marks omitted).
B.
We start our discussion with the basic principles supporting a right to subrogation. "Subrogation is an equitable doctrine intended to place the ultimate burden of a debt upon the party primarily responsible for the loss." Joella, 221 A.3d at 677. An insurance company, however, may not file a subrogation action against a party to whom the insurance company owes a duty, such as the insurance company's own insured. Remy v. Michael D's Carpet Outlets, 571 A.2d 446, 452 (Pa. Super. 1990), aff'd sub nom. Kimco Dev. Corp. v. Michael D's Carpet Outlets, 637 A.2d 603 (Pa. 1993).
Since an insurer may not maintain a subrogation action against its own insured, we must determine whether Tenants are an insured under the Landlord's fire insurance policy. As an initial matter, it is undisputed that Tenants are not a named or additional insured under the Landlord's fire insurance policy.
Our analysis, however, does not end there because the courts have created a legal fiction that permits a tenant, for purposes of a subrogation claim, to be considered a "co-insured" under a landlord's fire insurance policy for the property. Courts have considered tenants "co-insureds" under their landlord's fire insurance policy if it is reasonable to infer from the lease that the landlord has communicated to the tenant that the landlord will look to his fire insurer, and not the tenant, for losses to the property that arise from a fire. Joella, 221 A.3d at 679. Thus, the analysis of whether a tenant is a "co-insured" focuses on the terms of the lease. Id.
Under this approach, courts analyze the terms of the lease to determine "the reasonable expectations of the parties as expressed in the lease under the facts of each case." Id. at 678 (emphasis added). In particular, courts focus on whether the explicit language of the lease is such that it is reasonable to infer that the landlord communicated to the tenant that the landlord will obtain fire insurance for the property and the landlord, and not the tenant, will be responsible for losses to the property as a result of a fire. Id. at 678. The Superior Court expanded on this concept as follows:
If, under the lease or by some other commitment, the landlord has communicated to the tenant an express or implied agreement to maintain fire insurance on the leased premises, absent some compelling provision to the contrary, the court may properly conclude that notwithstanding a general "surrender in good condition" or "liability for negligence" clause in the lease, their reasonable expectation was
that the landlord would look only to the policy, and not to the tenant, for compensation for fire loss covered by the policy. That expectation would constitute an implied commitment in the lease to relieve the tenant of liability to the extent of the policy coverage and it, too, would therefore preclude a subrogation claim.Id. at 680 (quoting Rausch v. Allstate Ins. Co., 882 A.2d 801, 816 (Md. 2005)) (emphasis added).
The Superior Court first addressed the applicability of the fiction of a tenant being a "co-insured" under a landlord's fire insurance policy in Remy. In Remy, the Court concluded that the tenant was not a "co-insured" under the landlord's fire insurance policy because the lease was silent about imposing on the landlord the obligation to obtain fire insurance. Remy, 571 A.2d at 452.
In particular, the Remy Court relied upon the facts that (1) the provisions of the lease did not require the landlord to purchase fire insurance for the tenant's protection and (2) the lease specifically required the tenant to purchase and maintain its own liability insurance, including coverage for property damage. Id. Thus, to consider the tenant a "co-insured" under the policy, the court in Remy held that the lease must affirmatively require the landlord to obtain fire insurance, especially where the lease did require the tenant to "purchase and maintain its own liability insurance, including coverage for property damage." Id.
Applying the fiction of a "co-insured" to different terms in a lease, the Superior Court in Joella, found that the tenant was a "co-insured" under the landlord's fire insurance policy for the property. Joella, 221 A.3d at 680. In Joella, the lease between the parties expressly provided that the landlord was responsible for obtaining and maintaining insurance on the building. Id. The lease further provided that the tenant "has the right to maintain fire and casualty insurance on the premises to cover their personal possessions, which are not covered by the [l]andlord's fire insurance." Id. (citation omitted). The Superior Court favorably quoted the trial court's conclusion that when both provisions are read together, "the lease creates the reasonable expectation that Landlord would look only to his insurance policy for compensation for fire loss [to the property] covered by his policy." Id. at 680-81. It further concluded that the tenant had a reasonable expectation that she would be a co-insured under the landlord's fire insurance policy for the property and, thus, the landlord's fire insurer could not file a subrogation claim against the tenant for losses to the property. Id. at 680.
C.
As noted above, the Leases in this case are silent about the Landlord's obligation to obtain fire insurance on the Property and only impose on the Tenants the obligation to obtain liability insurance and property insurance for their personal items. The trial court, however, interpreted this silence, and the obligation on the Tenants to obtain fire insurance for the Tenant's personal items, as making the Tenants "co-insureds" under the Landlord's fire insurance policy.
In particular, the trial court first acknowledged the absence of a provision in the Residential Lease and Commercial Lease as requiring the Landlord to obtain and maintain fire insurance on the Premises. Trial Ct. Op., 2/2/23, at 6. The court also acknowledged that the Commercial Lease only required Tenant to purchase fire insurance "to protect [T]enant, [T]enant's property, guests, and business invitees." Id. Despite the absence of an obligation for the Landlord to obtain fire insurance on the Premises, the trial court read into the Leases this obligation on the grounds that the Landlord and Tenants would not enter into the Leases unless the Leases required the Landlord to obtain fire insurance on the Premises:
[A] reasonable tenant would not expect that they would be required to insure the building itself from fire damage based upon the terms of these leases. It is natural, reading the leases as a whole, that "Landlord's insurance" would cover anything not specifically required of [Appellees]. Any other interpretation would be that Landlord and [Appellees] agreed to enter into leases with no fire insurance on the building itself. That is an untenable position.Id.
We disagree with this analysis. The trial court has re-written the Lease by adding a provision that the Landlord is obligated to obtain fire insurance for the Property. A clear and unambiguous interpretation of the Leases is that the Leases did not require the Landlord to obtain fire insurance on the Property. Without a written obligation as a threshold matter, the trial court erred by concluding that the Lease reasonably communicated to the Tenant that the Landlord would obtain fire insurance for the Premises and thus, not look to the Tenants for losses to the Premises from a fire. In fact, a reasonable interpretation of the Leases is that the Landlord has no obligation to obtain fire insurance for the Property and would, in fact, look to the Tenants for any losses from the fire.
The above-cited authority supports our analysis. The Remy court explicitly rejected the argument that a tenant can be a "co-insured" when a lease is silent about a Landlord's obligation to obtain fire insurance for the property. Remy, 571 A.2d at 452. Furthermore, the facts of the instant case are easily distinguishable from Joella where, based on an explicit term of the lease which imposed on the Landlord the obligation to obtain fire insurance on the property, it was reasonable for the trial court to conclude that the landlord had communicated to the tenant that the landlord would look only to his insurer, and not the tenant, for losses from a fire.
Thus, given the Leases' silence on Landlord's obligation to obtain and maintain fire insurance on the Premises, Tenants had no reasonable expectation that they were "co-insureds" on the fire insurance policy that the Insurance Company issued. Accordingly, the trial court erred in concluding that Insurance Company is precluded as a matter of law from pursuing a subrogation claim against Tenants and in granting summary judgment in Tenants' favor.
Order reversed.
Judge Nichols joins the opinion.
President Judge Emeritus Bender files a concurring opinion.
Judgment Entered.
CONCURRING OPINION
BENDER, P.J.E.
I am constrained by current case law to agree with the Majority's conclusion that, because the Leases did not obligate the Landlord to obtain fire insurance on the Property, the Tenants had no reasonable expectation that they were co-insureds on the Landlord's insurance policy. However, I write separately to voice my concerns about our case law and the approach Pennsylvania employs to determine whether a landlord's insurer may pursue a subrogation action against a negligent tenant. I also encourage our Court, en banc, or our Supreme Court to review this issue.
In Joella v. Cole, 221 A.3d 674 (Pa. Super. 2019), our Court outlined three approaches jurisdictions have taken to resolve the issue of whether a landlord's insurer can file a subrogation claim against a tenant when the tenant negligently caused damage to the landlord's property. We explained:
The first approach is the pro-subrogation approach in which a landlord's insurer can bring a subrogation claim against a negligent tenant absent an express provision in the lease to the contrary. Because the tenant is not an express or implied co-insured, the insurance company can maintain a suit against the tenant for property losses caused by the tenant's conduct. Courts that have adopted the pro-subrogation approach emphasize that a tenant has the responsibility to exercise ordinary care and should not be exculpated from the consequences of his own negligence unless the landlord and the tenant have expressly agreed that the tenant will not be held liable for loss resulting from the tenant's negligence:
[I]t is the duty of the tenant to exercise ordinary care, in the use of the leased premises or property, not to cause any material and permanent injury thereto over and above the ordinary wear and tear, and … he is liable to the landlord in damages for any such injury unnecessarily resulting from his wrongful acts or his failure to exercise such care.
***
The second approach is the anti-subrogation approach known as the "Sutton Rule." This approach is named after Sutton v. Jondahl, 532 P.2d 478 (Ok.Civ.App. 1975), a case where the ten-year-old son of a tenant took an electric popcorn popper to his bedroom to heat up some chemicals that caused the curtains to catch on fire, causing $2,382.57 in damages. In that case, the court held that the owner's insurance company could not maintain an action against the tenant because "when fire insurance is provided for a dwelling it protects the insurable interests of all joint owners including the possessory interests of a tenant absent an express agreement by the latter to the contrary." Id. at 482.
To the Sutton court, the special relationship between the landlord and tenant placed the tenant in a substantially different position than a fire-causing third party. While the court recognized that the carrier could have subrogated against a third party, it held that the carrier should not be able to shift the insurable risk to the negligent tenant. Id. … Also weighing in favor of adopting the implied coinsurance doctrine is that a portion of the landlord's
insurance premiums are necessarily paid by the tenant as part of the tenant's rent, thereby purchasing their status as a co-insured under the landlord's policy. Since Sutton, other state courts have adopted its strict rationale that unless the lease agreement expressly requires a tenant to procure fire insurance, the tenant is an implied co-insured of the landlord's policy.
The final approach is the case-by-case approach where courts determine the availability of subrogation based on the reasonable expectations of the parties as expressed in the lease under the facts of each case. Under this approach, the court will look to the lease agreement between the landlord and the tenant. The language of an insurance policy may also have an effect on whether a subrogation action may be maintained. If, for example, an insurer has waived its right to subrogation in an insurance policy, a court need look no further than the language of that policy to determine that the insurer cannot maintain a subrogation action against a negligent tenant. See RAM Mut. Ins. Co. v. Rohde, 820 N.W.2d 1, 15 (Minn. 2012).
In RAM Mut. Ins. Co., the Minnesota Supreme Court rejected the Sutton Rule, stating that the case-by-case approach was the best approach because:
The question presented by [this] subrogation action arises at the intersection of insurance law and landlord-tenant law governing the relationship of landlords and tenants. Both areas of law are grounded in contractual relationships, making a rule that reaches a result by examining the parameters of the relationship between an insurer and insured and a landlord and tenant, as defined in the parties' respective contracts, superior to one that makes legal assumptions that do not comport with the parties' reasonable expectations. By examining the reasonable expectations of the contracting parties to determine whether subrogation is appropriate in a particular case, the case-by-case approach avoids the legal assumptions of the other approaches, and thus best effectuates the intent of the parties by eliminating presumptions altogether. While the case-by-case approach does not provide the same kind of predictability that accompanies either the pro- or no-subrogation approaches, the case-by-case method provides more predictability to parties by simply enforcing the terms of their contracts.4
4 In footnotes 7, 8, and 9 of its opinion in RAM, the Minnesota Supreme Court stated that approximately 14 state courts have adopted the Sutton Rule no subrogation approach; 12 jurisdictions have adopted the pro-subrogation approach, either explicitly or implicitly; and "many" courts have adopted the case-by-case approach.Joella, 221 A.3d at 677-78 (some internal citations omitted).
In Joella, this Court - after analyzing our prior decision in Remy v. Michael D's Carpet Outlets, 571 A.2d 446 (Pa. Super. 1990) - ascertained that Pennsylvania applies the case-by-case approach to determine if subrogation is permitted. Under this approach, to discern if subrogation is allowed, we consider the circumstances of the particular case and examine the terms of the landlord's insurance policy in conjunction with the provisions of the lease agreement. Joella, 221 A.3d at 679.
In my view, one of the problems with this approach is that, often, as in the case sub judice, the terms of the lease are ambiguous and/or silent as to who is responsible for obtaining fire insurance on the dwelling, leading to confusion. For instance, it is not unusual for a lease to only state that the tenant must obtain renter's insurance, leading the tenant to believe that (1) he/she only has to obtain renter's insurance to protect himself/herself and his/her interests; (2) the landlord is insuring the structure; and that (3) the tenant is protected by the landlord's insurance on the structure because the lease did not require the tenant to obtain such insurance or advise otherwise. In such scenarios, when a tenant later accidentally causes a fire to start, burning down the building, the tenant understandably does not anticipate being sued by the landlord's insurer for the extensive damages to the structure. Accord DiLullo v. Joseph, 792 A.2d 819, 822 (Conn. 2002) ("The possibility that a lessor's insurer may proceed against a lessee almost certainly is not within the expectations of most landlords and tenants unless they have been forewarned by expert counseling.") (quoting R. Keeton & A. Widiss, Insurance Law (1988) § 4.4(b), pp. 340-41).
To illustrate this confusion, here, the Insurance Company seems to suggest that the Leases required the Landlord to insure the building, in contravention of the Majority's conclusion. See Insurance Company's Brief at 20 (stating that the Leases in this case required the Landlord to maintain fire insurance on the building); Insurance Company's Reply Brief at 2 ("It is true that the [L]eases required the [L]andlord to insure the building and that the [T]enants were not required to insure it."); but see Majority Op. at 2 (stating that the Leases' insurance provisions do not require the Landlord to obtain fire insurance on the Property).
The DiLullo Court also pointed out the economic waste involved where such subrogation is permitted:
[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. Thus, although the two forms of insurance would be different, the economic interest insured would be the same. This duplication of insurance would, in our view, constitute economic waste and, in a multiunit building, the waste would be compounded by the number of tenants. See Peterson v. Silva, … 704 N.E.2d 1163[, 1166 (Mass. 1999)] ("[I]t surely is not in the public interest to (Footnote Continued Next Page) require all the tenants to insure the building which they share, thus causing the building to be fully insured by each tenancy[.]").DiLullo, 792 A.2d at 822-23.
Nevertheless, as the Majority concludes, Joella and Remy support allowing subrogation in such instances, as both decisions placed emphasis on whether the lease required the landlord to purchase fire insurance. See Joella, 221 A.3d at 681 ("Under the circumstances of this particular case, where the lease provision requires [the l]andlord to maintain insurance on the building, we agree with the trial court that based on the reasonable expectations of the parties as expressed in the lease, [the t]enant is an implied co-insured under [the l]andlord's insurance policy."); Remy, 571 A.2d at 452 (noting, among other things, that the lease did not require the landlord to purchase fire insurance for the protection of the tenant, and determining that the tenant was not an implied co-insured).
Another case from our Court, Thomas v. Jones, 2021 WL 462025 (Pa. Super. filed Feb. 9, 2021) (unpublished memorandum), likewise supports such a result. In Thomas, the appellant leased a third-floor apartment with a roommate. Id. at *1. The appellant and his roommate entered into a lease that set forth the following: "It is agreed that [the l]andlord is leasing said apartment to [the appellant] & [his roommate] and they are responsible for acquiring [r]enter's insurance and keeping said apartment damage free during the course of this leasing agreement." Id. Subsequently, a fire started in the roommate's bedroom, and burned down the property. Id. Although not captioned as a subrogation action, the landlord's insurer brought a subrogation action against the appellant, and a $100,000.00 judgment - representing the policy limits of the landlord's insurance on the property - was entered against the appellant. Id. The appellant appealed, arguing that the word 'damage' in the lease is overly broad and ambiguous. Id. The Thomas Court affirmed the trial court's judgment. In affirming the trial court's judgment, the Thomas Court determined that the lease's language was plain and unambiguous. Id. It further observed that "[a] landlord's expectation interest in renting an apartment is that the tenants will surrender the premises in the same condition as when they took possession. Instead, [the appellant] returned a charred leasehold and building in need of extensive restorations. Having contractually assumed responsibility for all the damage to the apartment during his occupancy, [the appellant] is strictly liable for 'the actual loss' that [the landlord] suffered from the fire." Id. (citation omitted).
Relatedly, another problem with the case-by-case approach is that it is not uncommon, as in Joella, for leases to state both that the landlord is responsible for maintaining insurance on the building and that the tenant shall not negligently damage the premises. Which contractual provision controls? The Joella Court indicated that the insurance provision carries more weight. See Joella, 221 A.3d at 680 (quoting favorably the proposition that "[i]f, under the lease or by some other commitment, the landlord has communicated to the tenant an express or implied agreement to maintain fire insurance on the leased premises, absent some compelling provision to the contrary, the court may properly conclude that, notwithstanding a general 'surrender in good condition' or 'liability for negligence' clause in the lease, their reasonable expectation was that the landlord would look only to the policy, and not to the tenant, for compensation for fire loss covered by the policy") (quoting the trial court's reference to Rausch v. Allstate Insurance Co., 882 A.2d 801, 816 (Md. 2005); emphasis added). But, what if there is more than one clause in the lease holding the tenant liable for damages? Is the tenant then liable despite the insurance provision? And, what would make a provision so compelling as to override a tenant's expectation that the landlord would look only to the policy for compensation?
This issue very recently arose in Mutual Benefit Insurance Co. v. Koser, __A.3d__, 2023 PA Super 252 (filed Dec. 4., 2023), a case in which I authored the majority opinion. There, our Court recognized that this scenario presented a close question, and ultimately determined that the tenants were implied co-insureds based on the proposition in Joella discussed supra. See page 7, supra. Notably, the appellant in that case - the insurance company - did not argue on appeal that Pennsylvania should apply an approach other than the case-by-case approach, and/or that our existing case law should be overruled. In addition, "[u]nder the doctrine of stare decisis, a three-judge panel of this Court cannot overrule another." Commonwealth v. Burke, 261 A.3d 548, 551 (Pa. Super. 2021) (internal quotation marks and citation omitted). Consequently, the Court did not assess the wisdom of the case-by-case approach and our current case law, and simply applied the law as it presently stands.
As such, in practice, I do not find the case-by-case approach to be very predictable or clear for landlords and tenants - most of whom are not legal or insurance experts - or for insurance companies. I also think it is difficult for courts to apply. In the interests of avoiding financially devastating surprises and for judicial consistency, I think we should reconsider the approach we have taken, as the Insurance Company suggests. See footnote 5, supra. A reading of Remy reveals that the Remy Court gave little analysis as to what approach our Commonwealth should employ. See Joella, 221 A.3d at 679 (acknowledging that, "[a]s to what approach is used in Pennsylvania, the only case that addresses this issue is our decision in Remy, and then only indirectly"). Our Court, en banc, or our Supreme Court, should rectify that now by giving it more thorough and thoughtful consideration.
Accord Insurance Company's Brief at 9 ("Some courts, including those in Pennsylvania, have taken a case-by-case approach to determine the availability of subrogation based on the reasonable expectations of the parties as expressed in the lease under the facts of each case. This approach has been criticized because it leads to unstable, unpredictable, and unacceptable results. Indeed, Pennsylvania cases are inconsistent in their outcomes."); id. at 15-16 ("It appears that Pennsylvania courts have taken the middle ground approach, deciding whether to allow subrogation on a case-by-case basis. However, two of the three Pennsylvania cases, Thomas and Remy[,] allow subrogation, whereas, Joella does not. As a result, Pennsylvania has fallen into the trap of having unstable and unpredictable results whenever a landlord's insurer brings a subrogation action. … [T]his is an unacceptable result.") (citation omitted); see also id. at 19-20 ("It is respectfully submitted that Joella should be overruled as being inconsistent with the other decisions….").
The Tenants assert that the Insurance Company has waived the arguments that the case-by-case approach leads to inconsistent results, and that Joella should be overruled, because the Insurance Company did not raise these claims below. See Tenants' Brief at 35-36 ("[The Insurance Company] also argue[s] that … Joella … should be overruled since the case-by-[case ]approach leads to inconsistent results. [It relies] upon a student law review article … to support [its] argument that a pro-subrogation approach is preferred, but this argument was not raised before the trial court and has therefore[] been waived.") (citation and internal quotation marks omitted); see also Pa.R.A.P. 302(a) ("Issues not raised in the trial court are waived and cannot be raised for the first time on appeal."). In response, the Insurance Company explains that it did not argue below that Joella was wrongly decided and should be overruled because it would have been pointless to do so, as the trial court "could not overrule Joella, even if it had been asked to do so." Insurance Company's Reply Brief at 3 n.1. I observe that the purpose of Rule 302(a) is to "to provide the trial court with the opportunity to consider the issue, rule upon it correctly, and obviate the need for appeal." See Murray v. Lafrance, LLC, 234 A.3d 782, 786 (Pa. Super. 2020) (cleaned up). Here, the trial court could not have overruled Joella, or considered an approach other than the case-by-case approach, as it is bound by our current case law. Thus, had the Insurance Company raised these arguments below, the purpose of Rule 302(a) could not have been fulfilled. In addition, the trial court's input on these issues is not necessary as "[t]he legal effect of a contract provision presents a question of law accorded full appellate review and is not limited to an abuse of discretion standard." See Joella, 221 A.3d at 676 n.3 (citation omitted); see also Clarke v. MMG Ins. Co., 100 A.3d 271, 275 (Pa. Super. 2014) ("The standard of review of questions of law is de novo, and the scope of review is plenary. Thus, in interpreting a contract, this Court need not defer to the trial court.") (citations omitted).
Judge Nichols joins this concurring opinion.
Judgment Entered.