A waiver of subrogation is a contractual provision whereby one party—typically the insured—waives the right of their insurance carrier to seek compensation for losses from a negligent third party. This provision is often accompanied by an additional fee charged by insurers. Many construction contracts and leases include such a clause.
Such provisions prevent one party’s insurance carrier from pursuing a claim against the other contractual party to recover money paid out for a covered claim.
Key Takeaways
- A waiver of subrogation prevents an insurer from seeking recovery from a third party for damages paid.
- A waiver of subrogation clause provides additional protection for clients in most industries.
- Waivers of subrogation minimize the potential for lawsuits arising from losses that may occur during a construction project or other contractual agreement.
- Insurance companies are the sole receivers of any funds resulting from a subrogation process.
- Waivers of subrogation can prevent lengthy litigation and prevent ruinous business relationships.
In-depth Look at Waiver of Subrogation
A right of subrogation allows an insurer to take up the legal standing of the insured after a claim is settled. The insurance company may then pursue other responsible parties to recoup the costs—even if this means litigating against entities responsible for the loss.
In simpler terms, if subrogation rights are waived, the insurance company cannot take legal action against other potentially responsible parties after satisfying a claim. This results in greater exposure to risk for the insurer.
Insurance companies typically charge an additional fee to include a waiver of subrogation clause. Parties involved in the contract avoid legal disputes, with the insurance company absorbing the loss.
Types of Waivers of Subrogation
Construction Contracts
In construction contracts, an owner may waive all rights to pursue third parties—like contractors or subcontractors—for damages covered under their insurance policy. Under this provision, the insurer agrees not to seek reimbursement from responsible third parties.
There are exceptions; if the owner’s insurance does not cover a specific risk, or the loss exceeds policy limits, the owner may seek recovery from the negligent party.
Landlord and Tenant Lease Agreements
In lease agreements, a waiver of subrogation ensures insurers cannot pursue the landlord for covered damages. This provision protects landlords and tenants from expensive litigation and helps maintain amicable relationships.
For instance, if a tenant’s guest is injured due to a malfunctioning lighting fixture, the tenant’s insurer cannot sue the landlord for compensation.
Mutual waivers of subrogation are common in leases, where both landlord and tenant renounce claims against each other for insured losses. Statutory laws may override such clauses in some states.
Automobile Insurance Policies
When resolving auto accidents, an at-fault party may propose a subrogation waiver to the injured party. Upon acceptance, future claims against the at-fault party are forfeited. Individuals should carefully consider these agreements, ideally after consulting their insurer or legal advisor.
Reasons for Using a Waiver of Subrogation
Including a waiver of subrogation reduces possible lengthy legal disputes from contractual obligations. Clients may include this provision to avoid being liable for a loss, expediting the claims process.
Conversely, it can be quicker to settle than process claims involving subrogation, often negating undesirable insurance record activity.
In construction contracts, this provision prevents project delays and the complex investigations typically resulting from disputes.
Some insurers avoid waiver of subrogation provisions as they limit recovery options.
Benefits of a Waiver of Subrogation
One notable benefit is avoiding prolonged and costly litigation. These provisions foster conflict-free relations among contracting parties, such as landlords and tenants, and prevent certain parties from liability for losses.
Should You Agree to a Waiver of Subrogation?
As waiver provisions differ by contract, and relevant terms and risks vary, it’s prudent to consult with an attorney or your insurer to navigate these provisions. Some insurers may specifically prohibit their clients from entering such agreements due to higher exposure involved.
How the Waiver Process Works
Following a loss, the insurer settles a claim. If loss responsibility lies with an external party, the insurer typically seeks to recover damages through subrogation. If waived, insurer actions against the negligent party are barred. These agreements are part of or appended to contracts, requiring mutual consent.
Conclusion
A waiver of subrogation prevents an insurer from reclaiming money settled on a claim from an at-fault third party. It prevents legal disputes that may interrupt contracted activities like property letting or subcontracting in construction projects.
Related Terms: subrogation, insurance claims, contractual provision, liability
References
- Construction Risk. “The Catastrophe and Waiver of Subrogation”.
- Lexology. “Waivers of subrogation: when a waiver is not a waiver”.
- Allstate. “Subrogation: What Is It and Why Is It Important”.
- The Hartford. “Auto Subrogation”.
