The declarations of many condominium corporations contain a provision requiring insurance policies to include a “waiver of subrogation” against a number of parties, including the corporation, manager, agents, employees, owners, residents, tenants, invitees, etc. What are the benefits of such a provision, and would unit owners benefit from removing the waiver of subrogation, especially where there are incidents of repeat damage caused by the same unit?
What is subrogation?
Subrogation is a legal concept that permits an insurance company to stand in the place of its insured and seek recovery for losses paid under the insurance policy from a third party that caused the damage.
For example, a person in an automobile accident that is caused by another person submits a claim to his or her insurer. The insurance company pays out the insured’s claim and then assumes the insured’s legal rights. The insurance company then seeks reimbursement from the person that caused the accident, usually via a lawsuit.
When an insurance policy contains a waiver of subrogation, the insurance company knowingly relinquishes any rights that it may have to seek reimbursement from a third party, even if that party is responsible for the damage or loss.
Subrogation in condominium policies
Most declarations that include a waiver of subrogation make this a mutual requirement, so that, the corporation’s insurer cannot pursue unit owners that cause damage, and a unit owner’s insurer cannot pursue the corporation or other unit owners who may have been responsible for the damage.
It is important to note that, where a declaration includes a waiver of subrogation clause, the actual wording of the insurance policy is somewhat irrelevant. On a number of occasions, courts have found that where a declaration requires a waiver of subrogation, a policy that does not contain the provision will be deemed to contain one. The underlying basis is that the insurer would have had access to the declaration at the time the policy was entered into, and therefore ought to have been aware of the waiver.
Purpose of the Waiver of subrogation
Why would an insurance company agree to waive its right to seek reimbursement from a third party responsible for damage? The answer is that insurance companies have a fear of the unknown. A waiver of subrogation crystallizes the amount that an insurance company may be asked to pay. In the condominium context, the maximum that the corporation’s insurer may be asked to compensate under a claim will be based on the common elements and the standard unit for each class of units within the corporation. For the unit owner’s insurance provider, the maximum amount that it may be asked to compensate is dependant on the improvements, alterations, fixtures, etc., to the unit it insures. With a waiver in place, it becomes unnecessary to factor in the unknown contents and improvements found in other units.
Would removal of the waiver of subrogation be beneficial?
In our view, removing the waiver of subrogation from a condominium corporation’s declaration would not be in the best interests of a corporation or its individual unit owners and residents. Deleting the waiver of subrogation against other owners and residents would negatively impact an owner’s ability to obtain insurance for improvements, fixtures, possessions, etc. Without a waiver of subrogation provision, a unit owner’s insurer would be liable not only for the costs of repairing the damage to the improvements and content in the insured unit itself, but also for the cost of repairing improvements and contents of all other units and/or common elements that are damaged.
Not all condominium declarations contain a waiver of subrogation provision, and where they do, the parties covered by the waiver are not always the same. For example, tenants may not be protected under the waiver of subrogation clause. The insurance provisions of a condominium corporation’s declaration should always be reviewed carefully. A corporation’s insurer and/or legal counsel should be contacted for guidance where necessary.