Subrogation waiver does not apply to condo owner’s tenant

Where a condominium association’s insurer waived subrogation against additional insureds, this waiver did not extend to an individual unit owner’s tenant.

Facts

Sailsman was an individual unit owner in the Chimney Hill Condominium Association. He leased his unit to Alba. A fire originated in Sailsman’s unit, causing Erie Insurance Exchange to pay more than $822,000 for the association’s benefit.

Erie was the association’s insurer. The policy named each individual unit owner as an additional insured. Erie also agreed to waive its right of subrogation as to additional insureds. Erie sued Alba, claiming that she or her guest negligently caused the fire “by failing to properly dispose of cigarette remains.”

Alba filed a third-party complaint against Sailsman for indemnification in the event she was found liable. Alba defended Erie’s suit on the basis that Erie’s waiver of subrogation applied to her. The circuit court agreed. Erie appealed.

No Waiver

“[B]ecause the question before this Court is whether Alba benefitted from a subrogation waiver, we must necessarily look to the source of the waiver itself. The subrogation waiver language would not be contained in the Association’s governing documents, but in the insurance policy between Erie and the Association.

“The Association’s governing documents may have instructed the Association on the insurance it was expected to obtain, but the actual terms of the agreed upon coverage – including the rights and obligations of the parties involved – can only be found in the binding agreement between the Association and Erie as contracting parties. …
“The policy expressly provided that the Association and the individual unit owners were the named and additional insureds covered under the insurance that the Association agreed to purchase and that Erie agreed to provide.

“After identifying the individual unit owners as additional insureds under certain coverage parts, Erie waived its rights to recover from them. Neither waiver made any mention of tenants or other non-owner occupants.
“Thus, the clear inference is that Erie did not intend to waive subrogation as to anyone other than the Association and the individual unit owners. Alba, as neither an individual unit owner nor part of the Association, is not an insured party from whom Erie would be prevented from pursuing recovery … and is therefore not protected by any waiver Erie may have made as to subrogation.

“Alba argues that even if she is not a named or additional insured under the Association’s insurance policy, she should be considered an implied insured of the Association and thereby protected from subrogation. We observe that there is no contractual agreement between Alba and the Association, let alone one that would serve as a shared expression of the mutual intent to vary Alba’s common law obligations with respect to potential acts of negligence.

“Absent this shared agreement, we see no reason to imply a departure from the norm when the parties had the ability to reduce their understanding to writing if they so intended. …

“The residential lease between Sailsman and Alba was the only binding contract to which Alba was a party. Assuming this Court could look past the Association to the residential lease, there is still no language that disclaims Alba’s liability for negligently caused fire damage to the unit or to the Association’s property.

“To the contrary, Alba agreed not to negligently damage the unit or the premises and to repair any damage that resulted from her negligence. As to fire damage specifically, the only provisions contained in the lease pertain to whether Alba would be held to the lease in the event of necessary repairs to the unit. There is nothing in the lease that serves to alter Alba’s common law responsibility for her potentially negligent actions; in fact, the terms of the lease expressly reinforce that liability.

“It is thus abundantly clear from the contracts and documents involved – primarily the insurance policy, but also the residential lease and the Association’s governing documents – that the Association did not intend to assume or absolve liability for the negligent acts of a unit owner’s tenants that caused the Association to suffer a loss.

“It is equally clear that the Association did not intend to subvert Erie’s ability to thereafter recover from a tenant whose purported negligence necessitated the insurer’s payments for that loss. …

“[W]e reject the contention that Alba was an implied insured of the Association where no contractual relationship or agreement existed between the two parties to allocate risks and responsibilities, and where the surrounding circumstances reflected the contrary intention of not absolving non-unit owners of responsibility for harm caused by their negligent acts.”

Reversed and remanded.

Erie Ins. Exchange v. Alba, et al., Record No. 190389 (Chaffin). May 28, 2020, Virginia Beach City Cir. Ct. (Lilley). Mark Charles Nanavati, Gary Christopher Jones Jr. for appellant, Todd Michael Fiorella, Katherine Marguerite Lennon, Lisa Kent Duley for appellees. VLW 020-6-039, 9 pp.