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Case Bulletin – West Virginia Supreme Court Rules That Tenant Is Not An Equitable Insured

The West Virginia Supreme Court recently decided a case concerning whether a tenant is considered an equitable insured under a policy issued to the owner/landlord.  In Farmers & Mechanics Mut. Ins. Co. v. Allen, the insurer for the owner/landlord brought a subrogation claim against the estate of a tenant who had died in a fire that consumed the insured property.   The insurer for the owner/landlord, Farmers & Mechanics (F&M), paid the limit of the structure coverage to the insured and when the tenant’s estate filed suit against the insured for failing to have smoke detectors installed, the insurer filed a counter claim for subrogation alleging the deceased’s negligence caused the fire.


The landlord and tenant had entered into a rent to own agreement whereby part of the rental payments made by the tenant were to go towards insuring the structure.  The owner testified that she did put a portion of the rental payments towards insurance.  In addition, by requirement under the rent to own contract, the tenant purchased renters insurance.


The estate responded to the counter claim by asserting that the deceased was an insured under the F&M policy because he had an “equitable interest” in the property by virtue of renting to own and by operation of the fact that a portion of his rent was used to purchase insurance (essentially arguing he had funded the purchase of the insurance).  Therefore, the estate argued, there can be no subrogation as West Virginia law forbids an insurer from subrogating against its own insured.  F&M asserted that the tenant was not an insured under the policy by definition or by equity.  Importantly, F&M was not aware of the lease to own agreement when they sold the policy, nor were they aware that the tenant was living there.    Finally, F&M argued that the lease to own agreement was not an insured-contract.


The Supreme Court agreed with F&M and reversed the Circuit Court’s ruling.  The Court held that the insurance contract was between F&M and the landlord and that the language stating this was clear and unambiguous.  It further held that WV does not and will not recognize a tenant as an insured by virtue of his equitable interest.  The Court stressed the inherent unfairness of making an insurer insure a person they had no choice in insuring.  With regard to any insurable interest at issue, the Court noted: “Finally we reject the circuit court’s “equitable insured” ruling based on our recognition of the following principal of law:  “the fact that both parties (landlord and tenant) had  insurable interests does not make them co-insureds.”