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District Judge in New Jersey Rules Waiver of Subrogation Provision in Residential Lease Is Unenforceable

March 22, 2017

Allstate New Jersey Insurance Company v. AvalonBay Communities, Inc., Case No. 16—5441, 2017 WL 1095473 (D.N.J. March 22, 2017).


This case involved a subrogation action arising out of a fire loss at a residential apartment complex owned and managed by the Defendant. It is alleged that the Defendant’s maintenance workers caused a massive five-alarm fire while performing plumbing repairs with a blowtorch. Allstate insured the personal property of several residents, who made a claim against their policies. Allstate paid the residents’ claims and then, as subrogee of the residents, brought this lawsuit against Defendant, alleging Defendant was negligent in causing the fire.

Defendant responded by filing a motion to dismiss for failure to state a claim, arguing that each of the residents signed a lease containing a waiver of subrogation provision, which states, at paragraph 32, as follows:

32. Am I required to purchase renter’s insurance?

Yes. You acknowledge that we have not purchased insurance coverage for your personal belongings or any personal property located in your Apartment…. You waive and release us from all claims against us that you may have, now or in the future, with respect to any loss of or damage to personal property kept in the Community…. You are not required to maintain insurance for your personal property, but it is available and we recommend that you maintain such insurance in an amount equal to the value of your personal property…. All policies shall waive rights of subrogation against the Owner and Manager….

Allstate claimed that the waiver should not be enforced because it violated public policy and its language was vague and ambiguous. The court agreed and denied Defendant’s motion to dismiss (and its subsequent motion for reconsideration).


The court addressed the issue of whether the waiver of subrogation provision in the residential apartment lease was enforceable.


The court held that the waiver of subrogation provision was unenforceable. The court explained that the validity of subrogation waivers depends on whether the contracting parties had a meaningful choice in how to distribute liability. The fact that the subrogation waiver was buried in an unconventional question-and-answer formatted lease, the court found, raised serious questions about the choice afforded to Allstate’s insureds. 


The court distinguished the line of cases cited in support of enforcing the subrogation waiver on the grounds that residential leases should not be treated the same as commercial leases involving sophisticated parties. In addition, the court found that the fact the waiver applied against only one party was, on its face, sufficient to conclude that the parties had unequal bargaining power. Without a meaningful choice to accept the waiver, the court held, Allstate could show that the lease constituted a contract of adhesion, which should not be enforced.

Please contact Michael Wolfer with questions.