What is subrogation and how does it affect apartment insurance claims?

Subrogation is the process by which your insurance company, after paying a claim on your behalf, steps into your legal shoes to pursue recovery from the party that caused the loss. If your insurer pays $200,000 to repair fire damage caused by a contractor's faulty electrical work, the insurer may subrogate against the contractor (or the contractor's insurer) to recover that amount. The right of subrogation is established in the standard ISO commercial property and liability policy conditions and is also grounded in the equitable doctrine of subrogation recognized in all U.S. jurisdictions.

For apartment owners, subrogation commonly arises in situations involving contractor negligence during renovation or repair work, manufacturer defects in building products or appliances, tenant negligence that causes damage to the building, vehicle damage to the building from a third party, and utility company negligence.

As a policyholder, you have a duty to preserve the insurer's subrogation rights. This means you should not sign any agreements that waive the insurer's right to subrogate against a responsible party without first consulting your insurer. Waivers of subrogation are sometimes requested in contracts with property managers, contractors, or tenants. While granting a waiver may be appropriate in some circumstances, doing so without the insurer's knowledge could jeopardize your coverage. The ISO Commercial Property Conditions form (CP 00 90) specifically addresses the transfer of rights of recovery, requiring the insured to preserve those rights.

If subrogation is successful, you may recover your deductible from the proceeds. The insurer typically recovers its paid claim amount first, and any excess goes to reimburse the policyholder's deductible.