The Connecticut Supreme Court has ruled that a landlord's insurer could use the doctrine of equitable subrogation to sue tenants for damage they caused to the rented property where the tenants had agreed in their lease that they would be responsible for damage and that they would obtain liability and property damage insurance—even in the absence of a specific agreement authorizing subrogation.

The Case
Andrew Muldowney and Kalynn Tupa rented a single family home in Greenwich, Connecticut, from John H. Mihalec. During the term of the lease, Mr. Muldowney and Ms. Tupa left the leased property for an extended winter vacation lasting about two weeks. Mr. Muldowney and Ms. Tupa were responsible for ordering and paying for fuel for the home's oil fueled heating system but had not ensured that the heating system had enough oil to operate for the duration of their absence.

While they were away, the oil level dropped too low for the furnace to draw oil, and the heating system stopped working. As a result, the temperature in the home fell, and pipes inside the dwelling froze and burst, causing damage.

Mr. Muldowney and Ms. Tupa had agreed in the lease to “pay for heating fuel,” to “use all . . . heating . . . systems in the [d]welling in a prudent manner,” and to not “[wilfully] or negligently destroy, deface, damage, impair or remove any part of the [d]welling.” Mr. Muldowney and Ms. Tupa also had agreed they would not allow the home to remain vacant for more than 14 consecutive days without notifying Mr. Mihalec, the landlord, in advance of the planned vacancy. The lease required that, during any such vacancy, Mr. Muldowney and Ms. Tupa agreed to maintain the temperature in the home at not less than 60 degrees.

As for liability for any damage, Mr. Muldowney and Ms. Tupa agreed to pay Mr. Mihalec “all lost rent and other damages or costs” incurred by Mr. Mihalec if they breached any of their promises in the lease. The lease also required Mr. Muldowney and Ms. Tupa to hold Mr. Mihalec harmless “from any loss or claim arising out of or in connection with” their use and occupancy of the home, including court costs and reasonable attorney's fees.

Lastly, Mr. Muldowney and Ms. Tupa agreed “to provide and pay for personal liability insurance” for the mutual benefit of Mr. Muldowney, Ms. Tupa, and Mr. Mihalec in an amount of not less than $1 million for bodily injury and property damage and to provide Mr. Mihalec with proof of that insurance.

The repairs for the damage to the home caused by the burst pipes cost $50,960.02. Mr. Mihalec also claimed $10,342.68 in lost rent.

Notwithstanding Mr. Muldowney and Ms. Tupa's obligation under the lease to secure insurance, Mr. Mihalec also had secured an insurance policy for the home, from Amica Mutual Insurance Company, covering certain occurrences, including losses for water damage.

Mr. Mihalec filed a claim under his policy with Amica, which paid Mr. Mihalec for the damage.

The terms of the insurance policy between Amica and Mr. Mihalec obligated Mr. Mihalec to assign to Amica any rights of recovery he may have against any person for any covered loss.

Pursuant to the insurance policy it had issued to Mr. Mihalec, Amica brought a subrogation action against Mr. Muldowney and Ms. Tupa to recover sums it had paid Mr. Mihalec due to their actions or omissions. The complaint alleged breach of contract and negligence by Mr. Muldowney and Ms. Tupa.

Mr. Muldowney and Ms. Tupa moved to strike Amica's complaint, arguing that the insurer had no right of subrogation to Mr. Mihalec's claims against them.

Mr. Muldowney and Ms. Tupa contended that the Connecticut Supreme Court's decision in DiLullo v. Joseph, 259 Conn. 847, 851, 854, 792 A.2d 819 (2002), adopted a default rule that a landlord's insurer had no right of subrogation against a tenant for damage to leased property unless the landlord and tenant had reached a “specific agreement” otherwise. According to Mr. Muldowney and Ms. Tupa, the default rule could be bypassed only if the landlord and tenant had agreed expressly to allow subrogation.

Motion denied
The trial court agreed that DiLullo adopted a default rule against allowing subrogation, in the absence of a “specific agreement” otherwise, but it disagreed with Mr. Muldowney and Ms. Tupa about the nature of the agreement required to overcome DiLullo's presumption against subrogation. According to the trial court, the DiLullo rule applied only when the lease agreement between the landlord and tenant was silent on whether the tenant would be held liable for damage to the leased premises. Because the lease signed by Mr. Muldowney and Ms. Tupa expressly made them liable for any damage they caused and specifically instructed them to purchase insurance for the property for this purpose, the trial court determined that the DiLullo rule did not apply and did not bar Amica from bringing a subrogation action.

Mr. Muldowney and Ms. Tupa filed an answer, again raising the lack of a specific agreement concerning subrogation as a special defense.

The trial court referred the matter to an attorney trial referee for fact finding. The referee found, on the basis of the evidence, that Mr. Muldowney and Ms. Tupa had breached their obligations under the lease. The referee also determined that the lease established a duty of care owed by Mr. Muldowney and Ms. Tupa to Mr. Mihalec. The referee found that they had negligently breached this duty when they failed to ensure that the oil tank had sufficient oil to operate the heating system during their extended absence from the leased property. The referee lastly determined that the breach of the lease and negligence were the cause of Amica's damages, which were $50,960.02 for repairs to the dwelling and $10,342.68 for lost rent. The referee therefore recommended that the trial court render judgment in favor of Amica in the amount of $61,302.70.

The trial court accepted the referee's report and rendered judgment for Amica. An appellate court affirmed and the dispute reached the Connecticut Supreme Court.

Connecticut Supreme Court's Decision
The court affirmed. In its decision, the court explained that, in DiLullo, it had addressed whether a commercial landlord's insurer could pursue a subrogation action against a tenant for property damage when the lease was silent on whether the landlord or tenant bore responsibility for obtaining insurance for the property or paying for property damage caused by the tenant. The court noted that it had concluded in DiLullo that, “as a default rule, no such right of subrogation exists” in the absence of a “specific agreement” to the contrary.

The court added that, in DiLullo, it had not expressly spelled out what the “specific agreement” must consist of to overcome application of the default rule.

It reached that issue in the Amica case, holding that “an express agreement that the tenant will bear responsibility for [his or her] negligence and needs to obtain [his or her] own insurance to cover that responsibility” was the kind of “specific agreement” that would overcome DiLullo's presumption against subrogation.

Given that holding, the court found that the trial and appellate courts both had properly allowed subrogation. The court reasoned that the parties in this case had specifically allocated their “risks and coverages,” in both form and substance. The court noted that they had agreed that Mr. Muldowney and Ms. Tupa would secure a $1 million personal liability and property damage policy for the mutual benefit of Mr. Muldowney, Ms. Tupa, and Mr. Mihalec, and that the lease also provided that, if Mr. Muldowney and Ms. Tupa breached any of their promises in the lease, they would pay all lost rent and other damages or costs Mr. Mihalec incurred as a result. This was in addition to their agreement to hold Mr. Mihalec “harmless from any loss or claim arising out of or in connection” with their use and occupancy of the home and property, the court added.

According to the court, these provisions were sufficient to put Mr. Muldowney and Ms. Tupa on notice that, as tenants, they would be responsible for any damages and were required to purchase their own insurance policy, for the benefit of both themselves and Mr. Mihalec, which covered any damages they might cause. Under these circumstances, the court declared, Mr. Muldowney and Ms. Tupa had no expectation that Mr. Mihalec or his insurer ultimately would bear responsibility for their own negligence. Mr. Muldowney, Ms. Tupa, and Mr. Mihalec had “a specific agreement sufficient to overcome the application of DiLullo's presumption against subrogation,” the court concluded.

The case is Amica Mutual Ins. Co. v. Muldowney, No. SC 19794 (Conn. April 10, 2018). Attorneys involved include Daniel P. Scholfield and Benjamin D. Gettinger on the brief for the appellants (defendants); and Dennis M. Carnelli and Susan L. Miller for the appellee.

Steven A. Meyerowitz, Esq., is director of FC&S Legal, Editor in Chief of the Insurance Coverage Law Report and founder and president of Meyerowitz Communications Inc., providing daily analysis and commentary on significant insurance coverage law decisions across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, he practiced at a prominent Wall Street law firm before founding his law-firm marketing and communications consulting company.