The Subrogation Strategist

In Am. Reliable Ins. Co. v. Addington., No. 3:21-CV-00848, __ F.Supp.3d __, 2022 U.S. Dist. LEXIS 218436, the United States District Court for the Middle District of Tennessee (the District Court) considered whether a tenant’s live-in partner and the partner’s adult son constituted a “family” in the underlying lease and, thus, were implied co-insureds under the Sutton Rule. The District Court determined that the arrangement did constitute a “family” and that the Sutton Rule barred subrogation.

Am. Reliable Ins. involved rental property in Dickson, Tennessee (the Property), owned by Bill Brazzel (Brazzel) and insured by American Reliable Insurance Company (ARIC). Jeffrey Pimer (Pimer) entered a lease with Brazzel on June 9, 2005, to rent the Property. In relevant part, the lease stated the Property was “to be used and occupied by the Lessee solely as a private dwelling for the Lessee and family.” The lease did not explicitly define the term “family.”

Sometime after execution of the lease, Laurie Addington (Addington) and her adult son, Joshua Perez (Perez) moved into the property with Pimer. Pimer referred to Addington and Perez as his “family” and introduced them as such to Brazzel. Brazzel never objected to Addington and/or Perez living at the property, nor did Brazzel ever require Addington and/or Perez sign a separate lease to reside at the property or collect rent from them.

On November 13, 2019, a fire occurred at the Property, allegedly due to the misuse of a kerosene heater by Addington and/or Perez. ARIC filed an initial subrogation action against Addington and Perez that was dismissed without prejudice based on a finding that the “Sutton Rule” applied. Under Tennessee’s version of the Sutton Rule, “absent an express agreement to the contrary in a lease, a tenant and his or her landlord are implied co-insureds under the landlord’s fire insurance policy.” Here, the lease was silent as to insurance, meaning that the tenant was an implied co-insured under the landlord’s policy.

However, the District Court noted that neither Addington or Perez’s names were on the underlying lease and allowed ARIC to refile on a limited basis. Specifically, the District Court stated its Sutton Rule analysis may not apply if Addington and Perez “were not tenants subject to the terms of the Lease.”

ARIC took advantage of the District Court’s opening and refiled the action, asserting that Addington and Perez were not tenants and, thus, not entitled to Sutton Rule protection. Following discovery, the defendants moved for summary judgment, arguing that Addington and Perez were “family” under the terms of the lease language and, thus, were tenants and implied co-insureds pursuant to the Sutton Rule. ARIC argued that the lease was between Pimer and Brazzel only and since neither Addington nor Perez were named on the lease, they were not implied co-insureds.

The District Court ultimately agreed with Addington and Perez, finding that Pimer, Addington, and Perez qualified as a “family” as described in the lease. Specifically, the District Court turned to the definition of “family” found in three other cases, noting that Pimer, Addington, and Perez qualified under each definition. Specifically, Pimer, Addington and Perez lived as “(1) a ‘collection of persons forming a domestic household’…; (2) a ‘group of not more than four persons who [were] not related by blood, marriage, or adoption living together as a common household dwelling unit’ and/or (3) a ‘group of individuals living under one roof.’” Since Pimer, Addington and Perez were a “family,” they were subject to the lease and the Sutton Rule applied, making them implied co-insureds under the landlord’s policy.

The District Court considered and rejected ARIC’s contention that finding Pimer, Addington and Perez were a family would strain the definition of “family” and have “far reaching consequences both in terms of landlord tenant law as well as other areas of contract law.” The District Court noted the decision was not based solely on Pimer’s assertion that Addington and Perez were his family but was based on several factors. Specifically, the District Court stated that Pimer referred to Addington and Perez as his family to Brazzel, Brazzel had knowledge of and gave consent to Addington and Perez living at the property as a family, and Brazzel never required a separate lease from Addington and Perez. The District Court noted that Addington and Perez were similarly situated to the tortfeasor in Sutton: neither paid rent, neither were on the lease, but all were tenants at the property. The District Court found that the policy considerations outlined in the Sutton Rule applied and that “an accepted definition of family comfortably encompasses the relationship of Pimer, Addington and Perez.”

Subrogation professionals must consider the specifics of lease construction and living arrangements when evaluating the potential applicability of the Sutton Rule. Even if residents are not legally married or related by blood to the named lessee, depending on the totality of circumstances they may still qualify as an implied co-insured under the Sutton Rule.