Tenant as Coinsured with Landlord
September 17, 2013
The landlord (and his insurer) brought a subrogation action against the tenants for fire damage caused by the tenants' negligence. This case is Beveridge v. Savage, 830 N.W.2d 482 (2013).
Beveridge owned a house in Nebraska and Savage became a tenant. They signed a residential lease for the property. The lease provided that the Savages were responsible to maintain the property and that the Savages would obtain a liability and renters insurance policy.
While living in the house, the Savages' son (6 years old) accidentally used a lighter to set a couch on fire and this caused significant damage to the house. Beveridge's insurer paid $161,545 to cover the full cost of reconstruction. A subrogation action was then brought against the Savages. The trial court found in favor of the Savages and this appeal followed.
Beveridge claimed that the Savages agreed to be held responsible for damages caused by negligence and that the lease signed by the Savages required them to purchase insurance. Because the tenants were required to purchase insurance, Beveridge claims the tenant is not a coinsured under his building policy and so, can be subrogated against for the amount paid by Beveridge's insurer. The Savages assert that whether a right of subrogation exists turned on whether the lease contains an express agreement transferring the risk of loss in the event of a fire to the tenants. They claim that the lease does not meet this requirement because it does not specifically mention or address a right of subrogation.
The Supreme Court of Nebraska noted that the trial court found in favor of the Savages because absent an agreement to the contrary, the law presumes that a tenant is coinsured under a landlord's fire insurance policy and that therefore, a landlord's insurer cannot maintain a subrogation action against a tenant for damage to the insured property that is caused by the tenant's negligence. The Supreme Court agreed.
The court said that if there is a clear provision in a lease requiring the tenants to obtain fire insurance for the realty, tenants will be on notice that they must obtain insurance coverage for the realty if they wish to protect themselves from personal liability in the event they negligently start a fire. If there is not such a provision in the lease, then tenants do not need to obtain separate insurance coverage and can rely on the fire insurance obtained by the landlord.
With these principles set forth, the court examined the lease in this instance to determine if it expressly provided that for purposes of fire insurance covering the premises, Beveridge and the Savages were not coinsureds under Beveridge's fire insurance policy. The court found that the lease did not state what “liability” is to be covered and so, it was not clear as to the tenants' obligations. The requirement that the tenant obtain liability insurance was ambiguous as to whether the tenant is to obtain fire insurance or is a coinsured under the landlord's policy. Accordingly, the court said, the requirement to obtain insurance is insufficient to overcome the presumption that the tenant is a coinsured under the landlord's fire insurance policy.
The court also found that there was no lease provision stating that Beveridge or his insurer had a right of subrogation against the Savages for the fire damage.
The ruling of the trial court was affirmed.
Editor's Note: The Nebraska Supreme Court noted that absent an agreement to the contrary, the law presumes that a tenant is coinsured under a landlord's fire insurance policy. As such, the landlord's insurer cannot subrogate against the tenant. In this instance, the lease signed by the Savages did not provide any subrogation rights against them, and the fact that they purchased their own insurance did not mean they gave up their position as coinsureds under the landlord's insurance policy.