Nancy Freyburger filed a claim with her insurance company, United Farm Bureau, for damages to a house in Bloomington, Indiana. The Indiana home was owned by her, but leased to five young men (roommates attending a local university). At the time the home was leased, its electrical power was shut off. The electricity was scheduled to be restored the day after the young men were supposed to occupy the premises.

As planned, the lessees moved into the house the night before the power was to be connected. That same night, a fire broke out. The fire was started when two of the lessees (Chadwick Owen and another party) used a kerosene lantern to illuminate the powerless home. Freyburger's claim (more than $98,000) was paid by Farm Bureau. The insurance company then sought subrogation from the two lessees, Owen and the unnamed party who caused the loss. The unnamed lessee settled with the insurer for $43,000. The company then filed suit to recover from Owen.

Owen filed a motion for a summary judgment to be released from any need to repay the insurer due to a provision in his lease. The pertinent portion of the agreement provided that the:

" . . . Landlord and Tenant do each hereby release the other from all liability for any accident, damage or injury caused to person or property, provided, this release shall be effective only to the extent that the injured or damaged party is insured against such injury or damage and only if this release shall not adversely affect the right of the injured or damaged party to recover under such insurance policy."

The trial court agreed with the tenant and granted his motion for summary judgment in his favor. The company appealed.

Neither party contended that the language used in the lease was ambiguous. Farm Bureau claimed that the trial court improperly applied that language as a matter of law. The higher court pointed out that the owner was insured against the fire damage. It found that the lease executed by the owner and the tenant released the tenant from any liability he may have had for the damage.

The company argued that it relied upon the insurance policy's subrogation agreement which stated, in part,

"The undersigned covenants that I/we have not released or discharged any such claim or demand against such party . . . "

However, the court held the opinion that, had the company known of the existence of the lease and its provisions, it might have adversely affected the owner's recovery. The company, (by assuming Freyburger's subrogation rights) stepped into the owner's shoes. The owner had released the tenant from any liability to the extent she was covered by insurance. Since she had been fully paid by United Farm, neither she, nor by extension, United Farm Bureau had a further claim against Owen.

The judgment entered in the trial court against the company was affirmed.

United Farm Bureau Insurance Company, Appellant. v. Chadwick Owen--Court of Appeals of Indiana--January 29, 1996--660 North Eastern Reporter 2d 616.