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Subrogated claim against fire-causing students rejected because students were insureds (US)

30 March 2021 Patrick Bracher, Norton Rose Fulbright
Patrick Bracher, Norton Rose Fulbright

Patrick Bracher, Norton Rose Fulbright

The insurer was denied the right to sue two former college students for $4.5 million the insurer had paid to the school after the students accidentally set fire to the dormitory. It was held that the students accommodated in dormitories were equivalent to tenants and insured under the school’s fire policy.

The two students used a charcoal grill on the deck of the dormitory and started a fire that spread to the roof of the building causing substantial damage.  The use of the charcoal grill on the roof was specifically prohibited by the student handbook.

The court referred to a previous decision creating an anti-subrogation doctrine in the context of tenant/landlord lease agreements where the tenant is considered as a co-insured with the landlord in the absence of an express agreement between them to the contrary.  It derived from a recognition that both landlord and tenant have an insurable interest in the rented premises.

The court found that there was no material difference between a student in college accommodation and a tenant in leased premises because the student’s right to control and exclude others from their dormitories is substantially identical to that of tenants over leased properties.  Their occupancy is fundamentally no different from that of a residential tenant.  A reasonable residential tenant expects that the landlord has fire insurance to protect the rental property and a reasonable college student could expect the same especially as the insurance was referred to on the college website.  The insurance company reasonably expects to pay for negligently caused fires and takes into account that the insured property will be rented to tenants or in this case rented to students.  Just as a tenant pays a portion of the insurance policy’s premium through the rent, the college student pays a portion of the insurance through tuition or room and board fees.

Therefore even though the relationship with the college was not strictly that of landlord and tenant, the students had a contractual relationship with the college in which they paid for the right, subject to limitations, to occupy a college dormitory for a certain period of time giving rise to the reasonable expectation that the college carried fire insurance to which they contributed indirectly.  There was no contractual provision to negate the anti-subrogation doctrine.  The insurer’s claim against the students was dismissed.

[Ro/Lim v Factory Mutual Insurance Co case number 2019-0620 Supreme Court of New Hampshire]

First published by: Financial Institutions Legal Snapshot

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