What is a waiver of subrogation?

What is a waiver of subrogation
Render illustration of WAIVER title on Legal Documents. Legal concept.

A subrogation waiver is a clause you can add to your insurance policy for your customers that waives your insurance company’s right to claim reimbursement from a third party. Although your insurance contract may not include it, you can add it to your policy.

Opting out of subrogation increases your insurance company’s risk, which means your premium may increase with this clause. However, especially for business owners, this can give you the confidence that your customers will not be liable for losses covered by your insurance. Review the following information to help you decide if you can benefit from adding a subrogation waiver to your policy.

Definitions and examples of waiver of subrogation

Waiver of subrogation means that you waive your right (or your insurance company’s right) to claim the third party’s share of the damages. And although this situation is risky for an insurance company, there are good reasons for having such an approval.

When used, this disclaimer can help minimize the number of claims, cross-claims, and counterclaims arising from a single claim.

Avoiding subrogation can help keep working relationships amicable rather than complicating lawsuits. Thus, it can help you avoid business conflicts and give you peace of mind.

You won’t usually find a subrogation waiver on a personal insurance policy. This is usually available on professional or commercial policies, and some auto and property insurance policies.

For example, if you were in a car accident that was not your fault, your auto insurance company will use the subrogation process to recover its losses from the at-fault party. But if the offending driver wants to settle the matter, you may be asked to sign a waiver of subrogation. This prevents your insurance company from acting on your behalf to recover the cost of damages.

If your insurance policy does not have a subrogation waiver and you sign it with a third party, you are likely to be in breach of contract with the insurer, which could result in personal liability for claims.

You can also find a waiver of subrogation in your workers’ compensation policy , although some states, including Kentucky and Missouri, do not allow it.

How does subrogation waiver work?

If you have signed a subrogation waiver insurance policy, you are preventing your insurance company from claiming a share of the damages from a negligent third party.

For example, suppose you are a contractor using subcontractors for various parts of a construction project. If one of your subcontractors does something that damages your client’s property, their insurance company pays for the damage.

However, this subcontractor worked for you. So the subcontractor’s insurance company will usually outsource your insurance company, as you could also be held liable.

Sub-gate is a legal term meaning that your insurance company may file a claim against a third party if it believes that party is responsible for some of the costs of your own claim.

In the example above, the subcontractor’s insurance company may approach your insurance company to recover damages already paid. But if a subcontractor’s insurance policy includes a subrogation waiver, their insurance company is no longer entitled to claim that compensation from your insurance company.

Because not subrogating limits the options for insurance companies, including one on your policy can increase your insurance payouts.

Refusal of subrogation in contracts

Insurance companies usually try to recover the cost of losses whenever possible, which is why most insurance policies include a standard subrogation clause.

Talk to your insurer before signing a subrogation waiver. Your insurer can add it to your existing policy or help you choose a different plan that will include it.

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But you can find subrogation waivers in some types of contracts, especially in the construction industry. If you sign a contract with this clause, you agree that your insurance company will not seek subrogation.

What does waiving subrogation mean to you?

Opting out of subrogation means you are asking your insurance company not to try to recover claims from a third party. Since you are exposing the insurance company to more risk, such an approval usually increases the value of your policy.

However, waiving subrogation can also make business easier, especially if there is a mutual waiver of subrogation. If both you and your client have this approval, you don’t have to worry about falling into the trap of cross-claims or other lawsuits if you’re found to be partially responsible for an incident that the other insurer covered.

Key Findings

  • The waiver of subrogation means that your insurer cannot attempt to recover damages from a responsible third party.
  • Having a waiver can simplify legal issues in the event of an incident or help keep the business relationship going.
  • Your insurance premiums usually increase when you opt out of subrogation. However, this increased fee can be worth the extra peace of mind.
  • Before you sign a contract that includes a subrogation waiver clause, talk to your insurance company about your coverage options.


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