Mutual Benefit Insurance Defeats Subrogation Effort
Typically, an insurer that pays a claim to an insured as a result of the
negligent acts of a third party an insurer has the right, in the name
of its insured, to sue the responsible party in the name of its insured.
The right to sue in the name of the insured results from the equitable
remedy of subrogation and is effective as long as the insured has not
waived the right of its insurer to subrogate.
In Delaware there is an exception to the equitable remedy because
landlords and tenants are presumed to be co-insureds under the
landlord's fire insurance policy unless a tenant's lease clearly
expresses an intent to the contrary. If the rule applies, the fact that
the landlord's insurance is presumed to be for the mutual benefit of the
landlord and the tenant, and the insurer cannot pursue the tenant for
the landlord's damages by way of subrogation.
The Superior Court ruled in the tenants' favor at summary judgment that
the rule applied because the lease did not clearly express an intent to
hold the tenants liable for the landlord's damages.
In Donegal Mutual Insurance Company A/S/O Seaford Apartment Ventures LLC
T/A The Villages Of Stoney Brook Apartments v.Thangavel and Muthusamy,
No. 379, 2022, Supreme Court of Delaware (July 18, 2023) the
apartment's insurer sued the tenants for the $77,704.06 to repair the
water damage they caused.
The Superior Court ruled in the tenants' favor at summary judgment that
the rule applied because the lease did not clearly express an intent to
hold the tenants liable for the landlord's damages.
ANALYSIS
In Delaware landlords and tenants are presumed to be co-insureds under
the landlord's fire insurance policy unless a tenant's lease clearly
expresses an intent to the contrary. If the rule applies, the landlord's
insurer cannot pursue the tenant for the landlord's damages by way of
subrogation.
The tenants who leased an apartment from Seaford Apartment Ventures,
LLC, Donegal's insured, were considered to be coinsueds since the lease
did not express an intent to the contrary. The complaint alleged that
the tenants hit a sprinkler head while they flew a drone inside the
apartment. Water sprayed from the damaged sprinkler head and caused
damage to the apartment building.
The Superior Court granted the tenants' summary judgment motion. It
concluded that the lease in this case was substantially similar to the
leases in three other Delaware all of which found that the leases did
not clearly express an intent to the contrary.
CONCLUSION
The Supreme Court concluded that the Superior Court correctly found that
the apartment lease did not clearly express an intent that the tenants
were responsible for the water damage in this case. Since the Seaford
Apartment lease did not specifically address liability for fire or water
damage caused by the tenant's negligence the policy issued by Donegal
was issued for the mutual benefit of the insured and the tenant and
Donegal had no right to subrogate..