Hoosier Ins. Co. v. Riggs

92 N.E.3d 685

HOOSIER INSURANCE COMPANY, Appellant,

v.Nicole R. RIGGS and Michael J. Riggs, Appellees.

Court of Appeals Case No. 06A01–1708–CT–1969

Court of Appeals of Indiana.

Filed March 7, 2018

Attorney for Appellant : Kevin L. Moyer, Moyer Law Firm, P.C., Indianapolis, Indiana

Attorney for Appellee : Richard K. Milam, Lebanon, Indiana

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.

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 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 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 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. [v. Auto–Owners Ins.] 757 N.W.2d [584] at 595 [ (S.D.2008) ] (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":

(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 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...