A Tennessee appeals court ruled that a tenant was considered an additional insured on a landlord's policy and that the insurer had no subrogation rights against the tenant in Allstate Ins. Co. v. Watson, No. M2003-01574-COA-R3, 2005 WL 457846 (Tenn. Ct. App. Feb. 25, 2005).

 

Kevin Williams owned a house and leased it to Robert Watson. A fire occurred at the home, and Williams's insurer, Allstate, paid the loss. Allstate brought suit against Watson, claiming it had subrogation rights under Williams's policy. The trial court found that Allstate was entitled to subrogation against the tenant according to the following statement in the lease: “Residents are responsible for all damages to the apartment, intentional or non-intentional. Owner is to be notified of all damages and will provide repairs.” Watson appealed.

 

The appeals court noted, “At no point in the proceedings, either in the trial court or before this Court prior to oral argument, did anyone raise any issue as to the right of Allstate to subrogation under the facts in this case or as to the status of Watson as an additional insured under the Allstate policy.” The court invited the parties to submit supplemental briefs concerning these issues since it felt that these issues were dispositive of Watson's appeal.

 

After reviewing the well-researched briefs, the court pointed out that the majority court opinion around the country, and insurance law commentators hold to the view that the lessor's insurer cannot obtain subrogation against the lessee in the absence of an agreement to the contrary.

 

The court cited the decision in Sutton v. Jondahl, 532 P.2d 478 (Okla. Ct. App. 1975) as the origin of the premise that the lessee had insured status under a policy issued to the lessor. Under the rationale of the Oklahoma decision, “the landlord is presumed to carry its insurance for the tenant's benefit because the lease did not contain an express provision to the contrary.”

 

Turning to a Nebraska case, Tri-Par Investments, LLC v. Sousa, 680 N.W.2d 190 (Neb. 2004), the appeals court accepted the Nebraska Supreme Court's pronouncement that “absent an express agreement to the contrary in a lease, a tenant and his or her landlord are implied coinsureds under the landlord's fire insurance policy, and the landlord's liability insurer is precluded from bringing a subrogation action against the negligent tenant.”

 

The appeals court rendered a verdict in favor of the tenant (Watson) and said that, under the facts and circumstances of this case, subrogation should not be available to the insurer because the law considers the tenant as a coinsured of the landlord, absent an express agreement between them to the contrary.

 

Incidentally, usually when issues, such as Allstate's right to subrogation and the tenant as a coinsured under the landlord's policy, are first argued on appeal, the appellate court will decline to consider the issues. However, Tennessee law allows such issues to be considered “in order to achieve fairness and justice.”