The Subrogation Strategist

In J&J Fish on Ctr. Str., Inc. v. Crum & Forster Specialty Ins. Co., No. 20-cv-644-bhl, 2022 U.S. Dist. LEXIS 16361, the United States District Court for the Eastern District of Wisconsin (District Court) recognized that “[t]here will be no further fish fries on Center Street until someone pays to repair the collapsed floor at J&J Fish on Center Street, Inc. (J&J Fish).”  The contenders were:  1) J&J Fish; 2) its’ insurer, Crum & Forster Specialty Insurance Company (Insurer); and 3) J&J Fish’s landlord, Vision Land, LLC (Vision). Recognizing Insurer’s right to subrogate against Vision based on the terms of the parties’ lease, the District Court held Insurer owed J&J Fish coverage for the losses it sustained, but that Insurer could subrogate against Vision for anything it had to pay J&J Fish.

In J&J Fish, Vision and J&J Fish signed a lease (Lease) for a building (the Building) located in Milwaukee, Wisconsin. The Lease required Vision to “purchase and keep in full force and effect on the building(s) . . . insurance against fire and such other risks as may be included in all-risks policies . . .”  Vision, however, never obtained any insurance on the Building. Pursuant to the Lease, Vision also agreed to “maintain and repair the structure including the slab floor and exterior walls of the Premises.”

With respect to J&J Fish, the Lease required J&J Fish to maintain “Physical Damage insurance, including but not limited to fire . . . and all other risks of direct physical loss as insured . . . for the full replacement cost of all additions, improvements (including leasehold improvements) and alterations to the Premises.”  J&J Fish purchased a commercial property and casualty insurance policy (the Policy) from Insurer. The Policy covered “additions, improvements . . . and alterations” as the Lease required. In addition, it insured the Building itself against “collapse,” subject to certain exceptions.

J&J Fish sued Insurer for coverage under the Policy. The District Court held that the Policy exclusions did not apply and that Insurer owed J&J Fish coverage for the loss. The District Court also held, however, that Insurer could subrogate against Vision for the loss.

Although Vision argued that it satisfied all of its obligations under the Lease, the District Court found that Vision badly misread the Lease. The court found that Vision, not J&J Fish, had to obtain insurance coverage for the building itself, of which the slab floor was part, which Vision admitted that it did not acquire. The court also found that Vision had a duty under the terms of the Lease to “maintain and repair the structure including the slab floor.”  Ultimately, the District Court held that, because Vision breached the terms of the Lease “twice over,” equitable subrogation principles demanded that Vision bear responsibility for its’ shortcomings. Thus, the court held that Insurer could subrogate against Vision.

This case reminds us that it is important to read the terms of a lease to determine exactly what a tenant and landlord agreed to be responsible for, and to insure. It also serves as a reminder that subrogation generally involves equitable principles and, where equity dictates that a one party be responsible for a loss – even if not, technically, a tortfeasor – a Wisconsin court addressing a claim of subrogation will hold that party responsible.