New Jersey Court Upholds a Waiver of Subrogation Provision
March, 2009
Skulskie owned a residential condominium. Pursuant to New Jersey law, the by-laws provided that the Directors will acquire various types of insurance coverage. The by-laws also provided that all insurance policies will contain a provision whereby the insurer waives its rights to subrogation against Unit Owners, the Association, etc. All unit owners had the right, but were not required, to obtain personal property and/or liability insurance, and all such policies were required to have a waiver of subrogation provision.
Skulskie purchased homeowners insurance from Proformance Insurance Company. Skulskie suffered a water loss, allegedly the result of a leak from the shower/bathtub in the unit directly above his unit. The loss location was owned by Ceponis. Proformance paid $118,547.28 to Skulskie and then commenced a subrogation action against Ceponis and the Association. Ceponis did not have any insurance. Ceponis and the Association filed Motions for Summary Judgment, relying upon the waiver of subrogation provision in the by-laws and Proformance's Policy. Proformance responded to Ceponis' Motion by asserting that since Ceponis did not obtain insurance, the waiver of subrogation provision did not apply. During oral argument on the Motions, Proformance's counsel acknowledged that the waiver of subrogation provision within the Association's Policy barred its subrogation action.
The trial court granted the Motions. Proformance appealed. The Appellate Court affirmed. Skulskie v. Finderne Heights Condominium, 2009 WL 387170 (N.J.Super.A.D. 12/10/08).
On appeal, Proformance argued "that the enforcement of a waiver of subrogation clause in the insurance policy of an insured unit owner against an uninsured unit owner is contrary to the purpose of the provision and creates an unintended inequity."
The Court stated that it was unable to locate a single New Jersey reported case where a waiver of subrogation provision was applied to a residential condominium scheme. Thus, the Court looked to a New York case, Schiller v. Community Technology, Inc., 433 N.Y.S.2d 640 (App.Div. 1980). After quoting from Schiller, the Appellate Court concluded that there was "no basis to allow the insurance carrier of the damaged unit owner to proceed against another unit owner, even an uninsured unit owner." The Court stated that the purpose behind the by-laws requiring waiver of subrogation provisions was to make clear that subrogation will not be permitted in this community. The Court further noted that the optional nature of the insurance requirement for unit owners did not alter the intended purpose of the community to bar subrogation. The Court ended its decision as follows: "Stated differently, when an insurer, such as Proformance, issues a policy, it does so with the understanding that it has no recourse against a negligent unit owner."
Learning Point:
An insurer issuing a Policy to a Condominium Owner may be barred from seeking subrogation against either the Association or another Unit Owner. It is imperative to examine the by-laws and Policy to determine if the condominium's scheme was to waive all rights of subrogation.
For more information, contact Rober Stern at rstern@clausen.com.
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