Landlord, not tenant, responsible for insuring building in fire, COA says

The Indiana Court of Appeals reversed the denial of a tenant’s motion for judgment against a landlord’s insurer after finding that the parties’ commercial leasing agreement unambiguously provided that the landlord would insure a building damaged in a fire.

In August 2015, a fire destroyed property leased out by Greg Dotson to Robert Youell and Best One Giant Tire, Inc. The parties’ commercial lease provided that the landlord would insure the building “in such amounts as Landlord shall deem appropriate,” while the tenant would insure its personal property inside the building in the event of a fire.

Following the fire, the Cincinnati Insurance Company paid Dotson $227,653 for damages to the building, but later filed a complaint against the tenants to recover that amount as a subrogee of the landlord. The tenants filed a motion for judgment on the pleadings, arguing CIC had no right to pursue the subrogation claim because Dotson’s agreement to provide property insurance was an agreement to provide both parties with the benefits of insurance.

The Marion Superior Court denied the tenants’ motion but certified its order for an interlocutory appeal. On appeal, the tenants argued the trial court should have granted their motion for judgment on the pleadings. Specifically, the tenants asserted that Morsches Lumber, Inc. v. Probst, 180 Ind. App. 202, 388 N.E.2d 284 (Ind. Ct. App. 1979) was controlling, and the appellate court agreed.

“Like the contract in Morsches Lumber, here the Commercial Lease Agreement unambiguously provides that Landlord would insure the building and Tenant would insure its personal property inside the building,” Chief Judge Nancy Vaidik wrote for the court. “Landlord and Tenant’s agreement to insure was thus an agreement to provide both parties with the benefits of the insurance and expressly allocated the risk of loss in case of fire to insurance.”

The panel further noted Dotson was limited in his recovery to the insurance proceeds and that CIC had no subrogation rights against the tenants, dismissing CIC’s reliance on LBM Realty, LLC v. Mannia, 19 N.E.3d 379 (Ind. Ct. App. 2014).

“In LBM Realty, the lease did not require the landlord to maintain property insurance and only recommended that the tenant obtain renter’s insurance; as a result, the parties’ expectations with respect to liability for damage to the leased premises was unknown,” Vaidik continued. “Here, however, the Commercial Lease Agreement unambiguously provides that Landlord would insure the building.”

Thus, the appellate court reversed and remanded the case with instructions for the trial court to grant the tenants motion for judgement on the pleadings in Robert Youell and Best One Giant Tire, Inc. v. The Cincinnati Insurance Company a/s/o Greg Dotson, 18A-CT-1466.