Consternation
amongst insurance companies after the Court of Appeal ruled tenants cannot be
sued for unintentional damage when landlords have insurance cover for the risk,
a ruling which brings residential tenancies into line with commercial leases
and reduces insurance companies’ ability to recover compensation for claims
paid.
Having paid out $216,400 for repairs to a
rented house after a kitchen fire, AMI Insurance sued the tenants. They had left a pot of oil on a stove,
unattended on high heat. Their landlord
was insured for accidental damage.
Insurance companies have a general right of subrogation after paying a
claim. They stand in the legal shoes of
the person insured and can exercise all their rights against any person causing
the damage.
Since 2008, changes to the Property Law Act
stopped insurers exercising rights of subrogation against commercial tenants
after paying claims by a landlord. The
economic rationale for this rule change was that most commercial leases bundle
the landlord’s insurance premium into the rent payable. Having paid the premium indirectly, tenants
should be exonerated for any losses covered by the insurance they paid
for.
The Court of Appeal was asked whether the
exoneration rule for tenants on commercial leases applied also to residential
tenancies. The Court ruled that general
principles in the Property Law Act do apply to residential tenancies where they
do not conflict with specific provisions in the Residential Tenancies Act. Residential tenants are immune from any claim
by the landlord (or the landlord’s insurer) where the landlord is insured for
the damage caused. Guests of the tenant
are also covered by this immunity.
Holler
v. Osaki – Court of Appeal (15.04.16)
16.058