A waiver of subrogation, a clause in many business contracts, prevents an insurance company’s ability to sue a third party for damages they have paid on an insurance claim.
Insurance coverage can be affected by waivers of subrogation. Find out when and how they work.
What is a Waiver Of Subrogation?
Subrogation is the legal right for an insurance carrier, to sue a negligent party that caused an insurance claim that the carrier was obligated to pay.
You have the right to sue the responsible party if you are injured or damaged by an accident. Your right to sue the responsible party is transferred to your insurance company if your insurer has paid for your loss. To recover the loss payment, the insurer may sue the responsible party.
A waiver of Subrogation refers to a clause in a contract that gives up this right. 1
Alternative name: Subrogation Waiver, No-Fault No-Subrogation Waiver of Liability 2
How Subrogation Waivers Work
Subrogation waivers are often used in general liabilities, commercial auto, and workers’ comp insurance. Some commercial property policies may also allow for waivers of subrogation.
To strengthen a transfer from one party of risk to the other in a contract, waivers of subrogation can be used in liability insurance. To protect itself from subrogation lawsuits brought by the partner’s liability insurance, a business can use a waiver to assume liability for a contractor or business partner.
It can be used to protect the business if the partner’s clients or employees file insurance claims for injury or damage that occurs on the business premises. This could happen due to the partner working with it or negligence.
A majority of general liability policies include a condition that prohibits you to waive your rights for subrogation after a loss has occurred. They will not usually consider waivers made before a loss occurs.
The party asking for the waiver might ask that you include a waiver of subrogation endorsement in your liability policy. This will ensure that your insurance carrier is informed of the waiver. This endorsement may be subject to an additional charge by your insurer.
Two types of waiver endorsements are used for liability policies: blanket and scheduled.
- A scheduled endorsement says that the insurer won’t sue the person listed in the endorsement if they waive your rights to subrogation.
- A blanket endorsement provides greater coverage. It typically states that the insurer will not sue a party if you have waived your rights to sue.
Commercial Auto Insurance
Commercial auto policies include a “transfer rights of recovery” clause that is similar to the one found in the liability policy.
This clause does not allow for post-loss waivers. You can waive your rights to sue someone under a contract before a loss occurs without informing your auto insurance.
You may still be required to add a waiver endorsement on your auto policy by the party who requested it. Your insurer may also add a waiver endorsement to your auto policy, as with liability coverage.
If your right to subrogation for auto claims is not exercised within a specified time, some states may consider you have waived it.
Workers’ Compensation Insurance
A subrogation clause called Recovery from Others is included in the standard NCCI workers’ compensation policy. It provides that the insurer can recover any payments it owes from any person responsible for the injury.
This clause states that if your insurance pays benefits to an injured worker but another party is responsible for the injury, your insurer assumes your rights, and those of your injured employees to sue the other party to recover the benefits.
Two businesses that work together may have a contract that includes a waiver for subrogation. Workers of the first company can file claims against the workers’ compensation insurance of that business for injuries due to negligence by the second business. The insurer cannot sue the second company to recover workers’ compensation benefits.
An injured worker can sue another party even if they have received workers’ compensation benefits from the employer. 3 If they win, the worker may be required to pay their employer’s insurance for these benefits.
This is to stop the worker from getting twice the amount for one injury. The insurer might not be able to reimburse the employer if the employer waives its right to sue the partner firm. This waiver will allow the worker to “double-dip.”
3 The laws governing waivers of subrogation for workers’ compensation differ from one state to the next. Before you enter into any contracts, make sure you review the local statutes. This will help you understand when and how these waivers can affect your business.
Commercial Property Insurance
Your insurer’s right of subrogation is generally covered by commercial property insurance policies. The standard subrogation clause allows you to:
- Before a loss occurs, waive rights of subrogation
- You waive your right to sue another person after a loss occurs, if the other party has been insured under your policy, a business you own or control, or a tenant.
Mutual waivers of subrogation are a common feature in many contracts between businesses. They can be used to cover losses that are not covered by commercial property coverage. These waivers are common in construction projects. 1
Landlords can request unilateral waivers from subrogation. These require that tenants waive their right to sue landlords for any damage they cause to the tenant’s property. Mutual waivers of subrogation between landlords or tenants can also be possible, which protects both.