What is Subrogation?!?

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The question of the day is: what is subrogation?

Subrogation is a legal concept where one party is permitted to stand in the shoes of another party and recover damages from a third party. For example, it permits an insurer to assume the position of its insured and take legal action against a third party to recover the amount paid to the insured under the insurance policy. Say, for example, that Mr. Jones is insured and Mr. Smith causes damage to his property. Mr. Jones’ insurance company will compensate Mr. Jones and seek to recover the amount paid to Mr. Jones from Mr. Smith. This is subrogation.

Waiver of Subrogation

While subrogation can occur in condominiums, many condominium declarations require insurance policies to contain “waiver of subrogation” clauses. A waiver of subrogation is where an insurance company gives up its right to be reimbursed by a third party, even if the third party is responsible for damage or loss. For condominiums, it is often a mutual waiver which means the condominium’s insurer cannot pursue the unit owners and the unit owners’ insurers cannot pursue the condominium. Sometimes the waiver of subrogation extends to other parties, like the directors, officers, employees and agents of the condominium, or the tenants of the owners.

It is important to note that, for condominiums, it shouldn’t matter if the insurance policy contains a waiver of subrogation if the declaration includes a clause that requires one. The courts will likely continue to read waivers of subrogation into policies (even if it does not contain one) where a declaration requires one.

Why are waivers of subrogation so common in condominiums?

In large part, it has to do with the uniqueness of condominiums. The legislature has carefully crafted a unique insurance scheme for condominiums. Generally, condominiums are responsible for the common elements and the units (up to the standard unit definition) and the owners are responsible for the improvements to their units. Without waivers of subrogation, the responsibilities could be shifted from those intended by the legislature.

Furthermore, there is a special relationship between the owners and the condominium; the owners are not simply neighbours, but they are also part-owners of the condominium. Waivers of subrogation help preserve the special relationship by preventing claims that could cause turmoil in condominiums.

Subrogation is a confusing concept so don’t worry if you don’t fully understand it. Review your condominium documents and talk to your broker if you have any questions about subrogation.