What Is a Waiver of Subrogation?
A waiver of subrogation is a contractual provision whereby an insured waives the right of their insurance carrier to seek redress or seek compensation for losses from a negligent third party. Typically, insurers charge an additional fee for this special policy endorsement. Many construction contracts and leases include a waiver of subrogation clause. 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 the insured or to a third party to resolve a covered claim.
Waiver of Subrogation
Waiver of Subrogation Deconstructed
A right of subrogation allows an insurer to stand in proxy for its insured after satisfying a claim paid to the insured per the company’s duties under the insurance policy. The insurance company may pursue a claim against other parties to cover its costs for that same loss, even when the loss involves a resolution of claims brought against the insured. In other words, if subrogation is waived, the insurance company cannot "step into the client's shoes" once a claim has been settled and sue the other party to recoup their losses. Thus, If subrogation is waived, the insurer is exposed to greater risk.
[Important: Insurance companies frequently charge an additional fee on top of the premium to include a waiver of subrogation clause. Parties to the contract avoid litigation, and the insurance company bears the loss.]
Waiver of Subrogation for Landlords and Tenants
When a landlord includes a waiver of subrogation 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 by the landlord. This extra cost is applied because the waiver of subrogation clause prevents the insurer from asserting 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 recovery rights against each other for any claimed loss covered by insurance.
- A waiver of subrogation clause provides additional protection for clients in most industries.
- Waiver of subrogation clauses minimize the potential for lawsuits arising from loss that may occur during a construction project or other contractual agreement.
- Insurance companies receive all of the funds that result from a subrogation process.
[Fast Fact: In some states, existing statutory law such as the Uniform Commercial Code, a set of standardized business laws, may override a waiver of subrogation and permit claims to be brought. However, according to Lexology.com, in most states, Iimitations of liability may exonerate negligent defendants.]