Where a commercial lease required a landlord to procure fire insurance for the benefit of a tenant, the landlord’s insurer could not pursue a subrogation action against the tenant for fire damage allegedly caused by the tenant. (Western Heritage Ins. Co. v. Frances Todd, Inc. (2019) 33 Cal.App.5th 976)
Facts
The East Shore Commercial Condominiums is a commercial condominium project managed by the East Shore Commercial Condominiums Owners’ Association. The project’s Covenants, Conditions & Restrictions required the Association to obtain a master fire insurance policy insuring the Association and the owners, and waiving subrogation rights against the Association, owners and occupants. The CC&Rs prohibited anyone else from purchasing fire insurance for the premises.
William R. de Carion owned one of the condominium units and leased it to Frances Todd, Inc. The lease specified that Todd would carry liability insurance with de Carion named as an additional insured, but the lease did not specify which party would carry fire insurance. The lease further specified that at the end of the lease, Todd would return the premises to de Carion in substantially the same condition as at the beginning of the lease, except for reasonable wear and tear and “casualty.”
Western Heritage Insurance Company issued a fire insurance policy to the Association. Each condominium owner, including de Carion, was also an insured on the policy, but only for liability coverage, not fire coverage. While the policy was in effect, a fire started in the unit de Carion had leased to Todd. Western Heritage paid for the damage.
Later, Western Heritage filed a subrogation action against Todd, alleging that Todd had negligently started the fire in the unit. Todd moved for summary judgment, arguing that Todd was an implied co-insured under the policy, and that Western Heritage therefore could not bring a subrogation action against Todd. The trial judge granted Todd’s motion. Western Heritage appealed.
Holding
The Court of Appeal affirmed. Under California law, the insurer of a landlord may not subrogate against a tenant who negligently causes a fire, if the policy was intended to benefit the tenant. In such cases, even though the tenant is not a named insured on the policy, the tenant is treated as an insured. Because the insurer cannot subrogate against the landlord (a named insured), the insurer cannot subrogate against the tenant (an implied insured).
Here, the Western Heritage policy was maintained for Todd’s benefit. In that regard, the CC&Rs required the Association to purchase fire insurance for the Association and owners such as de Carion, and prohibited anyone else from purchasing fire insurance for the premises. Further, the lease itself required Todd to obtain only liability insurance, thus implying that de Carion would carry fire insurance. Also, the lease’s yield-up clause provided that at the end of the lease, Todd would return the premises to de Carion in substantially the same condition as at the beginning of the lease, except for reasonable wear and tear and “casualty.” These factors all indicated that the Western Heritage policy was purchased and maintained for Todd’s benefit. Thus, Western Heritage was barred from pursuing a subrogation action against Todd.
Comment
California courts hold that a tenant is not liable for negligently caused fire damages where the landlord and tenant intended the landlord’s fire policy to be for their mutual benefit. The import of this rule is that in such a case, a landlord’s insurer may not seek subrogation against a tenant for a fire the tenant negligently causes, even when the elements necessary for subrogation have otherwise been met.