Hoosier Insurance Company v. Nicole R. Riggs and Michael J. Riggs ( 2018 )

FILED
Mar 07 2018, 5:52 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE
Kevin L. Moyer Richard K. Milam
Moyer Law Firm, P.C. Lebanon, Indiana
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Hoosier Insurance Company, March 7, 2018
Appellant, Court of Appeals Case No.
06A01-1708-CT-1969
v. Appeal from the Boone Superior
Court
Nicole R. Riggs and Michael J. The Honorable Matthew C.
Riggs, Kincaid, Judge
Appellees. Trial Court Cause No.
06D01-1704-CT-416
Barnes, Judge.
Case Summary
[1] Hoosier Insurance Company (“Hoosier”) appeals the trial court’s order of
dismissal entered in favor of Nicole R. Riggs and Michael J. Riggs (“the
Riggses”). We reverse and remand with instructions.
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Issue
[2] The sole issue before us is whether the trial court erred in dismissing Hoosier’s
subrogation claim because Hoosier was not a real party in interest for purposes
of pursuing a breach of contract claim against the Riggses.
Facts
[3] During the relevant period, Frank and Leah Harker (“the Harkers”) owned real
property (“the Premises”) in Lebanon. The Premises were insured under an
insurance policy underwritten by Hoosier. In June 2013, the Harkers leased the
Premises to the Riggses pursuant to a written agreement (“Lease”). Dustin
Blevins also resided on the Premises during the Riggses’ lease term. On April
22, 2015, the Premises sustained $42,497.27 in fire damage after Blevins
allegedly left burning incense unattended. The Lease provided, in part, as
follows:
5. Use and Occupancy. [The Riggses] shall use the Leased
Premises only for residential purposes and shall comply with all
federal, state and local laws and ordinances. [The Riggses] shall
commit no waste thereon, and shall deliver the premises to [the
Harkers] at the end of the lease term in as good of condition as
when the lease commenced, normal wear and tear excepted. . . .
*****
7. Insurance. [The Riggses are] responsible for obtaining fire
and extended coverage, including public liability[ ] insurance
with [the Harkers] to be listed as an additional insured under the
policy. [The Riggses] shall also be responsible for renter’s
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coverage on [the Riggses’] own personal property located on the
Leased Premises. [The Riggses] shall indemnify and hold [the
Harkers] harmless from all claims of thi9rd [sic] parties for bodily
injury, property damage or death arising from [the Riggses’] use
or occupancy of the Leased Premises.
App. Vol. II pp. 9-10. After the fire, Hoosier paid $42,497.27 to or on behalf of
the Harkers for repairs to the Premises.
[4] On April 20, 2017, Hoosier filed a complaint for damages against the Riggses
alleging breach of contract.1 Hoosier alleged that the Riggses had materially
breached the Lease, causing $42,497.27 in damages. On April 27, 2017, the
Riggses moved to dismiss on Indiana Trial Rule 12(B)(6) grounds, arguing that
Hoosier was not a “landlord” as defined in Indiana Code Section 32-31-3-3
and, therefore, was not a Trial Rule 17(A) “real party in interest” entitled to
pursue a breach of contract claim against the Riggses. On May 19, 2017, the
trial court granted the Riggses’ motion to dismiss. Hoosier now appeals.
Analysis
[5] Hoosier argues that the trial court erred in granting the motion to dismiss
because, by paying damages to or on behalf of the Harkers, Hoosier became
subrogated to the Harkers’ landlord rights, including their right to seek damages
from the Riggses for breach of the Lease. The Riggses counter that Hoosier’s
subrogation claim was properly dismissed because Hoosier is not a “real party
1
Hoosier also brought a negligence claim against Blevins.
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in interest” pursuant to Indiana Trial Rule 17(A), which provides that “[e]very
action shall be prosecuted in the name of the real party in interest.”2 We restate
the issue before us as follows: When a landlord’s insurer pays insurance
benefits to or on behalf of its insured (the landlord), does the landlord’s right to
pursue damages for breach of contract from the liable party (i.e., a negligent
tenant) inure to the insurer, such that the insurer is a “real party in interest” for
purposes of pursuing subrogation relief?
[6] A motion to dismiss under Trial Rule 12(B)(6) tests the legal sufficiency of the
plaintiff’s claim, not the facts supporting it. Thornton v. State, 43 N.E.3d 585,
587 (Ind. 2015). Dismissals are improper under Rule 12(B)(6) “unless it
appears to a certainty on the face of the complaint that the complaining party is
not entitled to any relief.” State v. American Family Voices, Inc., 898 N.E.2d 293,
296 (Ind. 2008) (citations omitted). We review rulings on a Rule 12(B)(6)
motion to dismiss de novo, with no deference to the trial court’s decision.
Liberty Landowners Ass’n, Inc. v. Porter Cnty. Comm’rs, 913 N.E.2d 1245, 1249
(Ind. Ct. App. 2009); Veolia Water Indianapolis, LLC v. Nat’l Trust Ins. Co., 3
N.E.3d 1, 4 (Ind. 2014). In reviewing the complaint, we take the alleged facts
to be true and consider the allegations in the light most favorable to the
2
A real party in interest is the person who is the true owner of the right sought to be enforced. Hammes v.
Brumley, 659 N.E.2d 1021, 1030 (Ind. 1995). He or she is the person who is entitled to the fruits of the
action. Id.Court of Appeals of Indiana | Opinion 06A01-1708-CT-1969 | March 7, 2018 Page 4 of 10
nonmoving party, drawing every reasonable inference in that party’s favor.
Veolia Water Indianapolis, LLC, 3 N.E.3d at 4-5.
[7] The equitable doctrine of subrogation “applies whenever a party, not acting as a
volunteer, pays the debt of another that, in good conscience, should have been
paid by the one primarily liable.” Erie Ins. Co. v. George, 681 N.E.2d 183, 186
(Ind. 1997). The ultimate purpose of the doctrine, as with other equitable
principles, is to prevent unjust enrichment. Id.Because subrogation is an equitable remedy, in determining
whether an insurer may bring a subrogation action in a particular
case, courts must weigh “the principles of equity and good
conscience.” RAM Mut. Ins. Co. v. Rohde, 820 N.W.2d 1, 16
(Minn. 2012) (citing Dix Mut. Ins. Co. v. LaFramboise, 149 Ill.2d
314, 173 Ill.Dec. 648, 597 N.E.2d 622, 626 (1992) (explaining
that the equities of the case should be considered in addition to
examining “the provisions of the lease as a whole [and] the
reasonable expectations of the parties”)); Am. Family Mut. Ins.
Co., 757 N.W.2d at 595 (allowing landlord’s insurer to maintain
a subrogation action against tenant’s liability insurer after
examining the lease and “[c]onsidering the equitable
underpinnings of subrogation”). When the insurer claims a right
through subrogation, it stands in the shoes of the insured and
takes no rights other than those which the insured had.
LBM Realty, LLC v. Mannia, 19 N.E.3d 379, 386 (Ind. Ct. App. 2014) (internal
citation omitted).
[8] There are “three different approaches used by courts across the country to
address subrogation claims of landlords’ insurers against negligent tenants”:
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(1) the no-subrogation (or implied co-insured) approach (i.e., the
“Sutton rule”), in which, absent an express agreement to the
contrary, a landlord’s insurer is precluded from filing a
subrogation claim against a negligent tenant because the tenant is
presumed to be a co-insured under the landlord’s insurance
policy; (2) the pro-subrogation approach, in which, absent an
express term to the contrary, a landlord’s insurer is allowed to
bring a subrogation claim against a negligent tenant; and (3) the
case-by-case approach, in which courts determine the availability
of subrogation based on the reasonable expectations of the parties
under the facts of each case.
Id. at 383 (quoting LBM Realty, LLC v. Mannia, 981 N.E.2d 569, 573 (Ind. Ct.
App. 2012)).
[9] The Mannia panel advocated that Indiana should adopt the 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.” 19 N.E.3d at 393-94. The panel further reasoned:
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. 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. 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
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would look only to the policy, and not to the tenant, for
compensation for . . . loss[es] covered by the policy.” 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. at 394 (internal citations omitted).
[10] In Mannia, a fire loss occurred to the insured premises—a multiunit apartment
building. The landlord’s insurer, LBM Realty (“LBM”), paid benefits to or on
behalf of its insured and subsequently sought subrogation relief from the
tenant—Mannia. Mannia moved for summary judgment, which was granted.
Although these cases are factually distinguishable in that the insured premises
was a multiunit building,3 the Mannia panel’s reasoning is apposite.
[11] In analyzing whether Mannia was liable to LBM for negligence-caused fire
damage, the Mannia panel considered the following provisions within the
parties’ lease: (1) “[LBM] recommends [Mannia] obtain renter’s insurance”;
and (2) “[Mannia is liable for] any injury or damage done to the Leased
Premises, common areas or any other property of [LBM]”. Id. at 395. The
panel also addressed an omission from the lease noting,
3
Mannia provides that “with regard to tenants in a multiunit dwelling, . . . 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.” Mannia, 19 N.E.3d at 394 (emphasis in original).
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. . . [T]here is no clear and enforceable lease provision putting
Mannia on notice that she would be held liable for damage
caused by negligence to areas of the multiunit apartment building
beyond the leased premises (and should obtain liability insurance
to provide for that possibility).
Id. Lastly, the panel considered Mannia’s prior deposition testimony that: (1)
although she was told that LBM had insurance coverage for the building, she
was notified that she was still obligated to obtain renter’s insurance; and (2) she
did not believe, when she executed the lease, that she would be covered under
LBM’s insurance policy.
[12] In light of the evidence, as to fire loss to areas beyond the leased premises, the
Mannia panel upheld the trial court’s entry of summary judgment in favor of
Mannia; however, with respect to damage of the leased premises, the panel
found that the trial court had erred in granting summary judgment in Mannia’s
favor. Accordingly, the Mannia panel remanded to the trial court with
instructions “to engage in the analysis of the case-by-case approach” as follows:
First, that the court should consider the lease and any other
relevant and admissible evidence, including . . . the insurance
maintained by each party as evidence of each party’s
expectations with respect to liability for damage to the leased
premises. Second, because subrogation is an equitable remedy,
the trial court must also weigh “the principles of equity and good
conscience” . . . . In sum, the trial court should analyze all
relevant and admissible evidence in order to determine the
parties’ expectations and should weigh and balance the equities
of the case—as well as addressing the issue of Mannia’s
negligence—in order to determine Mannia’s liability for the
damage to the leased premises.
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Id. at 395-96 (internal citations omitted).
[13] Applying the case-by-case approach to addressing subrogation claims of
landlords’ insurers against negligent tenants, and upon review of the Lease to
determine the parties’ expectations with respect to liability for damage to the
Premises, we cannot say that it appears to a certainty on the face of the
complaint that Hoosier is not entitled to any relief on the related threshold
questions of (1) whether the Lease manifests the parties’ intent regarding the
appropriate party to bear the risk of fire loss; and (2) whether the Harkers’ right
to pursue damages for breach of contract from the Riggses inures to Hoosier,
such that Hoosier is a real party in interest entitled to pursue subrogation relief.
See Mannia, 981 N.E.2d at 394 (“[I]f 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 an[ ] insurer who pays the loss to
bring a subrogation action against the tenant.”).
[14] Based upon the foregoing, we reverse the trial court’s judgment dismissing
Hoosier’s subrogation claim and remand for further proceedings. On remand,
the trial court should analyze the Lease and all other relevant and admissible
evidence to determine the parties’ expectations; and weigh and balance the
equities—including the issue of the Riggses’ negligence—to determine the
Riggses’ liability for the damage to the Premises.
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Conclusion
[15] The trial court erred in dismissing Hoosier’s subrogation claim. We reverse and
remand with instructions.
[16] Reversed and remanded with instructions.
Najam, J., and Mathias, J., concur.
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