Minnesota High Court Rules Insurer Can Pursue Subrogation for Tenant Caused Property Damage

In a recent decision, the Minnesota high court found that insurers may have a right of recovery in claims involving tenant-caused property damage.

RAM Mutual Insurance Co. sought to recover a payment it made to its insured, JD Property Management, for the repair of water damaged allegedly caused by a commercial tenant of the insured, Rusty Rhode.

JD Property Management owned commercial rental property in Sauk Centre, Minn., where Rohde rented one of the business suites, operating a salon in the leased premises.

Upon leasing the unit, Rohde replaced two pedicure chairs and installed water lines to service the chairs. In February 2008, one of the water lines burst, causing water damage to the salon and a neighboring suite. RAM paid $17,509 to repair the damage under JD Property Management’s property policy. Because Rohde allegedly installed the water lines without permission, a violation of the lease, RAM filed a subrogation action against Rohde.

Rohde’s attorney sought to have the case dismissed on the grounds that he was a co-insured for purposes of JD’s insurance policy. Insurance law prohibits an insurer from bringing a subrogation action against a co-insured. The district court agreed to the dismissal and the circuit court of appeals affirmed. The court of appeals found that neither lease obligated the parties to obtain insurance to cover water damage.

However, the Minnesota Supreme Court has reversed the decisions and remanded the case back to district court. According to the high court, each action should be examined on a case-by-case basis and the district court is the best place to resolve the equitable relief and contract interpretation issues.

“Whether an insurer may pursue a subrogation action against the tenant of an insured, when the tenant’s negligence caused damage to the insured’s property, must be answered by examining the unique facts and circumstances of each case,” the high court wrote.

The court said that both the insurance policy and lease should be included in the district court’s review.