The Third District Court of Appeal of Florida recently brought us closer to clarity on Florida’s approach to when a landlord’s insurer can sue a tenant. State Farm of Florida Ins. Co. v. Loo, 2010 WL 445945 (Fla. 3d DCA Feb. 10, 2010). For the most part, jurisdictions adopt one of three approaches in this context:
(1) The Sutton Approach ("Anti-Subrogation Rule"): Under this approach, a jurisdiction adopts a bright-line rule barring a landlord’s insurer from bringing a subrogation case on the ground that the tenant is deemed an "implied co-insured." Thus, an insurer may not subrogate against its own insured. The policy behind this approach is that "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 agreement by the latter to the contrary." Sutton v. Johndahl, 532 P.2d 478 (Ct. App. Ok. 1975). This is the majority rule.
(2) The Anti-Sutton Approach: The converse of the Sutton Approach is the order of the day in these jurisdictions. Essentially, absent an express or implied agreement to the contrary, these jurisdictions presume subrogation is permissible. This is the minority rule.
(3) The Case-by-Case Approach: This is an approach that places great emphasis on the lease provisions in order to determine the intent of the parties as to which party should bear the risk of loss. This is often referred to as a "middle of the road" approach.
Until recently, it was unclear which of these approaches Florida was applying. Even today, the Florida Supreme Court has not formally adopted or rejected any. Instead, the approach in Florida has evolved from a number of different decisions from various Appellate Courts. The first attempt made to articulate this doctrine came in 1980 when the Third District Court of Appeal held that "a limitation of liability for one’s negligent acts cannot be inferred unless such intention is expressed in unequivocal terms." Tout v. Hartford Accident & Indem. Co., 390 So. 2d 155 (Fla. 3d DCA 1980). Two subsequent cases revealed an evolution in Florida toward Sutton without a specific adoption of the approach. See, gen., U.S. Fire Ins. Co. v. Norlin Indus., Inc., 428 So.2d 325 (Fla. 1st DCA 1983); Continental Ins. Co. v. Kennerson, 861 So.2d 325 (Fla. 1st DCA 1995).
However, the evolution toward Sutton was halted in Loo, supra. Without overturning Tout or its progeny, the Court in Loo formally adopted the case-by-case approach pointing out that the Tout line of cases looked to the lease provisions to determine the intent of the parties as to who should bear the risk of loss. In sum, for subrogation against a tenant to proceed, the lease must not contain "unequivocal terms" that the tenant is a co-insured. Unequivocal terms are those that either (1) exculpate the tenant from liability for its own negligence, (2) require the landlord to maintain insurance for the benefit of the tenant, or (3) shift any risk of loss incurred as the result of the tenant’s negligence to the landlord.
Perhaps one day the Supreme Court of Florida will weigh in on this issue with a formal adoption or rejection of one of the three approaches. Until that day, subrogation against a tenant will be guided by the lease document’s unequivocal (or lack thereof) articulation of the intent of the parties as to risk of loss.