In Erie Insurance Exchange v. Alba, Rec. No. 190389, 2020 Va. LEXIS 53, the Supreme Court of Virginia considered whether the trial court erred in finding that a condominium association’s property insurance provider waived its right of subrogation against a tenant of an individual unit owner. The Supreme Court reversed the lower court’s decision, holding that the insurance policy only named unit owners as additional insureds, not tenants, and thus the subrogation waiver in the insurance policy did not apply to tenants. The court also found that the condominium association’s governing documents provided no protections to the unit owner’s tenant because the tenant was not a party to those documents. This case establishes that, in Virginia, a condominium association’s insurance carrier can subrogate against a unit owner’s tenant where the tenant is not identified as an additional insured on the policy.
The Alba case involved a fire at a condominium building originating in a unit occupied by Naomi Alba (Alba), who leased the condominium under a rental agreement with the unit owner, John Sailsman (Sailsman). The agreement explicitly held Alba responsible for her conduct and the conduct of her guests. An addendum to the lease stated that Sailsman’s property insurance only applied to the “dwelling itself” and that Alba was required to purchase renters insurance to protect her personal property. Along with the rental agreement, Alba received the condominium association’s Rules & Regulations, Declarations and Bylaws.
The Declarations stated that the association would carry a master policy of insurance to cover damage to the building in the event of fire. The Declarations also required the master policy insurer to waive its rights of subrogation as to any claims “against unit owners and the Association, their respective servants, agents and guests.” In addition, the Bylaws included a provision that stated that unit owners would be liable for the expenses of any repair or replacement rendered necessary by their negligence, “but only to the extent that such expense is not met by the proceeds of insurance carried by the association.” Erie Insurance Exchange issued the condominium association’s master insurance policy. The policy named each individual unit owner as an additional insured. The policy also explicitly waived subrogation against the unit owners.
As a result of the fire, the association’s insurer paid the condominium association over $800,000 for repairs. Thereafter, the insurer filed a subrogation action against Alba, alleging that she or her guest caused the fire by carelessly discarding cigarette remains. Alba filed a third-party complaint against Sailsman for indemnification. Both parties filed motions for a declaratory judgment. Alba argued that since the association’s governing documents did not permit subrogation against Sailsman, subrogation against her was also barred. The insurer argued that since Alba was not a unit owner, she was not privy to the association’s governing documents, and was not an additional insured on the association’s policy.
The lower court denied the insurer’s motion for a declaratory judgment and granted Alba’s motion, finding that the parties intended for the tenant to be relieved of common law negligence liability. The court held that since Alba was bound by all the requirements of the association’s governing documents, she was also afforded the same benefits of the documents as that of the unit owner, including the subrogation waiver. The court dismissed the insurer’s subrogation action, and the insurer filed an appeal with the Supreme Court.
On appeal, Virginia’s highest court began its analysis by noting that the right of subrogation is purely equitable in its nature and dependent upon the facts and circumstances of each particular case. Here, the court found that the terms of the condominium documents did not apply to Alba because she was not a unit owner, and thus not a party to the documents. The court also found that the subrogation waiver in the insurer’s policy was unambiguously limited to the unit owners and any named additional insureds. Since tenants were not identified as additional insureds in the insurer’s policy, the court held that the subrogation waiver did not apply to Alba.
The court also noted that the lease between Sailsman and Alba was the only agreement to which Alba was a party. The court found nothing in the lease preventing Alba for being liable for her negligence. In Virginia, a tenant’s common law liability for losses due to negligence is preserved absent a provision in the lease to the contrary. There was no provision in the lease limiting Alba’s liability for her negligence. The Supreme Court reversed the lower court’s judgment and remanded the case for further proceedings.
The Alba case establishes that, in Virginia, a condominium association’s insurance provider can subrogate against a unit owner’s tenant if the tenant is not an additional insured on the policy. This case also suggests that even if a unit owner’s tenant is expected to abide by the association’s governing documents, the tenant may not be afforded any protections in the documents which benefit the unit owner. Unlike the subrogating insurance carrier, who steps into the shoes of the insured, a unit owner’s tenant is not deemed to have stepped into the shoes of the unit owner and, thus, cannot assert contractual defenses available to the unit owner.