ZURICH AMERICAN INS. CO.

v.

PUCCINI

Third District Court of Appeal State of Florida

Opinion filed February⁶, 2019. Not final until disposition of timely filed motion for rehearing.

________________

No. 3D17-0690 Lower Tribunal No. 16-6142 ________________

Zurich American Insurance Company, a/s/o Lincoln-Drexel Waserstein, Ltd. and Lincoln Drexel, Ltd., Appellant,

vs.

Puccini, LLC d/b/a⁵ Napkin Burger, Appellee.

An Appeal from the Circuit Court for Miami-Dade County, Bronwyn C. Miller, Judge.

Derrevere Stevens Black and Cozad, and Jon D. Derrevere, and Michael B. Stevens, and Shirley Jean McEachern and Mary Grecz (West Palm Beach), for appellant.

Hamilton, Miller & Birthisel, LLP, and Michelle A. Delancy and Melanie Grant, for appellee.

Before EMAS, C.J., and LOGUE and LINDSEY, JJ.

LINDSEY, J.

2

Appellant Zurich American Insurance Company (“Zurich”), as subrogee of Lincoln-Drexel Waserstein, Ltd. and Lincoln Drexel, Ltd. (“Landlord”), appeals the trial court’s final order dismissing, with prejudice, all of its claims against Appellee Puccini, LLC. d/b/a⁵ Napkin Burger (“Tenant”). Because we find, based on the written lease agreement as a whole, that Tenant was not an implied co-insured with Landlord for subrogation purposes, we reverse.

BACKGROUND

This subrogation action arises from Zurich’s attempt to recover money from Tenant that Zurich paid to Landlord for fire damage sustained to Landlord’s building. Tenant leased space from Landlord for a restaurant pursuant to a written lease agreement dated March 1, 2010, for a term of fifteen years and ten months. On February⁷, 2015, a fire ignited in Tenant’s kitchen followed by another fire on the roof of the building. At the time of the fire, Landlord had a Zurich insurance policy that covered a portion of the damage. Pursuant to the terms of its policy, Zurich alleged that it paid Landlord over $2.1 million dollars and that, as a result, Zurich became subrogated to all of Landlord’s claims against Tenant up to that amount. Tenant moved to dismiss Zurich’s subrogation action, asserting that Tenant was an implied co-insured under the policy. The trial court ultimately agreed and entered a written order finding, based on various provisions of the lease, that Tenant

I.

STANDARD OF REVIEW

We review a trial court's order granting a motion to dismiss de novo. Grove Isle Ass'n v. Grove Isle Assocs., LLLP, 137 So. 3d 1081, 1089 (Fla. 3d DCA 2014) (citations omitted). “In determining the merits of a motion to dismiss, the trial court must limit itself to the four corners of the complaint, including any attached or incorporated exhibits, assuming the allegations in the complaint to be true and construing all reasonable inferences therefrom in favor of the non-moving party.” Id. (citations omitted). Moreover, the interpretation of a lease agreement is a question of law, and the applicable standard of review is de novo. Leisure Resorts, Inc. v. City of West Palm Beach, 864 So. 2d 1163, 1166 (Fla. 4th DCA 2003) (citation omitted). In undertaking review of a lease, an appellate court is permitted to reassess the contract and reach a different interpretation from that of the trial court. Sugar Cane Growers Coop. of Fla. v. Pinnock, 735 So. 2d 530, 534 (Fla. 4th DCA 1999). The contract should be reviewed as a whole and all language given effect, and where the language is clear and unambiguous, the contract should be enforced as it reads. Id.

4

II.

ANALYSIS

At issue in this case is the concept of insurance by implication as it relates to an insurer’s ability to maintain a subrogation action against a tenant who is not named in the insurance policy. “Generally, when an insurer pays the claim of its insured, the insurer stands in the shoes of its insured, and the insurer may bring a subrogation action against the tortfeasor to recover the amounts paid under the insurance policy.” State Farm Fla. Ins. Co. v. Loo, 27 So. 3d 747, 748 (Fla. 3d DCA 2010). However, an insurer may not maintain a subrogation action against its own insured, even if the insured’s negligence caused the loss. Id. In the landlord/tenant context, when a tenant is found to be an implied co-insured with its landlord, the landlord’s insurer is barred from bringing an action against the tenant in subrogation. Here, Zurich seeks to stand in the shoes of its insured, Landlord, to sue Tenant for any damage to the building that may have been caused by Tenant’s agents or employees. In determining whether a landlord’s insurer may pursue a subrogation action against a negligent tenant, courts have typically adopted one of three views: (1) the approach set forth in Sutton v. Jondahl, 532 P. 2d 478 (Okla. Civ. App. 1975), which establishes that a tenant is a coinsured of the landlord—and therefore subrogation is unavailable—absent an express agreement to the contrary; (2) the “anti-Sutton approach,” which provides a presumption in favor of subrogation and permits an

1 According to the dissent, our case-by-case approach departs from the majority view, which is the anti-subrogation approach from Sutton. But see Rausch v. Allstate Ins. Co., 882 A. 2d 801, 814 (Md. 2005) (“The majority of courts, however, have avoided per se rules and taken a more flexible case-by-case approach, holding that a tenant's liability to the landlord's insurer for negligence causing a fire depends on the intent and reasonable expectations of the parties to the lease as ascertained from the lease as a whole.” (quoting Union Mut. Fire Ins. Co. v. Joerg, 824 A. 2d 586 (Vt. 2003))). We are, however, bound by our prior cases to follow the case-by-case approach. Moreover, as articulated by other courts, “[w]e are not particularly impressed with characterizations of a doctrine as the ‘majority’ or ‘minority’. We will give due consideration to all decisions of other jurisdictions but will be persuaded only by the soundness of their reasoning and their consistency with [our State's] law.” Am. Family, 757 N.W. 2d at 594 (alterations in original) (quoting Koch v. Spann, 92 P. 3d 146, 150 n.2 (Or. Ct. App. 2004)).

9 31. TENANT’S RESPONSIBILITIES: . . . Tenant shall be responsible for, and shall indemnify and hold harmless Landlord for any and all costs and expenses relating to such damages, actual or consequential . . . resulting from Tenant’s failure to properly maintain the Premises and appurtenances thereto.

(Emphasis added).

The above provisions, when examined to ascertain the intent of the parties as to who should bear the risk for damage caused by Tenant’s negligence, support allowing Zurich to proceed with its subrogation claim because Tenant clearly agreed to bear that risk. See Loo, 27 So. 3d at 750; cf. Kennerson, 661 So. 2d at 330 (explaining that the modern trend of authority holds that an “insurer cannot obtain subrogation against the lessee in the absence of an express agreement or lease provision establishing the lessee's liability” (emphasis added) (quoting 6A John A. Appleman & Jean Appleman, Insurance Law and Practice, § 4055 at 77–78 (Supp. 1994))). We also consider the lease provisions related to the obligation to purchase insurance. Rather than require Landlord to maintain insurance for the benefit of Tenant, the lease affirmatively places the burden on Tenant to procure and maintain insurance for its own benefit and to name Landlord as an additional insured: 25. INSURED LOSS OR DAMAGE: In any event of loss or damage to the Building, the Premises and/or any contents, each party shall first exhaust its own insurance coverage before making any claim against the other party. As Tenant is obligated to maintain insurance to fully

(Emphasis added).

Finally, we consider Paragraph 45, which required Tenant to pay, as additional rent, seventy percent of the Landlord’s operating expenses, including

2 This type of provision is found “[i]n virtually all commercial leases . . . .” 49 Am. Jur. 2d Landlord and Tenant § 358. The purpose is to assure “that the landlord will actually receive the lease's stated profits, that is, an amount or rent ‘net’ of the cost of taxes, operating expenses, and the like.” Id.

According to the dissent, this case is “remarkably similar” to Kennerson, a case in which the First District held that an insurer was not entitled to subrogation from the tenants. However, a careful reading of Kennerson reveals that the lease provisions there are markedly different from the provisions here. Although the tenants in Kennerson paid a pro rata share of the fire insurance, the court did not rely on that fact alone. Instead, the court considered the lease as a whole. For instance, the lease in Kennerson provided that “damage caused by fire ‘shall be repaired by and at the expense of [landlord].’” 661 So. 2d at 328. Moreover, the parties agreed that the tenant “would be excused even from paying rent for damaged premises while [the landlord] applied insurance proceeds . . . to effect repairs.” Id. Finally, the lease in Kennerson had “no provision making [tenant] liable for damages its negligence might cause.” Id. at 329. Here, in contrast, the parties agreed that Tenant would be “fully responsible” for damage caused by fire, and Landlord had no obligation to make repairs “occasioned by any intentional or negligent act of Tenant, its agents, or its employees.” Further, the parties explicitly agreed that Tenant would be liable for damages caused by its negligence, that it would maintain its own fire insurance for

3 The risk-allocating provisions in this case also distinguish it from Cape Publications. There, the Fifth District found—based on the landlords’ express agreement to purchase insurance and tenant’s payment of a pro rata share of the premium—that the parties intended that the risk of loss be borne by the landlords’ insurer. Cape Publ’ns, 63 So. 3d at 896. However, the court, in its case-by-case approach, never mentions any provisions in the lease explicitly holding the tenant liable for damage resulting from its own negligence. 4 Under the dissent’s approach, almost every commercial lease is transformed into an insurance policy providing coverage for negligent tenants because virtually all commercial leases require the payment of operating expenses. See supra note 2. This is not the law in Florida. Were it, insurance companies would find themselves on the hook for damages caused by negligent tenants whom they have never met much less had the opportunity to assess and assign risk in calculating the amount of the premium being charged to their landlords under the landlords’ own policies of insurance.

III.

CONCLUSION

Based on our review of the lease as a whole, and in light of this Court’s decision in Loo, we conclude that Tenant is not an implied co-insured under Zurich’s policy, and therefore, Zurich may proceed with its subrogation action against Tenant. Accordingly, because we find the trial court erred in concluding that Tenant was an implied co-insured with Landlord under its policy with Zurich and in dismissing Zurich’s subrogation action against Tenant, we reverse and remand for further proceedings consistent with this opinion.

Reversed and remanded.

EMAS, C.J., concurs.

The issue in this case is whether a landlord’s insurer can bring a subrogation action against a tenant whose alleged negligence caused fire damage to the rented building when, under the lease, the tenant paid the majority of the premiums for the landlord’s fire insurance. Until this case, the answer in Florida was no, a tenant who paid the insurer’s premiums could not be sued in subrogation by the insurer. Because the majority opinion departs from well-established Florida law and the modern trends across the country, I respectfully dissent. The crucial provisions of the lease specify that (1) in addition to other rent, the tenant will pay 70% of the landlord’s expenses including “premiums for all insurance applicable to the Building,” which premiums for the first year of the lease were agreed to be $20,654.45; (2) the tenant will pay any increased premiums for the landlord’s building insurance caused by the tenant’s use; and (3) “[i]n the event of loss or damage to the Building, the Premises and/or any contents, each party shall first exhaust its own insurance coverage before making any claim against the other party.” Taken together, these lease provisions indicate that the “parties plainly agreed to shift the risk of fire damage to an insurance company.” Cont’l Ins. Co. v. Kennerson, 661 So. 2d 325, 328 (Fla. 1st DCA 1995).

5 The addendum to paragraph¹⁵ of the lease deals with fire insurance. Admittedly, paragraph¹⁰ of the lease, which concerned general liability insurance for tort claims by third parties, required the landlord and tenant to be named as co-insureds. The Kennerson opinion expressly points out, however, that paragraph¹⁰ “contrasts with the addendum to paragraph¹⁵” in this regard. Id. The opinion further notes that the

Id.

The majority’s attempt to distinguish Cape Publications is also unpersuasive. Whether or not the lease at issue here “expressly” provided that fire insurance be purchased, the lease “expressly” provided the tenant must pay fire insurance premiums, thereby clearly and unequivocally indicating the intent of the parties that the risk of fire loss be borne by the landlord’s insurer whose premiums were being paid by the tenant. State Farm Florida Insurance Co. v. Loo, 27 So. 3d 747 (Fla. 3d DCA 2010), the main case relied upon by the majority, is not controlling because the tenant in that case did not pay the premiums for the fire insurance, as occurred here. In fact,

“agreement to carry general liability insurance constitutes additional protection that would apply in circumstances involving liability to injured third parties not at issue here.” Id. at 328 n.2 (emphasis added) (citations and quotations omitted).