If Apartment Tenants Paid Group Fire Insurance Premiums, Insurers Cannot Seek Reimbursement

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[Asia Economy Reporter Oh Hyung-gil] Kim Mok-kyung (alias, 36), who lives in an apartment under a jeonse lease, caused a fire accident that burned down the entire house due to her negligence. The insurance company paid the insurance money for the fire to the landlord and filed a subrogation claim against Kim. Although Kim paid the group fire insurance premium while paying the apartment maintenance fee, she was neither the policyholder nor the insured, so she ended up having to pay money instead of receiving compensation.

When tenants of apartments or commercial buildings pay fire insurance premiums, the insurer's exercise of subrogation rights against the tenant is restricted. It is expected that damages where tenants like Kim, who effectively paid fire insurance premiums but do not receive compensation from the insurance, will decrease.

On the 4th, the Financial Supervisory Service (FSS) announced that it will promote improvements to fire insurance terms and conditions to protect apartment tenants, focusing on these issues.

Apartment residents subscribe to group fire insurance under the name of the "Apartment Residents' Representative" (policyholder) to cover fire damage compensation. Among the 638,000 fire insurance subscriptions at the end of last year, 19,000 were subscribed by apartments and multi-family housing.

High-rise apartments of 16 floors or more are required by the Fire Insurance Act to subscribe to group fire insurance, and apartments with 15 floors or less mostly subscribe to cover personal and property damage. Insurance premiums are paid monthly as part of the maintenance fees by residents, owners, or tenants of each apartment unit.

However, under group fire insurance contracts, tenants are third parties who are neither policyholders nor insured. When a fire occurs due to a tenant's fault, the insurer compensates the owner for the building loss and then subrogates against the tenant. From the tenant's perspective, this creates an unfair situation where they pay premiums but do not receive coverage.

Accordingly, the FSS decided to add an exception clause to the fire insurance terms so that when tenants bear the insurance premiums, the insurer will not exercise subrogation rights. However, subrogation rights can be exercised for damages caused intentionally by the tenant or their family.

This will also apply equally to offices, commercial buildings, officetels, and other products covering fire risks such as comprehensive property insurance. Additionally, the product explanation documents provided to policyholders at the time of fire insurance sales will include provisions restricting the insurer's exercise of subrogation rights against tenants.

The FSS plans to revise the standard fire insurance terms by September, and non-life insurance companies will voluntarily improve their own fire insurance terms.

An FSS official said, "Individual terms of non-life insurers will be improved and implemented early even before the standard terms are revised, or will be reflected first in compensation practice guidelines and operated from next month."

This content was produced with the assistance of AI translation services.