Subrogation is a legal concept that frequently arises in community association operations, particularly in the context of property damage claims. While the term may sound technical, the underlying principle is straightforward and important for board members to understand.
At its core, with regard to insurance, subrogation occurs when an insurance company pays a claim to its insured and then “steps into the shoes” of its insured to pursue recovery from a third-party that is responsible for the loss. In the condominium context, this often means that after paying a unit owner (e.g., an insured) for water damage, fire damage, or similar loss, the unit owner’s insurance carrier may seek reimbursement from the condominium association (e.g., the third-party) if it believes the association was responsible or “negligent” in causing the damage.
One of the most common misconceptions among board members is that when a subrogation demand or lawsuit is received, the unit owner is taking action against the association. In reality, this is not the case. The claim is being pursued by the owner’s insurance company—not the unit owner—after the insurance company has already paid the unit owner under his or her policy. Understanding this distinction can help boards approach these matters more objectively and strategically.
Board members should also remain mindful of key statutory developments that are in many cases overlooked. Effective July 1, 2021, Section 617.714(4), Florida Statutes, was amended to incorporate waiver of subrogation language applicable to condominium associations under certain circumstances. The statute provides that if a condominium association’s insurance policy does not provide rights for subrogation against a unit owner, then the unit owner’s insurance policy may not provide subrogation rights against the condominium association. This provision applies exclusively to condominium associations and is contingent upon the specific language of the association’s insurance policy, most commonly its commercial property policy.
Importantly, this statutory amendment may provide associations with a procedural defense, as it can limit or potentially bar a unit owner insurer’s ability to assert subrogation claims against a condominium association, depending upon the relevant insurance policy language. However, because this statutory amendment remains relatively recent, there are ongoing legal questions currently being addressed by the courts that may further shape and refine its application going forward.
Given the technical nature of subrogation and the potential applicability of statutory defenses, it is critical that associations do not make assumptions when a demand is received. Instead, boards should promptly consult with legal counsel to evaluate whether the waiver of subrogation language under Section 617.714(4), Florida Statutes may apply and to determine the most appropriate course of action.
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