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What is 'Waiver of Subrogation'

A waiver of subrogation is a contractual provision where an insured waives the right of his/her insurance carrier to seek redress, or seek compensation for losses, from a negligent third party. Typically, an additional fee is applied for this special policy endorsement.  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 insurer to stand in proxy for 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 asserts against other parties for that same loss, even when the loss involves resolution of claims brought against the insured. Because waivers of subrogation increase the insurer's risk by prohibiting the recovery of money paid to or on behalf of their insureds, insurance companies frequently charge an additional fee to the premium. Parties to the contract avoid litigation, and the insurance company bears the loss.

Waiver of Subrogation for Landlords and Tenants

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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