United States District Court interprets strictly exception to doctrine of implied coinsurance

Mike Tracy of Rudolph Friedmann LLP brought to my attention a recent case in which the United States District Court for the District of Massachusetts applied the implied coinsurance doctrine.

The implied coinsurance doctrine states that a residential tenant is an insured on a landlord's insurance even if the policy does not state that the tenant is an insured. Under that doctrine, a landlord's insurer is barred by the anti-subrogation rule from seeking reimbursement from a tenant for damages caused by the tenant. (The anti-subrogation rule bars an insurer from seeking from its own insured reimbursement of funds the insurer paid on a loss.)

In Fed. Ins. Co. v. Commerce Ins. Co. Roberts, a resident of Kimball Farms retirement home, negligently started a fire in her unit. The lease stated that any loss or damage to property owned by Kimball Farms will be paid for by Roberts, and that Roberts releases Kimball farms from all liability or responsibility for injury or damage to her personal property not caused by Kimball Farms or its employees. It also stated that Roberts "shall have the responsibility of providing any insurance desired to protect against such loss."

Federal Insurance Company insured the retirement home and paid the damages resulting from the fire. It sought to recover that amount from Roberts. The court held that it was barred from doing so by the implied coinsurance doctrine.

The court noted an SJC decision stating that the implied coinsurance doctrine does not apply where a provision of a lease expressly establishes "a tenant's liability for a negligently started fire." It interpreted that phrase literally, holding that since the lease did not discuss fire specifically, the exception to the implied coinsurance doctrine did not apply.

The court also held, sensibly, that the fact that Roberts purchased insurance was irrelevant to the application of the implied coinsurance doctrine.