Date: 10-20-2015

Case Style: Farmers & Mechanics Mutual Insurance v. Marlon Allen, Sr.

Case Number: 14-0967

Judge: Robin Jean Davis

Court: West Virginia Supreme Court of Appeals

Plaintiff's Attorney: Susan R. Snowden

Defendant's Attorney: Trevor K. Taylor

Description: I agree with the majority’s decision to reverse the circuit court’s ruling because
the insurer is entitled to maintain a subrogation claim against the tenant’s estate under the
facts of the case sub judice. However, I depart from my brethren insofar as their resolution
of the instant proceeding fails to explain the process for resolving such subrogation issues.
Rather than providing a clear and definite roadmap of the analysis to be employed in
determining when an insurer is entitled to subrogation from its insured’s tenant, the majority
simply ignores this opportunity to provide guidance to the bench and the bar, instead
focusing solely upon whether the tenant in this case was an insured under his landlord’s
Farmers & Mechanics insurance policy. I submit that when determining an insurer’s
subrogation rights when its insured has leased premises to a tenant, the reviewing court
should employ a case-by-case analysis. A case-by-case evaluation of an insurer’s
subrogation rights allows a reviewing court to give full effect to the language employed by
the parties in the unique contracts governing their particular dispute: the subject lease
agreement and the pertinent policy of insurance. Accordingly, while I agree with the
ultimate decision to reverse the circuit court’s ruling in this case, I concur to explain why the
Court should have adopted the case-by-case approach as the method by which to decide
subrogation issues that arise when an insured leases premises to a tenant.
The pivotal issue presented by the case sub judice is whether the insurer herein
has a right to subrogation against the estate of its insured’s deceased tenant.
The object of subrogation is the prevention of injustice. It is designed to promote and to accomplish justice, and is the mode which equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, should pay it. It is an appropriate means of preventing unjust enrichment. The doctrine of subrogation is applied to subserve the ends of justice, to do equity in the particular case under consideration, and to prevent fraud or relieve from mistake. But, in general, the original right measures the extent of the new right. The surety is entitled to be made whole for the loss but not to make a profit.
23 Richard A. Lord, Williston on Contracts § 61:51 (4th ed. 2011) (footnotes omitted). In
other words, “[s]ubrogation is applicable where a relationship of principal and surety or a
relationship of primary and secondary liability exists, and the surety or the person with
secondary liability has discharged the debt of the other pursuant to some legal liability.” Ray
v. Donohew, 177 W. Va. 441, 449, 352 S.E.2d 729, 737 (1986) (citations omitted). Thus, to
ascertain whether such a relationship exists in a case of this nature, it is essential to consider
the very contractual agreements establishing the insurer/insured and landlord/tenant
relationships because “[t]he right of subrogation depends upon the facts and circumstances
of each particular case. Huggins v. Fitzpatrick, 102 W. Va. 224, 228, 135 S.E. 19, 20
(1926).” Syl. pt. 3, Ray, 177 W. Va. 441, 352 S.E.2d 729. This analysis also is imperative
insofar as “[n]o right of subrogation can arise in favor of an insurer against its own insured,
since by definition subrogation arises only with respect to rights of the insured against third
persons to whom the insurer owes no duty.” Syl. pt. 2, Richards v. Allstate Ins. Co., 193
W. Va. 244, 455 S.E.2d 803 (1995). While the majority correctly answered the preliminary
question of whether the tenant herein was an insured under the insured’s policy of insurance,
the majority ended its analysis before it apprised the nature of the contractual relationships
of the parties involved in the instant controversy or appreciated the import of whether the
tenant’s status as such subjected him to subrogation under the terms of the subject contracts.
While several different methods of determining an insurer’s right of
subrogation against its insured’s tenant have been developed,1 the case-by-case approach is
the more reasoned and legally sound course.2 Evaluating each case on its own merits permits
a reviewing court to consider the unique contracts establishing the insurer/insured and the
landlord/tenant relationships in a given case and to appreciate the nuances that are specific
to those particular agreements; by contrast, other methods of analysis employing a blanket
1See, e.g., Sutton v. Jondahl, 532 P.2d 478, 482 (Okla. Civ. App. 1975) (espousing view that “subrogation should not be available to the insurance carrier because the law considers the tenant as a co-insured of the landlord absent an express agreement between them to the contrary”). See also Fire Ins. Exch. v. Geekie, 179 Ill. App. 3d 679, 682, 128 Ill. Dec. 616, 617, 534 N.E.2d 1061, 1062 (1989) (expressly rejecting Sutton approach and instead adopting common law view that, “in the absence of an express agreement to the contrary, a tenant is liable for damages to the leased premises resulting from his failure to exercise due care” (citation omitted)).
2See American Family Mut. Ins. Co. v. Auto-Owners Ins. Co., 757 N.W.2d 584 (S.D. 2008). For further discussion of the case-by-case approach, see infra.
approach and one-size-fits-all standard cannot, by their own terms, give effect to the
contracting parties’ intent as expressed by the subject contracts establishing and governing
their contractual relationships. Insofar as both an insured/insurer relationship and a
landlord/tenant relationship are established by contract, considering the particular language
of each such contract is the only way to give full force to the parties’ intent underlying the
creation of such relationships. See Mazon v. Camden Fire Ins. Ass’n, 182 W. Va. 532, 533,
389 S.E.2d 743, 744 (1990) (“An insurance policy and all rights arising from the policy are
controlled by principles of contract . . . . It is well-established that a contract of insurance
is a personal contract between the insurer and the insured named in the policy.” (citations
omitted)). See also Napier v. Napier, 211 W. Va. 208, 212, 564 S.E.2d 418, 422 (2002)
(“The relation of landlord and tenant is created by a contract, either express or implied, by
the terms of which one person designated ‘tenant’ enters into possession of the land under
another person known as ‘landlord.’” (internal quotations and citation omitted)).
The case-by-case approach “applies basic contract principles.” American
Family Mut. Ins. Co. v. Auto-Owners Ins. Co., 757 N.W.2d 584, 594 (S.D. 2008). “Under
this approach, the issue of subrogation is determined by application of contract principles on
a case-by-case basis. Subrogation may be denied under the case-by-case approach if the
lease expressly requires the landlord to maintain fire insurance or the lease exonerates a
tenant from losses caused by fire.” Id. “Conversely, subrogation may be appropriate where
the lease does not require the landlord to purchase fire insurance or the lease requires the
tenants to purchase their own insurance to cover liabilities resulting from their negligence.”
Id. at 593 (citations omitted). In other words, the case-by-case approach allows a reviewing
“court [to] examine[] the lease as a whole to determine the parties’ reasonable expectations
as to who should bear the risk of loss when a tenant negligently damages the leased
premises,”3 thus “eschew[ing] presumptions that a tenant is or is not a co-insured of the
landlord.” Underwriters of Lloyds of London v. Cape Publ’ns, Inc., 63 So. 3d 892, 895 (Fla.
Dist. Ct. App. 2011). Therefore, the tribunal considering the subrogation issue “avoids . . .
making assumptions and adopting fictions that are largely conjectural, if not patently
illogical, and instead applies basic contract principles and gives proper credence to the
equitable underpinning of the whole doctrine of subrogation.” Rausch v. Allstate Ins. Co.,
388 Md. 690, 713-14, 882 A.2d 801, 814-15 (2005). See also 56 Assocs. ex rel. Paolino v.
Frieband, 89 F. Supp. 2d 189, 194 (D.R.I. 2000) (recognizing that court is bound to enforce
contract as written rather than reading terms into contract that are not included therein and
adopting case-by-case approach because it allows court to consider “the terms of the lease
between the landlord and tenant to see if the insurer, stepping into the landlord’s shoes, may
maintain a subrogation action against the tenant for the tenant’s negligence”); Rausch v.
Allstate Ins. Co., 388 Md. at 714, 882 A.2d at 815 (observing that “courts have no business
adding insureds to an insurance policy in order to achieve their perception of good public
policy” (citation omitted))

Outcome: In sum, “the case-by-case approach [i]s a better reasoned rule that recognizes
the intent of the parties under contract law and the equitable underpinning of subrogation.” American Family Mut. Ins. Co., 757 N.W.2d at 594. The case-by-case approach is the most practical method of evaluating an insurer’s subrogation rights vis-a-vis a tenant of its insured because it fully appreciates and gives full force and effect to the parties’ contractual agreements, and this is the method that the majority should have adopted and employed to
fully resolve the subrogation issue presented by the case sub judice. Given that the majority nevertheless reached the correct result absent such an analysis.

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