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Condo | HOA Lawyers

Insurance Subrogation – Not Against A Condominium Tenant


An insurance company can’t sue a condominium tenant in subrogation, even if they were negligent in starting a fire.

The Facts

The Declaration required the association to “obtain and maintain a … policy of all risk property insurance” for the association.  The Declaration also required the policy to name as insureds the unit owners and their bank mortgage holders (Mortgagees) and that “any insurance maintained by the association shall contain [a] ‘waiver of subrogation’ as to the Units and Mortgagees.”  Finally, the Declaration also prohibited the owners from obtaining fire insurance and required all occupants and tenants to comply with the Declaration.

One of the unit owners leased its commercial unit to the tenants (Defendant). The lease did not specify who would carry fire insurance.  The insurance company (Plaintiff) issued a policy to the association with each of the unit owners named as insureds.  In 2014 a fire occurred damaging the units.  Plaintiff paid for the damages under the policy and then filed a complaint for subrogation against the Defendants.  Plaintiff alleged that Defendant were negligent in causing the fire.  Defendant argued they were implied co-insureds under the policy and therefore Plaintiff could not bring a subrogation claim against them.

Trial Court

The trial court agreed with Defendant and granted it summary judgment, holding that the tenant defendants did not have the burden of insuring from fire losses to the property.  The Plaintiff appealed.

Appeals Court

The Appeals Court analyzed subrogation carefully, finding as follows:

Subrogation is the “substitution of another person in place of the … claimant to whose rights he … succeeds. Insurance Subrogation is the “insurer’s right to be put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured and paid.”  In this case the plaintiff insurer was seeking subrogation (to be paid back) from the allegedly negligent tenant defendants.  The elements needed for such a recovery are:

  1. The insured suffered a loss for which the defendant is liable as a wrongdoer;
  2. The claimed loss is not one for which the insurer is primarily liable;
  3. The insurer has compensated the insured;
  4. The insurer has paid the claim of its insured;
  5. The insured has an existing assignable claim against the defendant;
  6. The insurer has suffered damages caused by the act or omission of the defendant;
  7. Justice required that the loss be entirely shifted from the insurer to the defendant; and
  8. The insurer’s damages are liquidated (usually the amount paid to the insured).

After analyzing the required elements, the Appeals Court held that the lease did not require the Defendant to obtain fire insurance, the Declaration prohibited the Defendant from purchasing fire insurance and that the Defendant had to surrender the premises at termination in the same condition, reasonable wear and tear and casualty excepted. The Court then specifically held that “casualty includes damage by fire.”  Accordingly, the Appeals Court affirmed the Trial Court holding that the insurer could not sue the tenant of a unit owner under these facts.

Lessons Learned
  1. Make sure your condominium documents include a waiver of subrogation clause for all unit owners and residents where appropriate;
  2. Have your association carry a high deductible and make your unit owners and/or tenants who cause a loss responsible for that deductible; and
  3. Have your unit owners strongly consider two things:
    • Obtaining insurance coverage for the association deductible if their negligence or conduct causes a loss; and
    • Obtaining insurance from the same insurance company that covers the association so as to avoid any gaps in coverage.

Western Heritage Insurance v. Frances Todd, Inc., No. A152428 (Cal. Not Reported. Filed March 4, 2019)


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