Condominium Associations Need to Check Their Insurance Policies

June 18, 2024
Aaron S. Marines

Photo by Scott Graham on Unsplash

Section 3312(c)(2) of the Pennsylvania Uniform Condominium Act requires that the Association’s insurer “waives its right to subrogation under the policy against any unit owner of the condominium or members of his household.” This means when the Association’s policy pays for damages to the Unit or Common Elements, the insurance company cannot try to get a contribution from the Unit Owner. That includes times when the Unit Owner was negligent or even purposefully caused damage.

The Act says that the Association’s insurance policies are required to have this waiver of subrogation. So, Unit Owners should not expect to be sued by the Association’s insurance company after a fire or other damage. But the District Court for the Eastern District of Pennsylvania has cast doubt on this expectation. In Country Mutual Insurance Company v. Salim, the Court said that the Association’s policy must actually have the waiver of subrogation language in the policy. If the policy does not have the waiver of subrogation language – even though the Act requires it – then the insurance company can subrogate against the Unit Owner.

The Court used an exception in Section 3312 of the Act to reach its conclusion. Section 3312(a) of the Act requires a Condominium Association “to the extent reasonably available…” to carry property and liability insurance. Section 3312(b) says that if the Association does not carry the insurance required by 3312(a), it has to inform the Unit Owners. The Court reasoned that Section 3312(b) means the Association does not have to follow the rest of the section if it is not reasonable to do so. The Court basically said that the Association could have an insurance policy without the waiver of subrogation, if it was not reasonable to get a policy with the required waiver of subrogation clause. If the Association needed to get a policy without the waiver of subrogation, it just needed to inform all of the Unit Owners of this variance from the rest of Section 3312.

My initial thought was that this case is one of those super technical legal interpretation issues. But I think it is potentially more important than that. Boards and Association Managers know that condominium insurance is a very difficult, tight market. Some Associations cannot get insurance, and others have seen their premiums double. This ruling could give insurance companies an even greater bargaining position. Right now, Associations (and primarily Property Managers) can tell insurance companies that the Association policy has to contain a waiver of subrogation against Unit Owners. The insurance company could point to this case and say, “we are allowed to take out the waiver of subrogation, so long as you tell all your Unit Owners.”

That might not be too bad. After all, if a Unit Owner did something to cause damage, allowing the insurance company to go after them does not seem like a bad idea. The problem will happen if the insurance company does not point out that it removed the waiver of subrogation language. In that case, the Association is supposed to notify Unit Owners. But if the Association does not realize the waiver is missing, it is not going to send out the required notice. And if that happens, and the insurance company subrogates against the Unit Owner, I think the Unit Owner has a claim against the Association.

I do not know of any Association insurance company that is removing waiver of subrogation language from policies. But this is now a question that Associations need to ask. And in the future, Associations may not be able to insist that policies waive subrogation just because the Act requires it.