U.S. Court of Appeals affirms that implied coinsurance doctrine applies to resident of retirement home

I posted last year about a decision of the United States District Court for the District of Massachusetts in Fed. Ins. Co. v. Commerce Ins. Co., 2008 WL 4873959 (D. Mass.), in which the court held that the doctrine of implied coinsurance barred an insurer of the owner of a retirement community from bringing a subrogation action against a resident who negligently started a fire.

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.)

The United States Court of Appeals for the First Circuit has affirmed the District Court's decision in Fed. Ins. Co. v. Commerce Ins. Co., __ F.3d ___, 2010 WL 716412 (1st Cir.)

The court first held that the lease was a residential lease so that, absent an exception, the implied coinsurance doctrine would apply.

The court then held that an exception to the implied coinsured doctrine where a lease has an express provision establishing a tenant's liability for loss from a negligently started fire did not apply. The court held that if the landlord intended to include such a provision in the lease, "it needed to be crystal clear in requiring that the tenants maintain fire insurance."

Although the lease at issue mentioned a tenant's liability for damages caused by the resident, it had no express language establishing liability for fire damages. The lease mentioned insurance, but could interpreted as making tenants liable only for losses to their personal property. Neither of the clauses explicitly mentioned fire liability.