What is subrogation?
Subrogation is a legal principle that allows an insurer to step into the shoes of the insured party to recover the amount paid from an insurance claim. In the context of a condominium corporation, it means that if the corporation’s insurance covers a loss, the insurer can pursue the responsible party (or their insurer) to recover the amount paid on the claim. This principle is outlined in legislation and in the insurance policy itself.
What does the process look like?
There are several parts to the subrogation process, including initial assessment, in-depth investigations, written demands and, potentially, litigation. Usually, the insurer will start by identifying any parties it believes could be liable for causing a covered loss to occur. From there, the insurer will notify those parties of the loss and begin its investigation. This may include obtaining statements, seeking documentation or retaining experts. Once the insurer has paid the corporation’s claim, it will contact the liable party again with a demand for reimbursement.
If the matter of liability is straightforward and the amount at stake low, the process may only take a little longer than a normal claim. However, if liability is disputed, multiple parties are involved or the dollar value is high, the process can be significantly longer. If the matter proceeds to litigation, it may take multiple years to fully resolve. Whether litigated or not, a successful subrogation usually involves a negotiated settlement, and the insurer will seldom recover 100% of what they paid.
What are the benefits to the corporation?
If the process of subrogation is successful, there are generally two benefits for the corporation:
- Usually, the insurer will include the corporation’s deductible in the amount pursued. (Even if subrogation is successful, the corporation may only recover a portion of its deductible.)
- The amount of the claim shown on the corporation’s loss history will be reduced by the amount the insurer was able to recover.
How can the corporation help?
Early involvement of the insurer is critical to the potential success of subrogation. Evidence disappears quickly and memories fade. By contacting your broker to report a potential claim as soon as possible, the corporation maximizes its opportunity to benefit from subrogation. Additionally, ensure that any evidence (pipes, sprinkler heads, surveillance footage, etc.) is preserved by the corporation and given to the adjuster.
Who might the insurer be able, or not be able, to pursue in subrogation?
The insurer will be able to pursue any individual or entity that is not insured under the policy if the insurer believes the party may be liable. Unit owners and tenants are typically specified by applicable legislation as “Named Insureds,” meaning they are protected under the policy. Accordingly, insurers cannot usually pursue subrogation against a unit owner, tenant or their insurer even if they are responsible for a loss.
Disclaimer: This bulletin is intended to provide readers with general information only. Readers are urged not to rely solely on the content of the bulletin but to consult with appropriate professionals on a case-by-case basis.