Lead Opinion
Plaintiff owns a duplex and maintained fire insurance on the building through United Services Automobile Association (USAA). Defendant is a tenant in the duplex. A fire — which plaintiff believes defendant started — damaged the duplex. USAA paid plaintiff under the fire insurance policy and then initiated this subrogation action in the name of plaintiff against defendant. The trial court entered summary judgment dismissing the subrogation claim. Citing Sutton v. Jondahl,
The relevant facts are not in dispute. As we have noted, plaintiff insured his duplex through USAA. Plaintiff is the only named insured on the policy. Defendant was a month-to-month tenant at the duplex. It is undisputed that the rental agreement does not require the landlord, plaintiff, to maintain fire insurance on the premises. What the rental agreement does say includes the following:
“LANDLORD IS NOT RESPONSIBLE FOR TENANT [sic] PERSONAL PROPERTY. TENANT IS ADVISED TO PROCURE RENTER INSURANCE TO PROTECT THEMSELVES [sic] IN THE EVENT OF LOSS.
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“TENANT AGREES:
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“5. * * * To take particular caution against cigarettes and other fire hazards.
“6. To be responsible for any damages to premises and/or furnishings caused by their [sic] negligence.
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*611 “9. To not destroy, damage, deface or remove any part of the premises or permit any person to do so and to assume all liability for damages other than ordinary wear and tear.
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“13. To keep locked all doors and gates on premises. To notify [owner/agent,] (IMMEDIATELY) IN WRITING, if locks fail to operate. The Owner/agent will not be responsible in any way for loss/damage to articles or property belonging to tenant/s. TENANT SHOULD MAINTAIN FIRE AND THEFT INSURANCE FOR HIS/HER PROPERTY.”
Defendant, while a tenant at the duplex, allegedly-decorated a live Christmas tree with lit candles and sparklers. The tree caught fire and caused damage to the duplex totaling $215,242.74. USAA paid plaintiff $200,543.72 under the policy and then sought to recover that amount from defendant through this subrogation action.
Defendant asserted that, as a matter of law, the subrogation action against him cannot be maintained for two reasons. First, he argued, the Oregon courts should adopt the “Sutton rule” that tenants are implied coinsureds of any landlord’s fire insurance policy and therefore cannot be subject to subrogation under the same policy. Second, he argued, plaintiff effectively waived any negligence claim for fire loss under the terms of the rental agreement. In response, plaintiff argued, first, that the “Sutton rule” — at least as defendant broadly characterized it — is inconsistent with current Oregon case law and, second, that the rental agreement expressly provides that the tenant — not the landlord — is liable for fire damage and other damage resulting from the tenant’s negligence. The trial court entered summary judgment for defendant, invoking Sutton.
On review of the court’s ruling, we examine the summary judgment record to determine whether there exist genuine issues of material fact and whether defendant was entitled to judgment as a matter of law. ORCP 47 C. In this case, the sole disputed issue is the meaning of the rental agreement and, specifically, whether it expressly or implicitly precludes USAA’s subrogation claim against defendant.
The subrogated party acquires precisely the same rights as the party for whom it substitutes, and no more than that. United States F. & G. Co. v. Bramwell,
In this case, defendant argues that USAA’s subrogation claim against him cannot be maintained for two reasons. First, he argues that the claim is subject to a defense that could have been asserted against plaintiff, that is, that, in the rental agreement, plaintiff waived any claims for damage to the premises occasioned by defendant’s negligence. Second, he argues that, even if the claim is not subject to that defense, in accordance with the rule of the Oklahoma Sutton decision, USAA has no right to pursue a claim against him, because — as a tenant of the premises — he should be treated as if he were an insured and thus not subject to a subrogation claim.
We first consider whether the rental agreement is ambiguous. An agreement is “ambiguous” when it is capable of more than one reasonable construction. Coats v. ODOT,
In this case, there is nothing in the rental agreement that may be fairly read as a waiver of plaintiffs right to pursue a claim against defendant for damage that has been caused to the premises by defendant’s negligence. To the contrary, the contract expressly — and unambiguously — permits such a claim.
As we have noted, the rental agreement provides that the tenant — defendant—is “responsible for any damages to premises and/or furnishings caused by their [sic] negligence.” (Emphasis added.) In addition, the agreement provides that the tenant — defendant—agrees “[t]o not destroy, damage, deface, or remove any part of the premises or permit any person to do so and to assume all liability for damages other than ordinary wear and tear.” Nothing in the agreement qualifies the obligation to be responsible for “any damages to premises” and “to assume all liability for damages other than ordinary wear and tear.” (Emphasis added.)
Defendant acknowledges that nothing in the rental agreement expressly waives plaintiffs right to pursue a claim against him for negligent damage to the premises. He nevertheless insists that the agreement can be read implicitly to waive that right. According to defendant, paragraph 13 of the agreement expressly requires him to “maintain fire and theft insurance for his * * * property.” Because the agreement requires him to maintain fire insurance on only his own personal property, defendant argues, the agreement implicitly suggests that the owner — plaintiff—is responsible for insuring and suffering any losses to anything other than that personal property.
The negative inference defendant proposes is untenable, for at least two reasons. First, it takes the reference to maintaining fire and theft insurance out of context. Paragraph 13 states that the tenant agrees:
“13. To keep locked all doors and gates on premises. To notify [owner/agent,] (IMMEDIATELY) IN WRITING, if locks fail to operate. The Owner/agent will not be responsible in any way for loss/damage to articles*615 or property belonging to tenant/s. TENANT SHOULD MAINTAIN FIRE AND THEFT INSURANCE FOR HIS/HER PROPERTY.”
Plainly, that paragraph is a disclaimer, not an assertion of the owner’s responsibility.
Second, defendant’s proposed inference directly contradicts what the agreement expressly states, namely, that defendant is responsible for “any damages to premises” and is “to assume all liability for damages other than ordinary wear and tear.” (Emphasis added.) To adopt defendant’s proposed construction would require us to hold that “any damages” does not really mean what it says and that “all liability’ likewise means something less than “all liability.” The latter reference to defendant’s express assumption of liability for damage “other than ordinary wear and tear” is especially difficult to reconcile with his suggestion that he actually is liable for damage to his personal property alone. “[0]rdinary wear and tear” clearly refers to property other than defendant’s own possessions.
We conclude that nothing in the rental agreement reasonably may be construed as a waiver — express or implied — of plaintiffs right to seek damages from defendant for his negligence. We therefore turn to the question whether to adopt the Oklahoma Sutton rule, which defendant suggests stands for the proposition that an owner’s insurer may never maintain a subrogation claim against a tenant because all tenants should be treated as “implied co-insureds” of an owner’s fire insurance policy on the rental premises.
In Sutton, the landlord’s fire insurance carrier sued a tenant to recover for loss caused by the tenant’s negligence. The Oklahoma Court of Appeals held that the carrier could not maintain the claim against the tenant because the tenant
“Under the facts and circumstances in this record, the 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, comparable to the permissive-user feature of automobile insurance. This principle is derived from a recognition of a relational reality, namely, that both landlord and tenant have an insurable interest in the rented premises — the former owns the fee and the latter has a possessory interest. * * * And as a matter of sound business practice, the premium paid had to be considered in establishing the rent rate on the rental unit. Such premium was chargeable against the rent as an overhead or operating expense. And of course it follows then that the tenant actually paid the premium as part of the monthly rental.”
A number of courts have followed a similar course, holding that, as a matter of law, a landlord’s insurer may not maintain a subrogation claim against a tenant because the tenant is a coinsured. See, e.g., Cascade Trailer Court v. Beeson, 50 Wash App 678, 687,
Other courts, however, have criticized the Sutton approach to waiver of subrogation, reasoning that it is questionable as an empirical matter whether tenants actually pay for insurance through their rent and that, in any event, it is illogical to assume that landlords intend to carry tenants as coinsureds where the lease says nothing about the matter and there is no evidence that the parties even discussed it. See, e.g., Page v. Scott,
Still others have concluded that whether a landlord’s insurer may maintain a subrogation claim against a tenant depends on the particular wording of the rental agreement and whether it suggests that the parties intended that the tenant not be liable for damage to the premises occasioned by the tenant’s own negligence. See, e.g., Fire Ins. Exchange v. Hammond, 99 Cal Rptr 2d 596, 601 (Cal App 4th Dist 2000) (“it appears the subrogation issue is generally resolved on a case-by-case basis, dependent on the parties’ reasonable expectations in light of the particular lease terms”).
Oregon courts have not directly addressed whether to adopt the reasoning of Sutton as such. The Supreme Court has addressed the issue of waiver of subrogation claims, however, and the decision in this case must be consistent with that case law. In Waterway Terminals v. P.S. Lord,
“an agreement of the parties to a lease obligating the landlord to carry insurance on the leased premises is a complete defense to an action by the landlord, or by his insurer as subrogee, against the tenant for negligence in causing a fire which damaged or destroyed the leased premises.”
The Supreme Court agreed with the defendant. The court reasoned that, if the owner were permitted to bring an action for damages against the defendant, then the defendant could get no benefit of the contract provision that required the owner to carry insurance on the premises. Referring to the cited cases, the court explained:
“We think * * * the controlling consideration in the decision of these cases was the general understanding of what fire insurance means. It cannot be assumed that in negotiations for a contract a party knowingly asks for something which would be of no value to him. That would be this case if plaintiffs construction of the insurance clause were approved.”
Id. at 22-23.
The court employed the same reasoning in Koennecke v. Waxwing Cedar Prod.,
Thus, in both cases, the court recognized a complete defense to either a direct action or a subrogation claim based on the landlord's contractual obligation to maintain fire insurance. In both cases, the court reasoned that, permitting the owner or lessor to proceed against the tenant or lessee would deprive the latter of the benefit of what it bargained for: insurance against liability for its own negligence. The reasoning of the court thus places the Oregon courts squarely with those courts that have concluded that whether there is a
In this case, it is undisputed that there is no contractual obligation to maintain fire insurance on the premises. Defendant, in other words, did not bargain for fire insurance coverage. The agreement in effect left it to the parties to decide whether they wished to maintain insurance on the premises. That being the case, the rationale of Waterway Terminals and Koennecke does not apply. The litigation bar in both cases was predicated on the need to give the tenant the benefit of its bargain, namely, fire insurance. In this case, insurance simply was not bargained for one way or the other. There is, therefore, no basis for us to conclude that plaintiff is barred from pursuing any claim against defendant.
Defendant insists that Waterway Terminals and Koennecke actually could be read not to foreclose adopting the Sutton rule. Even assuming for the sake of argument that that is so, we would decline to embrace the categorical rule of the Oklahoma court. Even if it were not precluded by the reasoning of existing precedent, the Sutton rule remains contrary to the presumption in Oregon that contracts do not create immunity from liability. See, e.g., Steele v. Mt. Hood Meadows Oregon, Ltd.,
We conclude that the trial court erred in entering summary judgment dismissing USAA’s subrogation claim.
Reversed and remanded.
Notes
The dissent argues that defendant’s reading of paragraph 13 is at least reasonable, rendering the agreement subject to the rule that it must be construed against the drafter. We disagree with the dissent’s premise. Such a reading of paragraph 13 is not reasonable because it directly contradicts the liability provisions that we have cited. An ambiguity cannot be created merely by drawing an inference from a paragraph in a vacuum, particularly when that inference is directly at odds with what the agreement elsewhere expressly states.
The parties expend much effort debating whether Sutton represents the “majority rule. Defendant contends that the “great majority” of decisions from other jurisdictions sides with Sutton and that an “extreme minority of courts disagree. Plaintiff, on the other hand, argues that the majority actually has declined to follow Sutton and has chosen to limit the case to its facts. We are not particularly impressed with characterizations of a doctrine as the “majority or “minority.” We will give due consideration to all decisions of other jurisdictions but will be persuaded only by the soundness of their reasoning and their consistency with Oregon law.
Thus, we need not debate the dissent on the question whether the broader policy reflected in the Sutton line of cases should be adopted as Oregon law.
Dissenting Opinion
dissenting.
I disagree first with the majority’s interpretation of the rental agreement. In my view, the agreement shows that the parties intended that plaintiff would bear the risk of loss for damage to the premises due to fire. Despite provisions assigning responsibility to defendant for damage caused by negligence, which the majority finds conclusive, other provisions of the agreement permit an inference that the parties intended that defendant would be responsible for damage to his own personal property only and not for damage to the premises. For example, the agreement provides that plaintiff is not responsible for defendant’s personal property, and advises defendant to purchase renter insurance to protect himself “in the event of loss.” Paragraph 13 of the agreement provides that plaintiff “will not be responsible in any way for loss/damage to articles or property belonging to the tenant/s” and in capital letters, provides that defendant “should maintain fire and theft insurance for his / her property. ” (Emphasis added.) Thus, the agreement emphasizes defendant’s responsibility to obtain insurance for his own property and twice disclaims plaintiffs responsibility for defendant’s personal property.
The agreement’s only reference to fire insurance is in a paragraph about defendant’s responsibility for his own belongings. The agreement nowhere suggests or imposes an obligation on defendant to obtain fire insurance for the premises. In light of the explicit provisions assigning to defendant responsibility for damage to his own property due to fire loss, I conclude that had the parties intended in this month-to-month tenancy for defendant also to bear responsibility for fire loss to the premises, the agreement would have listed that responsibility among the many explicit obligations placed on defendant and the disclaimers made by plaintiff.
Thus, viewing the agreement as a whole, I conclude that, although it places general responsibility on defendant for damages caused by his negligence, the specific provisions relating to fire loss place the risk of fire loss to the premises on plaintiff. Because the rental agreement contemplates that
If the provisions of the agreement on which I rely do not unambiguously require the conclusion that the parties intended the risk of loss of the premise due to fire to fall on plaintiff, they at least give rise to an ambiguity as to the parties’ intentions. Ordinarily, an ambiguity in an agreement would preclude summary judgment. However, because there is no extrinsic evidence bearing on the parties’ intentions, no factual dispute exists. Accordingly, the meaning of the agreement remains a legal question of the court. See Zygar v. Johnson,
My conclusion is driven in part by what I believe is the fundamentally correct social policy underlying the decisions of those courts applying the holding of Sutton v. Jondahl,
“This principle is derived from a recognition of a relational reality, namely, that both landlord and tenant have an insurable interest in the rented premises. * * * To suggest the fire insurance does not extend to the insurable interest of an occupying tenant is to ignore the realities of urban apartment and single-family dwelling renting. Prospective tenants ordinarily rely upon the owner of the dwelling to provide fire protection for the realty (as distinguished from personal property) absent an express agreement otherwise. Certainly it would not likely occur to a reasonably prudent tenant that the premises were without fire insurance protection or that if there was such protection it did not inure to his benefit and that he would need to take out another fire policy to protect himself from a loss during his occupancy. * * * Basic equity and fundamental justice upon*622 which the equitable doctrine of subrogation is established requires 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 express agreement by the latter to the contrary. The company affording such coverage should not be allowed to shift a fire loss to an occupying tenant even if the latter negligently caused it.”
Sutton,
“The insurer knows the risk that it is undertaking when insuring a rental property. It insures the building for the use for which it is intended. While it may not have control over who the individual tenants are, it can increase its premiums to reflect increased risks presented by changing tenant use. Likewise, it can require the landlord to undertake any number of safety and structural precautions. We believe the landlord is the party in the best position to assume such responsibilities [.]”
In my view, the policy discussed in the cited cases is the correct one and requires the conclusion that, unless an agreement provides expressly that the tenant is to provide fire insurance for the premises, the risk of loss for fire damage to the premises should remain with the landlord and its property insurer, which accepted premiums to take on the risk of fire damage to the premises due to negligence. In this case, that policy requires an affirmance of the trial court’s ruling. Accordingly, I dissent.