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What is a 'Waiver Of Subrogation'

A waiver of subrogation is a contractual provision where one party agrees to limit the rights of its own insurance carrier and usually pays an additional premium for a special policy endorsement allowing for coverage under such a situation. Many construction contracts and leases include waiver of subrogation clauses. Such provisions prevent one party’s insurance carrier from pursuing a claim against the other contractual party in an attempt to recover money paid by the insurance company to its insured or to a third party in resolution of a covered claim.

BREAKING DOWN 'Waiver Of Subrogation'

A right of subrogation allows an insurance carrier to stand in the place of its insured after satisfying a claim paid to or on behalf of the insured in accordance with the company’s duties under the insurance policy. The insurance company may then pursue whatever claim its insured could assert against other parties for that same loss, even when the loss involves resolution of claims brought against the insured. Because they cannot recover the money paid to or on behalf of their insureds when such waivers apply, insurance companies frequently charge an extra premium for an endorsement covering the insured for claims barred by such contractual provisions. Parties to the contract avoid suing each other, and the insurance company bears the loss.

Landlord and Tenant

When a landlord includes such a clause in a lease, the company issuing the tenant’s renter’s insurance policy usually requires an additional premium for coverage of losses paid by the insurer as a result of acts or omissions of the landlord. This is because without the waiver of subrogation clause in the lease, the insurer is able to assert a claim against the landlord for the amount paid to the insured, or on behalf of its insured in resolution of a covered claim.

For example, if the tenant’s guest sustains injuries incurred when a lighting fixture unexpectedly falls from the ceiling of the leased premises, the tenant’s insurance carrier is unable to assert a claim against the landlord for the amount paid in resolution of a claim by the guest against the tenant. Similarly, if the lighting fixture fell on the tenant’s expensive, antique table, the waiver of subrogation prevents the tenant’s insurance company from asserting a claim against the landlord for the amount paid to the insured for the damage to the table. Some leases contain mutual waivers of subrogation, where both the landlord and the tenant waive rights of recovery against each other to the extent that any claimed loss is covered by insurance.

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