Waiver of Subrogation – Benefits, Limitations & UsesJul 25, 2023
An Article by Noelle McCall, CIC, CRM, CISR
Waiver of subrogation (also known as transfer of rights of recovery) is a common endorsement and contract provision that prevents an insurance company from seeking reimbursement from another party in case of loss or damage. In simpler terms, it means that if there is an accident, loss, or damage covered by an insurance policy, then the insurance company agrees not to go after someone else involved in the situation to recover the money paid by the insurance company.
Some Benefits of Waiver of Subrogation:
- Avoiding disputes: Waiver of subrogation helps prevent conflicts between parties in a contract, reducing the likelihood of lawsuits.
- Maintaining good business relationships: It promotes smoother relationships by preventing one party's insurance company from seeking compensation from the other party.
- Legal expense savings: With a waiver of subrogation, businesses or individuals can save on legal costs since they don't have to defend themselves or deal with reimbursement claims.
Some Limitations of Waiver of Subrogation:
- Limited recovery options: If a party agrees to a waiver of subrogation, they give up the right to seek compensation from the other party's insurance company. This can limit their options for recovering losses in case of damage or accidents.
- Potential coverage limitations: Some insurance policies might not allow or may limit the use of waivers of subrogation. It's important to review insurance policies and consult with insurance providers to ensure compliance and understand any limitations.
- Additional premium costs: Insurance companies often charge additional premium to add waiver of subrogation endorsements to insurance policies.
Common Uses of Waiver of Subrogation in Contracts:
- Construction contracts: Waiver of subrogation is commonly used in construction contracts to protect contractors, subcontractors, and property owners from potential claims or lawsuits from insurance companies involved in the project. Usually, the upstream party (such as the project owner or upstream contractor) requires downstream parties (such as the subcontractors) to waive subrogation rights in favor of the upstream parties.
- Lease agreements: Landlords and tenants often include mutual waiver of subrogation clauses in lease agreements to prevent disputes over property damage covered by insurance policies and to help preserve good business relations between the landlord and its tenants.
- Vendor agreements: When businesses hire vendors or contractors for services, such as maintenance, cleaning, or transportation, requiring the vendor to provide waiver of subrogation in favor of the business can help protect the business from potential legal actions in case of accidents or damages.