APPEALS COURT CONCLUDES AGREEMENT TO SETTLE SUBROGATION CLAIM UNENFORCEABLE - PRIMARY INSURER WAIVED SUBROGATION RIGHTS

Last week, a Texas Court of Appeals concluded that, pursuant to The Uniform Condominium Act, the insurer waived its right to subrogation and, therefore, its subrogation settlement was unenforceable.  In Great American Ins. Co. of New York v. Nationwide Mutual Ins. Co., No. 09-00293-CV, 2023 WL 1825872 (Tex. App-Beaumont, Feb. 9, 2023, mem. op.), a fire originated in the unit of Dana and Donna Evans’ high-rise condominium in Austin, Texas.  The fire caused damage to their unit and several other units. The Condominium Association was insured through a primary policy with Great American Insurance Company of New York (“Great American”). The Evanses also had a policy (required by the Condominium Association) with Nationwide, which covered “damage to other Units or property located therein, the cause of which originates from such Owner's Unit.” Great American paid the claims presented by the Evanses (and the other unit owners). Subsequently, Great American made a subrogation demand against Nationwide for the Evanses’ remaining liability limit of $266,540.25. Nationwide accepted the demand. The Evanses, upon learning of the settlement, sent Nationwide an email contending that Great American did not have the right to a claim against their policy because Great American’s policy must waive the right to subrogation against unit owners pursuant to Section 82.111(d) of the Texas Property Code (i.e., The Uniform Condominium Act (the “Act”), which establishes rules that apply to the creation, development, and management of condominiums, including the insurance coverage condominiums must carry). Apparently agreeing with the Evanses, Nationwide did not fund the settlement. Consequently, Great American sued Nationwide alleging that Nationwide accepted and then breached the subrogation settlement agreement.      

On appeal, the issue was whether the Act, in particular Section 82.111(d) which requires condominium associations to obtain an insurance policy that, among other things, waives the carrier’s right to subrogation against unit owners, applies to a condominium owners association's insurance company. And, if so, does it make an agreement to settle a subrogation claim unenforceable. The Court of Appeals concluded that “it's clear from the language in the statute that the legislature intended section 82.111 to apply to insurers that sell condominium policies to condominium associations. Further, section 82.111 “doesn't allow the association or its insurer the right to vary or waive the rights conferred on unit owners in section 82.111 including the waiver of subrogation provision.” Thus, “Great American [was required] to waive its subrogation rights, which left it with no right to sue the Evanses in an effort to shift the losses that fell on its policy to the Evanses and their insurer.”  The Court of Appeals upheld the trial court’s refusal to enforce the settlement agreement and the take-nothing judgment entered against Great American.