The Roof Is on Fire: When, Absent anAgreement Otherwise, May a Landlord'sInsurer Pursue a Subrogation ClaimAgainst a Negligent Tenant?

I. IntroductionUnder the theory of subrogation, courts permit one party to stand in another party's shoes with reference to the former's legal claims or rights.1 In the insurance context, a subrogated insurer stands in the shoes of its insured and seeks indemnification from third parties whose wrongdoing caused a loss for which the insurer is obligated to pay.2 An insurer, however, can only be subrogated in reference to third parties and is barred from pursuing subrogation claims against its insured when the claim concerns the property for which the insured is covered.3 However, the clear distinction between the insured and the third party blurs in the landlord-tenant context. What should result if an insurer reimburses an insured landlord for damage caused by a negligent, uninsured tenant? The courts are currently split as to whether the insurer may pursue a subrogation claim against that negligent tenant.Consider the following hypothetical: Sally rents a townhouse in Washington, D.C. from Landlord Properties. When entering the lease, Sally does not discuss fire insurance with Landlord Properties; Sally does not purchase renter's insurance to cover her for claims of negligence; but Landlord Properties does procure fire insurance from Ekaps Insurance. One evening when Sally departs for a benefit dinner, she negligently fails to extinguish a scented candle. Several hours later when Sally returns, she finds that her scented candle sparked a fire, reducing the insured structure to a smoldering pile of ash. After Ekaps Insurance compensates Landlord Properties for the loss incurred, Ekaps Insurance wishes to pursue a subrogation claim against Sally.In responding to this situation, some courts adopt a case-by-case method of analysis, where on some occasions insurers are subrogated against the negligent tenant and on other occasions they are not, providing an unpredictable, unstable approach.4 Other courts adopt a "no-subrogation" rule, barring insurers from pursuing subrogation claims against negligent tenants, and allowing the negligent party to enjoy a windfall by virtue of escaping liability.5 Finally, some courts adopt a "pro-subrogation" rule where insurers may pursue a subrogation claim against negligent tenants, allocating the loss to the party responsible for the damage and the party best positioned to avoid such loss.6In the abovementioned hypothetical, Sally is clearly the wrongdoer, and Ekaps Insurance clearly suffers financial detriment when it compensates Landlord Properties for the detriment Sally caused to the insured structure. Under these circumstances, should Sally escape liability and enjoy unjust enrichment merely because Landlord Properties had the foresight to purchase insurance?7 Or should a court permit Ekaps Insurance's subrogation claim against Sally, reimbursing the insurer for the compensation it paid to the insured?8 Or should a court acknowledge that landlord-tenant relationships vary greatly and that each case's outcome should depend on the reasonable expectations of the parties in regard to the specific lease, including all the relevant admissible evidence at issue?9A situation similar to the above hypothetical arose in Rausch v. Allstate Insurance Co.10 In fact, this situation is not novel and courts continue to resolve this issue in different ways.11 All of these methods of analysis are supported by public policy rationales and all of these methods of analysis suffer from individual inadequacies. As a result, whenever such a situation arises, courts continue to assign differing weights to each public policy, ultimately concluding one method is superior to another. In order to resolve the current inconsistencies in the law, the American Law Institute (ALI) in its Restatement (Third) of Restitution and Unjust Enrichment should endorse a means of addressing this issue, providing direction on this issue of legal divergence.12This Note analyzes the current jurisdictional split as to whether, absent an agreement otherwise, a landlord's insurer may pursue a subrogation claim against a negligent tenant. …