In the context of a landlord-tenant relationship, a landlord’s insurer’s right to subrogate against a tenant in Minnesota has evolved over time. What began as an anti-landlord tenant subrogation state has now evolved to a reasonable, contextual analysis of the applicable lease and relevant equities.
Prior to 2012, the rule in Minnesota had been that absent an express agreement to the contrary, a landlord’s insurer was barred from pursuing subrogation claims against a negligent tenant. This approach was first introduced in United Fire & Casualty Company v. Bruggeman[1]. In Bruggeman, United Fire, as subrogee of the landlord, brought a subrogation action against the negligent tenants, the Bruggemans, who caused fire damages. No written lease governed the landlord-tenant relationship, and there was no agreement regarding the provision of fire insurance. The landlord, however, procured insurance which provided coverage for the damages at issue. The Bruggeman court determined that the tenants were considered co-insureds under the United Fire policy by virtue of their rent payments which indirectly paid the landlord’s insurance premiums. As a result, the anti-subrogation rule precluded United Fire from subrogating against the Bruggemans.
Then, in 2012, the Minnesota Supreme Court in RAM Mutual Insurance Company v. Rusty Rohde[2] reviewed the Bruggeman decision and rejected the old rule. Instead, the Minnesota Supreme Court held that whether a landlord’s insurer can pursue a subrogation action against a tenant should be determined on a case-by-case basis. In RAM, the Minnesota Supreme Court provided a guide for determining which party, the landlord or the tenant, bears responsibility for a particular loss. The case-by-case analysis begins with the written lease with the goal of ascertaining and enforcing the intent of the parties. To this end, the RAM court emphasized that provisions in a lease should never be interpreted in isolation, but rather in the context of the entire agreement. When language is unambiguous, it should be given its plain and ordinary meaning. But when language is ambiguous, it should be construed against the party who drafted the agreement. The RAM court held that if a lease obligates a tenant to procure insurance covering a particular type of loss, then that provision will be evidence that the parties reasonably anticipated that the tenant would be liable for that particular type of loss. In that case, the landlord’s insurer would be permitted to pursue a subrogation action against the tenant.
The RAM court also held that courts must weigh the principles of equity and good conscience when determining whether a landlord’s insurer can bring a subrogation action against a tenant. For instance, if the provisions allocating responsibility are found to be unfair and violating public policy, then subrogating against a tenant won’t be allowed.
While the RAM court provided guidance for determining who bears responsibility for a particular loss, it did not expressly consider the extent of that responsibility. It wasn’t until 2016 when the Minnesota Supreme Court in Melrose Gates, LLC v. Chor Moua[3] focused on the issue. In Melrose Gates, the landlord, Melrose Gates, leased an apartment to Chor Moua. The apartment building was damaged by fire. The insurer for Melrose Gates paid for the repairs to the building and then brought a subrogation action against Moua to recover the money paid to repair the building. At issue was whether Moua was responsible for reimbursing Melrose Gates for the damage caused to the leased apartment only, or to the entire building.
In determining the extent of Moua’s responsibility, the Melrose Gates court followed the Ram court’s guidelines. First, the Melrose Gates court reviewed the entire lease agreement to determine from its context whether repair costs were owed for just the leased apartment or the entirety of the building’s damages. Based upon its review, the Melrose Gates court concluded that repair costs were unambiguously intended to be owed for damage to just the leased unit. The Melrose Gates court noted that a vast majority of Moua’s obligations were tied to the specific leased apartment rather than to the building in general. When viewed in that light, the Melrose Gates court determined that the extent of Moua’s responsibility for the loss was for damage to the leased apartment only, not the entire building.
The Melrose Gates court decision was also supported by other equitable factors provided by the RAM court. Beyond reviewing just the lease, the Melrose Gates court reviewed the types of insurance purchased by Melrose Gates and Moua. Melrose Gates procured insurance on the entire building with $19,000,000 of coverage, while Muoa procured insurance for personal liability coverage limited to $300,000. Given the coverage limit discrepancy, the Melrose Gates court concluded that Melrose Gates could not have expected Moua to be responsible for damages to the entire building. Finally, in applying equitable considerations, the Melrose Gates court noted that the leased apartment was part of a large multi-unit structure, adding further support to the conclusion that the extent of Moua’s responsibility was to the leased apartment only.
From these decisions, a Minnesota landlord insurer’s subrogation rights against a tenant are determined on a case-by-case basis. First, courts will look to the lease agreement. If the expectations of the parties cannot be determined by the lease, then courts will look for other evidence indicating which party agreed to bear the risk of loss for a particular type of damage.
Once it is determined that a landlord’s insurer can subrogate because the tenant arguably bears the responsibility for a particular type of damage, then the extent of that responsibility will typically be determined by the following considerations: 1) Pertinent lease provisions interpreted in the context of the entire agreement; and 2) Equitable considerations like the types of insurance and coverage the landlord and tenant procured; whether the lease provisions allocating responsibility are unfair and violate public policy; and whether the leased premises is part of a large multi-unit structure.
[1] 505 N.W.2d 87 (App. Ct. 1993)
[2] 820 N.W.2d 1 (2012)
[3] 875 N.W.2d 814 (2016)