Vaidik, C.J.
Case Summary
Following a fire in an apartment building owned by LBM Realty LLC d/b/a Summer Place Apartments (LBM), LBM’s insurance company Greater New York Mutual Insurance Company (Insurer) filed an insurance subrogation action in LBM’s name against LBM’s tenant, Hillary Mannia. Mannia filed for summary judgment, urging the trial court to adopt a no-subrogation rule—citing Sutton v. Jondahl, 532 P.2d 478 (Okla. Ct. App. 1975), and its progeny as support—which would preclude LBM’s complaint against her. The trial court granted summary judgment in favor of Mannia, and LBM now appeals. We find that Indiana law supports a largely case-by-case approach to subrogation actions by a landlord’s insurer against a tenant and, therefore, does not preclude LBM from pursuing its claims against Mannia, at least with respect to damage to the leased premises. Accordingly, we affirm in part, reverse in part, and remand with instructions.
….
Having considered the range of possible approaches, we conclude that Indiana should hereby adopt the largely case-by-case approach, finding that a tenant’s liability to the landlord’s insurer for damage-causing negligence depends on the reasonable expectations of the parties to the lease as ascertained from the lease as a whole and any other admissible evidence. See id. at 14; Rausch, 882 A.2d at 815. Although the case-by-case approach is said to provide less predictability than either the pro- or no-subrogation approaches, we find that this approach best effectuates the intent of the parties by simply enforcing the terms of their lease. See RAM, 820 N.W.2d at 12. In determining the expectations of the parties as articulated in the lease, courts should look for evidence indicating which party agreed to bear the risk of loss for a particular type of damage. See id. at 15. For instance, if the lease indicates that the landlord has agreed to procure insurance covering a particular loss, a court “may properly conclude that, notwithstanding a general ‘surrender in good condition’ or ‘liability for negligence’ clause in the lease,” the landlord and tenant reasonably expected “that the landlord would look only to the policy, and not to the tenant, for compensation for . . . loss[es] covered by the policy.” Id. (citing Rausch, 882 A.2d at 816). Likewise, if a lease obligates a tenant to procure insurance covering a particular type of loss, such a provision will provide evidence that the parties reasonably anticipated that the tenant would be liable for that particular loss, which would allow another insurer who pays the loss to bring a subrogation action against the tenant. Id. (citing Am. Family Mut. Ins. Co., 757 N.W.2d at 593).
However, with regard to tenants in a multiunit dwelling, we find that absent clear notice—ideally in the form of an unambiguous, enforceable lease provision—that a negligent tenant will be held liable for damages to areas of the building beyond the tenant’s leased premises, such liability would not be within the tenant’s reasonable expectations and is therefore barred. See Rausch, 882 A.2d at 816 (“Whatever general common law liability a tenant may have for damage to another person’s property caused by the tenant’s negligence, it is not likely, unless faced with a very clear contractual obligation to the contrary, that the tenant is thinking beyond the leased premises or, as a practical matter, would be able to afford, or possibly even obtain, sufficient liability insurance to protect against such an extended loss.”). This approach also avoids the unreasonable expectation and economic waste of requiring every tenant in a multiunit apartment building policy to carry insurance coverage adequate to cover damage to the entire building, particularly when the landlord presumably already maintains such coverage. Id. (“Nor should the law encourage the economic waste that would result from multiple layers of insurance by the individual tenants to cover the same loss.”).
…
We affirm in part, reverse in part, and remand with instructions.
FRIEDLANDER, J. and MAY, J., concur.