Lessors Should be Entitled to Waive Insurer’s Right of Subrogation
Post 4867
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In a subrogation action, Plaintiff Philadelphia Indemnity Insurance Company (Philadelphia), as subrogee of Renaissance Realty Group, Inc. (Renaissance), appealed from the circuit court’s partial grant of defendant Norinaica Gonzalez’s motion to dismiss.
In Philadelphia Indemnity Insurance Company, a/s/o Renaissance Realty Group, Inc. v. Norinaica Gonzalez, 2024 IL App (1st) 230833, No. 1-23-0833, Court of Appeals of Illinois, First District, Sixth Division (August 23, 2024)
BACKGROUND
On September 25, 2019, Renaissance and Gonzalez entered into a written lease agreement (hereinafter “Lease”) for an apartment (“Unit 601”) in a multi-unit building located on the 1500 block of West Belmont Avenue in Chicago.
The Lease contains multiple provisions relevant to the resolution of Philadelphia’s claims. On the first page of the Lease, Unit 601 is described as the “Leased Address (Premises)” and Tenant was required to maintain the Premises in a clean, presentable and safe condition at all times.
On January 20, 2021, Philadelphia sued Gonzalez as subrogee to Renaissance. Therein, Philadelphia alleged that on August 7, 2020, a small fire started in Gonzalez’s kitchen in Unit 601, which caused “a substantial amount of smoke” and activated the building’s sprinkler system. The sprinkler system caused significant water damage to both Unit 601 and other units, totaling over $200,000.
THE INSURANCE CLAIMS
Renaissance submitted an insurance claim to Philadelphia, which paid “in excess of $50,000 to cover” repairs and lost rental income. Philadelphia alleged Gonzalez was liable to reimburse Philadelphia, as subrogee to Renaissance, for this coverage. Specifically, count I of the complaint alleged Gonzalez negligently caused the fire that resulted in the property damage. Count II alleged that Gonzalez breached the Lease because it required her to pay for any damages caused by her negligence, but she violated this term by refusing to reimburse Philadelphia.
Gonzalez moved to dismiss the complaint arguing she was an implied coinsured of Renaissance’s policy pursuant to the Illinois Supreme Court’s holding in Dix Mutual Insurance Co. v. LaFramboise, 149 Ill.2d 314 (1992), and thus could not be sued by Philadelphia in subrogation.
On June 30, 2021, Philadelphia responded, arguing in relevant part that the Lease terms demonstrated the parties’ intent not to make Gonzalez an implied coinsured.
The trial court found Philadelphia could not “seek compensation for damage beyond” Unit 601. Philadelphia moved for summary judgment regarding the damages arising from Unit 601 only, which it alleged totaled $18,831.04. The circuit court granted Philadelphia’s motion for summary judgment as to liability only on Counts I and II for damages to Unit 601, with the total of those damages to be determined at trial.
ANALYSIS
This case presents a matter of contractual interpretation, as a lease is a contract and, as such, it is governed by the rules which govern contracts generally. Where a contract’s terms are clear and unambiguous, the appellate court must enforce those terms without reference to extrinsic sources.
The key factor in determining whether the parties intended to exculpate the tenant from liability for negligently caused fire damage to the leased premises is the allocation of insurance burdens as evidenced by the lease. When the provisions of the lease either explicitly or implicitly indicate that the lessor will obtain insurance against the risk of fire loss to its building, the tenant will normally not be liable for negligently causing fire damage to that building unless the parties’ contrary intent is clear. Such a rule gives effect to the parties’ probable and customary intent that the landlord is to look to the insurance he has agreed to procure for indemnification for fire loss.
The Court of Appeals found that Philadelphia and Gonzalez did not intend for Gonzalez to be generally liable for negligently caused fire damage outside of Unit 601. If the parties had intended for Gonzalez to be liable for negligent conduct in other areas besides Unit 601, they would have done so with lease terms making her liable for negligently causing damage to the “property,” “common area,” or “elsewhere in the building.” The Lease does not do so.
Philadelphia’s final claim is that equitable principles dictate that it should have a right to recover on a subrogation claim against Gonzalez. This argument fails because Philadelphia cannot overcome a core tenet of the equitable remedy of subrogation-a subrogee can have no greater right than the subrogor and can enforce only such rights as a subrogor could enforce per the Lease Renaissance has no right to recover against Gonzalez for damages outside of Unit 601, and, therefore, neither does Philadelphia as subrogee to Renaissance’s rights.
Because the Lease shows the parties’ intended Gonzalez not to be liable for damages outside of Unit 601the circuit court’s limitation on Philadelphia’s recoverable damages was affirmed.
ZALMA OPINION
Suing, in subrogation, a tenant of an insured generally causes problems between insured’s and the insurer. For that reason most commercial property policies include a provision that the insured may waive the insurer’s right to subrogation against a tenant. Since the landlord did not waive the court made a Solomon-like decision and only held her responsible for damage to her unit in the building. The Court of Appeals did justice and the insured and its tenant resolved the dispute. Many courts, including Illinois, include an exclusion not written, that Philadelphia’s insurance was issued for the mutual benefit of the insured and the tenant.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Jury’s Findings Interpreting Insurance Contract Affirmed
Post 5105
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Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.
In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....
Failure to Name a Party as an Additional Insured Defeats Claim
Post 5104
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Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy
In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.
The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS
Parties Involved:
CAEA is insured by Associated Industries Insurance Company, Inc. ...
Exclusion Establishes that There is No Duty to Defend Off Site Injuries
Post 5103
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Attack by Vicious Dog Excluded
In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)
Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
Presently before the Court are two ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...