Daily Development forThursday, February 15

LANDLORD/TENANT; INSURANCE: Although tenant is not bound to repair or restore buildings destroyed by act of God or unavoidable accident, and therefore has no duty to share with landlord insurance proceeds tenant acquires for its own interest, tenant may have duty to pay proceeds over the landlord of obligation to insure forms part of the rental obligation.

Middleton v. Rush, 764 So.2d 1276 (Ala.Civ.App. 2000).

Here we have a little Alabama soap opera. Middleton and her husband acquired title to a property in joint tenancy with right of survivorship. Thereafter, Middleton and her husband separated and Middleton moved out. Rush commenced living in the property with Middleton's husband. It is difficult to tell from the statement of facts, but it appears that Rush lived with the husband for over twenty years until he died in 1996. His will left to Rush his interest in the house, but of course, due to the joint tenancy, he had no such interest.

A month after Middleton's husband died, she placed a "for sale" sign on the property. She later alleged that Rush persuaded her to withdraw the sign and to permit Rush to remain on the property if Rush kept up the insurance and taxes. Rush denied any conversation with Middleton, but Rush thereafter took the deceased husband's will to an insurance company and, on the strength of that, it insured the property in her name.

About a year later, according to an insurance agent's record of a conversation with Rush's daughter, Rush heard that Middleton was again planning to sell the property and decided to torch it for the insurance proceeds. Whatever truth there is to this report, the property indeed burned down shortly thereafter, and both Rush and Middleton sought the proceeds.

A trial court granted summary judgment for Rush, and Middleton appealed.

The appeals court, assuming all the facts in favor of Middleton, of course, due to the grant of summary judgment, reversed and remanded.

The appeals court acknowledged that as a general rule either the landlord or tenant can acquire insurance for its own interest and has no obligation to share any proceeds with the other. It noted that even a tenant at will, such as Rush, has an insurable interest, although that interest may not amount to very much money. (It cited some out of state authority, by the way, that a tenant at sufferance does not have an insurable interest.)

In this case, however, there was an allegation that Rush had been permitted to remain as a tenant at will in return for her express or implied agreement to pay the insurance on the property. If this was the case, noted the court, then the landlord conceivably has an argument that the insurance was obtained for the landlord's interest.

Further, the court noted, if Rush was indeed responsible for the fire, she owed any proceeds she did get from the insurer to Middleton as a consequence of her tortious torching.

Comment: The editor gets confused about exactly what the insurer was insuring. It appears that it thought that it was insuring a fee interest, and undoubtedly received a premium for that, and paid that amount into court. But the court here said that Rush's interest was not equal to a fee interest, and that she likely would receive very little of the proceeds, even if she won.

Does this mean that Middleton gets the money because in law Rush had an obligation to be insuring Middleton's interest? Probably. But if the insurer believed that it was insuring only a tenant's interest, the editor suggests that its liability should not be increased because an unnamed party with a more substantial interest makes a claim. Middleton can claim only through Rush. Nevertheless, under the circumstances, if Middleton prevails below, it seems fair that Middleton should collect everything that the insurer was paid to insure.

If, on the other hand, Rush had no obligation to obtain insurance for Middleton, and Middleton gets the proceeds only because Rush wrongfully destroyed Middleton's property, then it would seem that the insurer should be obligated to pay only for Rush's interest, and that pittance would then be transferred over to Middleton. Right?

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