Subrogation Lawsuit Survives

By Michael J. Gelfand, Esq. / Published September 2024

Insurer’s Subrogation Lawsuit Against Association Survives: No “Sue and Lose First” Rule

     When an association finds itself embroiled in litigation, settlement is very often the end result. Settlements usually include releases. A recent decision shows the dangers of a Florida community association settling litigation with releases but seemingly not addressing all of the consequences, especially insurance claims.

     Specifically, a Florida appellate court recently ruled that a condominium association’s property insurer was able to sue the condominium association for breach of contract when the association allegedly signed releases that barred the insurer’s subrogation rights. The facts in Seneca Specialty Insurance Company v. Jade Beach Condominium Association, Inc., 49 Fla. L. Weekly D 706 (Fla. 3rd DCA, April 3, 2024), indicate that Seneca issued a liability insurance policy to the association, which required the association to do nothing that would impair the insurer’s subrogation rights.

     What is a subrogation right? An example of subrogation that associations have faced is when property is damaged, instead of the property owner suing the other person that caused the damage, the owner’s insurer pays the owner for the repair or replacement. Then in exchange for making that payment, the insurer obtains the right to sue the other person that caused the damage.

     Regarding subrogation, the condominium association’s policy provided the following:

If the insured has rights to recover all or part of any payment we have made under this coverage part, those rights are transferred to us. The insured must do nothing after loss to impair them. At our request, the insured will bring “suit” or transfer those rights to us and help us enforce them.

     Returning to the facts of this dispute, in 2014 the owners of Jade Beach Condominium Unit 4701 sued the association as well as the owner upstairs, Unit 4904, and others, alleging that water flowing down from Unit 4904’s balcony damaged Unit 4701’s balcony.

     The owners of the upstairs Unit 4904 then sued the association, alleging the association breached its duty to maintain the common elements and duty to remedy structural defects. Seneca Specialty Insurance defended the association and paid out the policy limit of $1 million to settle upstairs Unit 4904’s crossclaim.

     Unbeknownst to Seneca, the association filed a separate construction defect lawsuit against the developer, contractor, and others which was then settled. As part of the settlement, the association provided general releases to the defendants in the association’s construction claims. It was those construction claims releases that Seneca asserted prevented Senecca from suing the construction defect defendants for the money Seneca paid to settle with Unit 4904. In 2020 Seneca sued the association for breach of contract alleging the association’s releases to the construction defect defendants barred Seneca’s subrogation rights against those defendants.

     The trial court granted the association’s motion to dismiss the complaint, finding that the breach of contract claim was premature because Seneca did not first sue the construction defect defendants and did not receive a judgment that found its subrogation rights were impaired by the
association.

     The Florida appellate court disagreed and reversed the trial court’s dismissal. The appellate court reasoned that where an insurer honors a claim under an insurance policy, the insurer becomes subrogated to the insured’s rights. If the insured settles with and releases the at-fault party preventing the insurer from making claims against the at fault party, then the subrogated insurer may have a claim against the insured for breach of contract. The court concluded that an insurer is not required to first sue the parties to whom the insured granted releases. In other words, Florida law does not have a “sue and lose first” law.

     This case emphasizes the dangers of settling a case if there are potential subrogation claims. If there is a potential insurance claim, check with the insurers to ensure no right of subrogation will be impacted.

Hurricane Deductible Does Not Apply to Loss Caused By Hailstorm When Hurricane is Hundreds and Hundreds of Miles Away

     During hurricane season, it is very important to understand what your insurance policies actually cover. If a Florida community association sustains damage to its property before, during, or after a hurricane warning has been issued, will the insurance policy cover the losses? Will the insurer subtract the hurricane deductible?

     In two identical decisions, a Florida appellate court recently ruled that a hurricane deductible cannot be applied to a Florida property loss caused by a hailstorm when the hurricane was far away from Florida at the time of the hailstorm. In Florida Farm Bureau General Insurance Company v. Jones, 49 Fla. L. Weekly D 777 (Fla. 5th DCA, April 9, 2024), and Florida Farm Bureau General Insurance Company v. Williams, 49 Fla. L. Weekly D 779 (Fla. 5th DCA, April 9, 2024), the facts show that a hurricane warning was issued for parts of Florida as Hurricane Isaias neared Florida’s eastern coast. The hurricane warning lasted until August 2, 2020.

     Two days later, on August 4, 2020, a severe hailstorm damaged the insureds’ homes. At the time of the hailstorm, Hurricane Isaias was located over Vermont, nowhere remotely close to Florida. Nonetheless, when the owners submitted claims for the damage caused by the hailstorm, the insurer paid the claims but subtracted the hurricane deductible, a higher deductible than for “normal” weather losses. Both owners sued the insurer for breach of contract. The trial court granted summary judgment for the homeowners.

     Agreeing with the trial court’s decision in favor of the homeowners, the Florida appellate court noted that the insurance policy defined “hurricane occurrence” as a period that begins “at the time a hurricane watch or warning is issued for any part of Florida” and ends “72 hours following the termination of the last hurricane watch or hurricane warning issued for any part of” the state.

     The problem with the language in the policy was that the loss did in fact occur during a “hurricane occurrence” as defined by the policies. This is because the loss occurred less than 72 hours following termination of the hurricane warning for Florida.

     “Given this imprecise policy language, the parties are constrained to offer imperfect interpretations of paragraph D.1. Were their competing interpretations both reasonable, we would hold any ambiguity against the insurer,” the Court explained. “However, we need not resort to this ‘tie goes to the insured’ canon because the parties’ interpretations are not both reasonable.” The court agreed with the homeowners’ argument that a hurricane did not cause their loss because the hailstorm was a local weather event with no connection to the hurricane.

     As can be seen by these two decisions, it is very important to understand your insurance policies, especially as hurricane season is here! Considerations to inquire of your insurance broker include whether your policy provides for actual or replacement value coverage, whether there is a component age issue, must a “preferred contractor” be hired, and when, how and to whom must notice of a claim be provided. 

Michael J. Gelfand, Esq.

Senior Partner, Gelfand & Arpe, P.A.

     Michael J. Gelfand, Esq., the senior partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and effectively achieve those goals. Gelfand is a dual Florida Bar board-certified lawyer in condominium and planned development law and in real estate law, a certified circuit and county civil court mediator, a homeowners’ association mediator, an arbitrator, and parliamentarian. He is a past chair of the Real Property Division of the Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at ga@gelfandarpe.com or 561-655-6224.