What Is a Waiver of Subrogation?

A waiver of subrogation is a clause you may add to your insurance policy for your customers that relinquishes your insurance company’s ability to pursue reimbursement from a third party.
Important Takeaways
  • A waiver of subrogation means your insurer cannot attempt to collect losses from a responsible third party.
  • Having a waiver in place might ease legal proceedings when there’s an incident or assist protect commercial connections.
  • Your insurance rates often rise with a waiver of subrogation. Nonetheless, this higher charge may be worth the added piece of mind.
  • Before you sign a contract that contains a waiver of subrogation provision, speak to your insurance carrier about your choices for the protection.

Definitions and Examples of a Waiver of Subrogation

A waiver of subrogation implies you give up your right (or your insurance company’s right) to claim a portion of damages paid from a third party. And although this circumstance is problematic for the insurance provider, there are solid reasons to having this endorsement in place.

When implemented, this waiver may assist decrease the number of lawsuits, cross-suits, and countersuits that emerge from one claim.

A waiver of subrogation may assist preserve business relationships on amicable terms instead of becoming entangled with litigation. In that manner, it may help you prevent business issues and provide you peace of mind.

You normally won’t see a waiver of subrogation in a personal insurance policy. It is frequently offered in professional or business coverage as well as certain vehicle and property insurance policies.

For example, if you were involved in a vehicle accident that wasn’t your fault, your auto insurance company would utilize the subrogation procedure to recover their losses from the at-fault party. But if the at-fault driver wishes to settle, you may be requested to sign a release of subrogation. This stops your insurance carrier from acting on your behalf to collect the cost of losses.

If you don’t have a waiver of subrogation in your insurance policy and sign one with a third party, you’re likely in violation of contract with your insurer—potentially making you personally responsible for claims.

You may also discover waivers of subrogation in workers’ compensation insurance, although certain states—including Kentucky and Missouri—don’t allow it.

How Does a Waiver of Subrogation Work?

If you’ve signed an insurance policy with a waiver of subrogation, you’re blocking your insurance company from collecting a portion of the losses from a negligent third party.

For example, let’s imagine you are a contractor utilizing subcontractors for various aspects of a building project. If one of your subcontractors does anything that damages your client’s property, their insurance company compensates for the damage.

But, this subcontractor was working for you. So normally, the subcontractor’s insurance company would then subrogate your insurance company, as you may also be deemed accountable.

Subrogate is a legal word that says your insurance company may pursue a claim against a third party if they feel that entity is accountable for some of the expenses from your own claim.

In the foregoing case, the subcontractor’s insurance company may proceed to your insurance company to recoup the losses it previously paid. But if the subcontractor’s insurance policy contains a waiver of subrogation, their insurance company no longer has the authority to pursue that reimbursement from your insurance company.

Since a waiver of subrogation restricts the alternatives insurance companies have, having one in your policy might raise your insurance price.

A Release of Subrogation in Contracts

It’s typical practice for insurance companies to attempt to recuperate the cost of losses wherever feasible, thus most insurance plans include a basic subrogation provision incorporated.

Speak to your insurer before signing a waiver of subrogation. Your insurer may be able to add one to your current insurance or assist you pick a new plan that would include it.

Yet you could discover a waiver of subrogation in certain kinds of contracts, notably in the construction business. If you sign a contract with this language in it, you’re agreeing that your insurance company won’t pursue subrogation.

What Does a Waiver of Subrogation Mean for You?

A waiver of subrogation implies you’re telling your insurance company not to attempt to collect claims from a third party. Because you’re shifting additional risk onto the insurance provider, this endorsement normally raises the cost of your coverage.

Yet, a waiver of subrogation may also simplify commercial partnerships, particularly if there is a mutual waiver of subrogation in place. If both you and your client have this endorsement, you don’t have to worry about being caught up in cross-suits or other litigation if you’re judged partly liable for an occurrence that another insurer covered.