by Leslie Kocher-Moar and Chelsey Thorne

It has been over ten years since Koch v. Spann, 193 Or.App. 608, 92 P.3d 146 (2004) was decided, but is still often cited in insurance subrogation cases.  In this seminal subrogation case, the Oregon Court of Appeals declined to follow the Sutton rule, holding that unless a rental agreement specified otherwise, the tenant was not an implied co-insured on his landlord’s insurance policy, and therefore a subrogation claim may be made against the tenant.

In Koch v. Spann, the defendant tenant lit candles and sparklers on a Christmas tree, starting a fire in the landlord’s duplex.  The fire caused damage to the rental in excess of $200,000.  The defendant did not maintain fire insurance on the rental in his name.  The landlord carried an insurance policy with USAA, and USAA paid the damages caused by the fire.  USAA subsequently brought suit in the name of the landlord against the tenant to recover the amounts paid.  Using the Sutton rule, defendant argued USAA could not bring a subrogation claim against him because he was an implied insured under the USAA policy.  See Sutton v. Jondahl, 532 P.2d 478 (Okla. App. 1975).

The trial court dismissed the case on summary judgment, holding the Sutton rule did apply and therefore the tenant was an “implied co-insured”.  USAA, through MacMillan, Scholz, & Marks, appealed and obtained reversal.

In Sutton v. Jondahl, the Oklahoma Court of Appeals held tenants are presumed to have an interest in their landlord’s insurance policy.  The Oregon Court of Appeals in Koch declined to follow this rule, noting that in prior cases, the Oregon Supreme Court had determined whether there was or was not waiver of subrogation on a case-by-case basis.  The Court of Appeals determined it was necessary to look at the language of the agreement at issue to determine whether a landlord expressly agreed to extend insurance coverage to their tenant.  If that language is incorporated into the agreement, then a subrogation claim is prohibited.

Several jurisdictions, including Florida, Vermont and South Dakota, have adopted the case-by-case approach to waiver of subrogation in the landlord tenant context, citing to Koch v. Spann.

Link to opinion: Koch v Spann.