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Insurance Procured Pursuant To A Lease Limits Recovery To That Insurance Policy - Insurance Coverage

Insurance Coverage

Posted on: Apr 17, 2019

By RJ Proie, Taylor DeVore PC

In Youell v. Cincinnati Ins. Co., the Indiana Court of Appeals held that a landlord may not pursue a claim against a negligent tenant for damages covered by an insurance policy procured pursuant to the parties’ lease agreement.  117 N.E.3d 639, 642 (Ind. Ct. App. 2018).  Furthermore, the landlord’s insurer may not pursue the negligent tenant in subrogation, because a subrogor steps into the subrogee’s shoes and has no legal rights other than the subrogee’s.

The lease expressly stated that the landlord agreed to insure the building and premises, and the commercial tenant agreed to insure its personal property and trade fixtures. After a fire, the landlord’s insurer paid $227,653 for damages to the building, and pursued the tenant for negligently starting the fire as the landlord’s subrogee. Tenant moved for judgment on the pleadings pursuant to Indiana Trial Rule 12(C), which was denied by the trial court. Tenant appealed.

The Court of Appeals reasoned that insurance procured by agreement is to the benefit of both parties, and that mutual benefit is an express agreement to limit recovery to the proceeds of the applicable insurance policy, affirming Morsches Lumber, Inc. v. Probst. 388 N.E.2d 284, 286 (Ind. Ct. App. 1979). This allocates the risk of loss from either party to the relevant insurance policy alone. Therefore, a landlord that has agreed to procure insurance covering the premises in its lease with tenant is limited to the proceeds of that insurance for recovery, has no action for damages to the insured property against the tenant even if the tenant’s negligence were the cause of the damage, and the landlord’s insurer is likewise precluded from pursuing an action against the tenant in subrogation.

Youell establishes that landlord-tenant agreements to procure insurance mutually benefit both parties. Since the parties have mutually allocated the risk of loss to insurance policies, neither party has an action against the other for an insured loss, and neither party’s insurer may pursue an allegedly negligent party in subrogation. While not within the facts of Youell, the earlier Morsches Lumber case further held that a landlord purchasing less insurance than agreed to in a lease becomes self-insured for any damages over the limit of the insurance procured.

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