Waiver of Subrogation - Association Insurance Policies
Our firm recently had an interesting question posed by a condominium association board member. The question was: “Why is there a waiver of subrogation clause in the association’s insurance policy for property/casualty insurance, and can the clause be removed from the policy?” I thought this was a good question and warranted a blog post to inform other board members and managers as to why the waiver of subrogation clause exists and why the clause is required for condominium associations.
For background, it may be helpful to know what “waiver of subrogation” means and how that phrase affects the association and unit owners when a claim is filed with the association’s insurance carrier. “Subrogation” is a term used which describes the right most insurance carriers have to pursue another party that caused a loss to the insured. In this case, the association is the insured. The term “waiver of subrogation” means the insurance carrier is waiving its right to pursue another party that has caused a loss to the association. In other words, the association’s insurance carrier is not going to pursue reimbursement of funds paid for a loss to the association from a unit owner or unit owner’s insurance carrier.
The Ohio Revised Code Chapter 5311 (the Ohio Condominium Act) contains a provision referring to requirements for insurance in §5311.16 but there is no requirement for a waiver of subrogation clause within that provision of the statute. Most condominium declarations do contain language which requires the association’s insurance policy to contain a waiver of subrogation. This provision is normally in the insurance section of the declaration.
But why does the declaration contain this requirement and where does this requirement come from? The answer is the secondary lender requirements which govern lending for the purchase of a condominium unit if the buyer is to obtain a mortgage.
Fannie Mae and Freddie Mac have specific requirements for lending within a condominium association and one of those requirements is that the association’s master policy must include a waiver of subrogation against unit owners to recover payment for a loss covered under the association’s insurance policy. The language must specifically state or be very similar to the following: “Waiver of Rights Recovery: we waive our rights to recover payment from any unit-owner of the condominium that is shown in the declaration.”
I have had discussions with association insurance agents about the lender requirements with the association insurance policies and the agents state that lenders are requiring specific language regarding the waiver of subrogation on the Certificate of Insurance being provided from the insurance carrier to the lender in order to qualify a borrower for a mortgage. This requirement is to not only verify the association has sufficient insurance coverage but also to verify a waiver of subrogation is included in the association’s policy.
Because Fannie Mae insures a large percentage of the condominium mortgages that are issued for purchasing a condominium unit, this requirement is probably going to stay for some time. Amending the Declaration to remove the waiver of subrogation language, most likely, would result in buyers getting denied loans to purchase a unit because the lending requirements would not be met. In addition, the insurance carriers are not likely to change the waiver of subrogation language within the policy as doing so would be contrary to secondary lender requirements.
If your association has questions regarding this information or association insurance in general, contact our office at 614-228-0207 and speak to one of our attorneys.
Ms. Strohm has been practicing law since 2004 and is a principal of the firm Williams & Strohm, LLC. As a member of the Ohio and Columbus Bar Associations, she is admitted to practice in all Ohio courts and the Federal District Court for the Southern District of Ohio. Read Robin Strohm's full bio.