In United Fire & Casualty Co. v. Bruggeman, 505 N.W.2d 87 (Minn. App. 1993), rev. denied (Minn. Oct. 19, 1993), the Minnesota Court of Appeals held that a landlord’s property insurer may not subrogate against a tenant for damage caused by the tenant’s negligence unless the lease explicitly provided that right to the landlord. The lower court concluded that the landlord and tenant each had an insurable interest in the property (a fee interest for the landlord, and a possessory interest for the tenant), and the tenant indirectly paid the landlord’s insurance premiums through its lease payments. The Supreme Court of Minnesota, however, rejected the bright-line test established in Bruggeman, and adopted a case-by-case approach to determining a property insurer’s subrogation rights against its insured’s tenant.
In RAM Mutual Insurance Co. v. Rohde, — N.W.2d —, 2012 WL 3822155 (Minn. Sept. 5, 2012), JD Property Management owned a multiple-suite office building in Sauk Centre, Minn. When a water line servicing the suite leased by Rusty Rohde burst, causing approximately $17,000 in damage to Rohde’s suite and an adjacent business suite, JD Property tendered a claim to its property insurer, RAM, which paid the claim. RAM then sued Rohde to recoup that payment.
Rohde moved for summary judgment based on Bruggeman, arguing that RAM could not maintain its subrogation action against him because his lease with JD Property did not expressly provide that Rohde would be responsible for damages caused by his negligence. The trial court granted Rohde’s motion, and the court of appeals affirmed.
The Supreme Court of Minnesota reversed. The court rejected the rule established in Bruggeman, and concluded that a case-by-case approach was more sound. Specifically, the court reasoned that: (1) it is important to examine the parties’ expectations as to who would bear responsibility for a particular loss; (2) presumptive bright-line rules conflict with the basic rules of equity governing subrogation; and (3) a case-by-case approach “is more consistent with Minnesota’s public policy of holding tortfeasors accountable for their actions.” In undertaking this case-by-case analysis, the Supreme Court of Minnesota noted that courts should examine both the lease at issue and “any other admissible evidence,” such as the types of insurance purchased by each party (as evidence of each party’s expectations regarding responsibility for a particular loss), and whether the leased premises are part of a large, multi-unit structure (which could indicate that the tenant did not expect to incur liability for damages beyond the premises it leased).