Tech Talk: Waiver of Subrogation and The Condo Policy

    Posted by MAIA on October 22, 2019

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    By Irene Morrill, CPCU, CIC, ARM, CRM, LIA, CRIS, CPIW  — VP of Technical Affairs 

    I have seen that “request/requirement/suggestion” in condominium bylaws for the unit owner to make sure that his/her/their insurance policy contains a waiver of subrogation. But I never stopped to think if just having a policy that contained the provision was enough.  I now realize just how important “words” are. 

    Which leads me to a shameless commercial for MAIA’s annual Big Event, taking place this year from Thursday, October 31 to Sunday, November 3. We have some great CE credit course offerings for you lucky convention participants. We have “THE” Bill Wilson, CPCU, ARM, AIM, AAM, Founder & CEO, InsuranceCommentary.com, who wrote the EXCELLENT book When Words Collide. Bill is presenting on Friday (which will also be a live stream opportunity) and Saturday. His presentations will be both informative and entertaining, and totally “worth the price of admission.” I have already read his book twice and learn something new each time. The book enhanced my understanding of just how important words are in a policy, which leads me back to my TechTalk topic.

    Agent’s Question

    I recently received the following email from an agent:

    Recently we have seen an uptick in requests from our condo unit owners who have the condo association requiring the HO6 carry waiver of subrogation. Have you heard of this yet?

    Pacific Indemnity v. John Deming

    I sent the agent a copy of an article that I had cut and pasted into my repertoire of information on various insurance topics, entitled: “No Subro waiver makes tenant liable for $350,000 Luxury Condo loss” which was a July 11, 2019 article in the Agency Checklist publication.  If you don’t currently receive the Agency Checklist publication you should sign up for it at https://agencychecklists.com/ .  It is an excellent and informative publication, and it’s free… what a deal! I also sent the agent a copy of the court case that the article addresses.

    The article discusses the Massachusetts case:
    Pacific Indemnity Company, Plaintiff, Appellant, v. John Deming, Defendant, Appellee. United States Court of Appeals, First Circuit No. 15-2386 Decided: July 05, 2016

    You can Google this court case and read it and/or you can obtain the article on the Agency Checklist website.

    The Agency Checklist article summarized the court case about a tenant who rented a condo and had left the bathtub water running… all night, causing over $350,000 of damage to the unit below. The unit owner of the damaged unit had property insurance through Pacific Indemnity, and that company paid the insured unit owner for this loss. Once the unit owner got paid, Pacific Indemnity received rights of action against the guilty party (subrogated to the rights of the injured insured party by paying their claim).

    Bylaws and Request for Waivers of Subrogation

    Thanks to the fact that many of you over the years have asked for an opinion on what an association’s bylaws might mean, I have been sent a plethora of bylaw language. When I created my Personal Condo class, they were very helpful.  I have noticed a common theme in association bylaws requested (of both the association policy as well as unit owner policies):

    “all policies of casualty or physical damage insurance shall, insofar as practicable, provide:

    For waiver of subrogation as to any claims (except claims involving arson or fraud) against the Trust, the trustees, the manager, agents, employees, the Unit Owners and their respective employees, agents, guests

    OR…

    “all such policies of physical damage insurance shall, insofar, as practicable, contain waivers of subrogation as to any claim against the Trustees, their agents and employees, Unit Owners, their respective employees, agents and guests,…

    My Point

    Association bylaws seem to request that the commercial and personal condominium policies contain a waiver of subrogation.  Super, but is this enough? The court case previously mentioned was against the tenant of the condominium, and not the condominium owner.  It is interesting reading, but it made me want to READ the unit owner policy language.  I “know” that the ISO policy – commercial property, BOP, or HO (any edition) contains a waiver of subrogation condition/provision. But, how does the policy language read?

    The ISO HO-91 waiver of subrogation states

    8.  Subrogation. An "insured" may waive in writing before a loss all rights of recovery against any person.
    If not waived, we may require an assignment of rights of recovery for a loss to the extent that payment is made by us.
    If an assignment is sought, an "insured" must sign and deliver all related papers and cooperate with us.
    Subrogation does not apply under Section II to Medical Payments to Others or Damage to Property of Others.

    The ISO HO-2000/2011 waiver of subrogation provision states:

    F. Subrogation. An "insured" may waive in writing before a loss all rights of recovery against any person.
    If not waived, we may require an assignment of rights of recovery for a loss to the extent that payment is made by us.
    If an assignment is sought, an "insured" must sign and deliver all related papers and cooperate with us.
    Subrogation does not apply to Coverage F or Paragraph C. Damage To Property Of Others under Section II – Additional Coverages.

    So, even if Pacific Indemnity’s right of action was against the unit owner (someone who the bylaws request a waiver of subrogation from and for) and not the tenant of the unit owner, was subrogation actually waived in writing by the unit owner suffering the property loss?

    Meeting bylaws requirement does not necessarily mean subrogation rights have been “waived.” 

    The court case involved a tenant of the unit owner, not the unit owner.  When I reviewed various bylaws a waiver of subrogation for and from “tenants” was not discussed.  But the court looked beyond this and noticed that having a waiver of subrogation provision and ACTUALLY waiving the carrier’s right of subrogation are NOT the same thing.  Hmmmmm

    Pacific’s policy HAD a waiver of subrogation provision but as in the ISO language above, the provision actually REQUIRED that the insured physically WAIVE all rights of recovery IN WRITING before a loss. 

    Without getting into legalist language and “breach of contract” concepts, etc. as addressed in the court case, one can simply say that the insurance policy provision will NOT keep the unit owner’s insurance company, which paid a covered property loss, from pursuing reimbursement from the “guilty party.”

    Should associations be obtaining written waivers of subrogation from unit owners?

    If the point of the waiver of subrogation provision in bylaws is to disallow one unit owner from suing another unit owner, or even worse, the association, then WRITTEN waivers stating such are required.

    Do associations actually follow through with this request in the passing of papers and purchasing a unit?

    It appears that policy language IS important in a court case, just as Bill Wilson has written in his book When Words Collide.

    So, back to the agent’s question

    Recently we have seen an uptick in requests from our condo unit owners who have the condo association requiring the HO6 carry waiver of subrogation. Have you heard of this yet?

    My Response

    I think the request goes to this article and case (Pacific Indemnity v. Deming). And, it’s interesting that the HO-6 includes a discussion of waiver of subrogation, but merely requiring the policy provision in the bylaws might not enforce it.

    What the associations should do is create a waiver of subrogation and make all unit owners SIGN IT.  I see a “discussion” of waiver in bylaws, but I’m not sure that it will activate this provision.

    So, the association has it ALL WRONG … interesting …perhaps a little TechTalk is in order.

    Bottom Line

    I’ve always “assumed” that the unit owner met the bylaws requirement because I “knew” that the ISO HO-6 contained a waiver of subrogation clause. The problem is: Did the unit owner REALLY meet the association’s requirement? And: Will the way the clause is written actually keep their carrier from subrogating? 

    After reading the court case Pacific Indemnity v. Deming, I think not. Oops.

    That’s my story and I’m sticking to it.  See you at convention!



    Please remember that part of MAIA service is answering questions and providing information. Please feel free to email me when you have a coverage question, problem, or issue. Perhaps I can help at imorrill@massagent.com

    This article has been developed expressly for the members of MAIA.
    Reprint by other than members without the express permission of the author is not permitted.


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