What is Subrogation and the Waiver of Subrogation in Landlord Insurance
Subrogation (equitable doctrine): the insurer who has paid a claim under an insurance policy is entitled to exercise the insured's rights against the third party responsible for the loss; prevents double recovery by the insured; places the economic burden on the party responsible. Landlord-tenant application: landlord's buildings insurer pays a claim for tenant-caused damage; the insurer is subrogated to the landlord's right of action against the tenant; the insurer can sue the tenant in the landlord's name to recover the payment. Mark Rowlands v Berni Inns [1986] CA: where (a) the lease obliges the landlord to insure; (b) the tenant pays or contributes to the insurance premium; (c) the parties clearly intended the insurance to cover tenant-caused damage; then it may be implied that the insurer cannot pursue the tenant in subrogation (implied waiver). Waiver of subrogation: (i) express clause in the lease — the landlord must procure that its buildings insurers waive subrogation rights against the tenant; standard in institutional commercial leases (RICS Model Commercial Lease); (ii) implied waiver (Mark Rowlands) — implied from the insurance arrangement where the tenant contributes to the premium; less likely in standard ASTs where tenant pays no insurance contribution; (iii) insurance policy endorsement — 'waiver of subrogation — tenants' endorsement in the buildings policy; most major residential landlord policies include this automatically; landlords should verify with their insurer. Residential ASTs: most modern residential landlord policies include an automatic waiver of subrogation against residential tenants — but not all do; confirm with the insurer.
Tenant Liability for Accidental Damage and Practical Steps
Residential AST: tenant not liable for accidental damage without negligence; standard repairing obligation is 'tenant-like use' — do not damage the property by negligence; negligent damage (fire from careless appliance use; flood from tap left running; crack from DIY drilling) may give rise to common law liability in negligence; the landlord's insurer may pay the claim and pursue the tenant in subrogation if the policy does not include a waiver. FRI commercial tenant: liable for all damage to demised premises under the full repairing covenant; waiver of subrogation clause in the lease (and endorsement in the policy) protects the FRI tenant from insurer subrogation claims. Tenant self-protection: contents insurance with legal liability and accidental damage to landlord's property cover; some contents policies automatically include cover for accidental damage to the landlord's property up to a specified limit and would respond to an insurer's subrogation claim. Practical steps for landlords: (i) verify whether the buildings policy includes an automatic waiver of subrogation — if not, add the endorsement (modest additional premium); (ii) for commercial leases, check the express waiver of subrogation clause and ensure the policy endorsement gives effect to it; (iii) inform tenants at the outset that buildings insurance covers the structure only; recommend contents and liability insurance. Practical steps for tenants: (i) ask to see the buildings insurance certificate; confirm whether a waiver of subrogation endorsement is included; (ii) take out contents insurance with liability and accidental damage to landlord's property cover; (iii) on accidental damage — notify the landlord immediately in writing; do not admit liability without legal advice. Scotland: same subrogation principles; Caledonian Railway v Greenock Corporation [1917].