DiLullo v. Joseph
In DiLullo v. Joseph, 259 Conn. 847, 792 A.2d 819 (2002), the issue was whether, in the absence of a specific agreement between the landlord and tenant, a landlord's fire insurer has a right of subrogation against a tenant for negligently causing a fire that damaged the rented property. Id. at 848.
In particular, the court sought a default rule for when landlords and tenants fail to explicitly allocate their risks in their leases or elsewhere. Id. at 851.
Founding its decision on Connecticut's strong public policy against economic waste, our Supreme Court determined that when two (or more) parties have an insurable interest in a premises, it would be economically redundant for them to have identical or overlapping coverage. Id. at 854.
When principles of equity are invoked, such as with subrogation, a court must examine both the public policy implicated and the basic elements of fairness. Id. at 853.
In doing so, the court concluded that it would be inappropriate to create a default rule that would require that every tenant carry sufficient insurance to cover the cost of an entire building that was, presumably, already insured by the landlord. Id. at 854. "This duplication of insurance would, in our view, constitute economic waste and, in a multiunit building, the waste would be compounded by the number of tenants." Id.
In DiLullo, the Court was persuaded by the reasoning that "in most instances, neither landlords nor tenants ordinarily expect that the landlord's insurer would proceed against the tenant, unless expert counseling to that effect had forewarned them." Id. at 854.
The Court declined to adopt the "implied co-insured" theory that was found to be persuasive to the trial court and affirmed the decision on other grounds.
The court concluded that, in such cases, the denial of subrogation was "sound as a matter of subrogation law and policy . . . outweighing the criticisms and the usual rules of insurance and contract law." DiLullo v. Joseph, supra, 259 Conn. at 853.
DiLullo shows that, an insurer is not entitled, in every case, to step into the shoes of the insured.