Minnesota Supreme Court: No More Bright Line Anti-Subrogation Approach in Tenant Subrogation

The Supreme Court of Minnesota recently adopted a case-by-case approach to analyze whether a landlord or landlord’s insurer may sue its tenant. Ram Mutual Insurance Company v. Rusty Rohde d/b/a Studio 71 Salon, ____N.W.2d ____, 2012 WL 3822155 (2012). The decision effectively overrules the court’s decision in United Fire & Casualty Co. v. Bruggeman, 505 N.W.2d 87 (Minn. App. 1993), which followed a no-subrogation rule, barring insurers from pursuing subrogation claims for structural losses against negligent tenants in the absence of an express agreement otherwise. The current landlord-tenant bright line rule laid out by Bruggeman and its progeny was that a landlord’s insurance carrier could not subrogate against a tenant for the tenant’s negligence unless there was an express agreement placing liability on the tenant to procure insurance for that type of loss. That rule in Minnesota did not extend to nonstructural losses or uninsured losses, which could still be recovered from a negligent tenant.

In Ram Mutual, Studio 71 rented commercial space from JD Property Management, Ram Mutual’s insured. Studio 71 installed water lines that serviced pedicure chairs in violation of a term of the lease between it and JD Property Management, LLC. The water lines burst, causing damage to the property. JD Property Management made a claim to Ram Mutual, who paid the claim and then pursued Studio 71 for its negligence.

The lease between the parties contained no requirement that Studio 71 maintain insurance for water damage to the property. Studio 71 moved for summary judgment based on the bar against subrogation found in Bruggeman. Studio 71 argued that Bruggeman and its progeny required the court to dismiss Ram Mutual’s claim against it because as a tenant, it was a co-insured under the Ram policy. The district and appellate court agreed with Studio 71, stating that because the lease placed no express obligation on JD Property of Studio 71 to procure property insurance for the water damage at issue, Studio 71 was a co-insured and Ram could not maintain a subrogation action against Studio 71. Ram Mutual appealed the case to the Minnesota Supreme Court. There, the court reversed and remanded the case back to the lower court by adopting a case-by-case approach, with a focus on the intent of the parties.

In evaluating whether an insurer should be allowed to subrogate against a tenant, the court instructed lower courts to ascertain the parties’ intent and expectations as to which party bears responsibility for the loss. The court reasoned that a careful analysis of the lease agreement, as well as extrinsic evidence, should be considered in determining whether it was reasonably anticipated by the landlord and tenant that the tenant would be liable for its negligence.

 The court gave examples of evidence that a lower court should consider when making an analysis:

·         whether or not the lease required a tenant to purchase insurance for a particular type of loss

·         whether there are lease provisions obligating the tenant to be responsible for damages it causes

·         whether the contract provisions allocating responsibility are unfair or a contract of adhesion

·         whether the leased units are part of a multi-unit structure, making it more difficult for a tenant to procure insurance on its unit

Insurers should look at claims that may have been closed because of Minnesota’s former rule to ascertain whether there may be claims within the statute of limitations that can be assessed under the new Ram Mutual rule. Although the Ram Mutual case was applied in a commercial context, the court did not limit its opinion to commercial landlords and tenants only, giving rise to opportunities for subrogation in residential landlord-tenant claims. The Ram Mutual decision is important as it recognized the parties’ intent while still honoring subrogation’s equitable principles and attempting to hold tortfeasors liable for their actions. Ram Mutual is good news in a legal environment that has increasingly become tougher to pursue subrogation. 

Recent Ontario Decision Permitting Subrogation Claim By Tenant Against Landlord

 A recent decision by the Ontario Superior Court of Justice serves as a reminder of how contractual language in lease agreements may permit recovery against a negligent party in subrogated claims. In Designer Collection Sales Inc. v. 161 Spadina Inc., (decided May 8, 2012) a frozen water pipe burst in an unoccupied upstairs unit of a property located in Toronto. Water flowed down to lower floors, ruining the tenant’s stock in trade. The tenant recovered damages under its property insurance policy and its insurer pursued a subrogation claim against the landlord for its failure to maintain the pipe that burst. The landlord argued that it could not be liable to the tenant, relying on lease language that the landlord was “not liable for any damage to the tenant’s property or for any injury to any person in or coming to or from the premises,” and language that required the tenant to “maintain public liability insurance.”

The Court in Designer Collection Sales agreed with the insurer for the tenant that a close reading of the lease terms was required before a right to subrogation would be foreclosed. There, the wording of the lease in question was not sufficiently clear to insulate the landlord from liability. In arriving at this conclusion, the Court distinguished between liability insurance and property insurance and noted that the lease only required the tenant to obtain liability insurance to protect the landlord. Although insurance for property losses was obtained by the tenant, the Court reasoned that this was not required under the lease agreement. For the above reasons, the landlord’s motion for summary judgment was dismissed by the Court and the subrogation claim was allowed to proceed.

The lesson of Designer Collection Sales is that each lease must be carefully analyzed to determine whether subrogation may be pursued against the negligent party, regardless of whether that party is the landlord or the tenant. 

** Doug would like to thank Francois Lesieur for his assistance in writing this blog post.

Illinois Court Expands Reach of Implied Coinsured Doctrine

An Illinois Appellate Court recently issued an opinion which may make subrogating against a negligent tenant more challenging. Auto Owners Ins. Company a/s/o John Ellis v. Thomas Callaghan, 952 N.E.2d 119 (Ill.App.3d 2011) involved a landlord’s carrier that sued a tenant who was leasing a house. The plaintiff insurer alleged that the tenant was negligent in starting a fire that caused over $250,000 in damages to the house. The tenant filed a motion to dismiss the lawsuit based on Illinois’ implied coinsured doctrine. The trial court granted the tenant’s motion and the Third District Appellate Court affirmed.

The Court’s decision was based on its interpretation of the seminal case outlining the implied coinsured rule in Illinois, Dix Mutual Ins. Co. v. LaFramboise, 597 N.E.2d 622 (Ill. 1992). This Illinois Supreme Court case set forth the rule regarding tenant liability: “although a tenant is generally liable for the fire damage caused by his negligence, if the parties intended to exculpate the tenant from negligently caused fire damage, their intent will be enforced.” Because the language can vary, the courts were to interpret the lease “as a whole so as to give effect to the intent of the parties.” The Dix court ruled that the Defendant in that case was afforded implied coinsured status. A key factor in the decision was a provision in the lease requiring the landlord to maintain property insurance, which the court construed as the parties’ intent that property insurance would cover losses to the property. The court held that the tenant’s rent payments contributed to the premium for the property insurance, making the tenant an implied coinsured. Further, in the Dix lease, there was no provision making the tenant responsible for damages that he caused.


The lease in Auto Owners contained no provision regarding insurance. It did contain a provision stating that the tenant’s security deposit would pay for any damages that the tenant, their guests or invitees may inflict upon the dwelling unit, and that the tenant’s liability is not limited to the amount of the security deposit. Despite these differences, the Auto Owners court ruled that there was no provision in the lease that imposed liability upon the tenant for fire damage. The court further found that by the tenant’s payment of rent, he obtained the status of a coinsured under the landlord’s policy, and could not be sued for fire damage by the landlord or its insurer. The Auto Owners court distorted the rule in Dix. Instead of applying the rule that the tenant is liable unless the lease demonstrates intent to exculpate the tenant from liability, Auto Owners suggests that the rule is that the lease provision needs to place liability on a tenant. Further, even though there was no mention of insurance in the Auto Owners lease, the holding suggests that the tenant can be considered an implied coinsured if the landlord has property insurance.


It is still viable for a landlord’s insurer to pursue a tenant in subrogation in Illinois. However, Auto Owners may signal a trend that certain additional factors will need to be demonstrated to subrogate against a negligent tenant.