waiver of subrogation explained in simple terms

Waiver of Subrogation Explained

If you are unsure what the term waiver of subrogation means, here’s a simple explanation. After reading this article, you’ll understand why you may want to ask your sub-contractors to add it to their insurance policies. 

What is Subrogation?

Subrogation is a contractual insurance term that describes a situation where an insurance company inherits the right to step into the shoes of their insured to sue an at-fault 3rd party which may have caused – or contributed to – the damages that caused a claim that was paid. 

Insurance companies like to have the option to subrogate if necessary because it allows them to recover money from at fault 3rd parties. A waiver of subrogation means an insurance company has fewer options to recover the cost of paying an insurance claim. 

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 any such negligent third party that contributed to a loss. 

Because fault-based claims in the midst of a construction project can cause delays, not to mention costly litigation and hostility, waivers of subrogation on the general liability coverage are commonly required in general contractor insurance agreements with sub-contractors.

Many GC/subcontractor construction contracts and even commercial leases include a waiver of subrogation clause requirements.

Typically, insurance carriers will charge an additional fee for a “waiver of subrogation endorsement” because it limits them and increases their exposure. However, this coverage can also be found built into many package insurance policies.

Waiver of subrogation explained diagram

Solar Developer WOS Example

ABC Solar is a solar developer that sells, engineers and procures the solar projects for its clients. ABC hires a 3rd party subcontractor called XYZ Solar Installers to install solar panels for the clients of ABC

As part of the subcontractor agreement, ABC Solar requires that XYZ carry insurance that is greater than or equal to its own and that XYZ name ABC as additional insured on XYZ’s insurance policy. 

ABC may also require additional endorsements to XYZ’s general liability policy, such as a primary and non-contributory endorsement and a waiver of subrogation. 

If during the installation of one of ABC’s projects an employee of XYZ causes bodily injury or property damage to a 3rd party, the claim would fall under XYZ’s insurance and be processed through XYZ’s insurance policy. 

Because XYZ’s insurance includes a waiver of subrogation, after paying the claim, XYZ’s insurance carrier would not be able to subrogate to try to recover the cost of the damages from ABC’s insurance carrier.

To summarize, waiver of subrogation provisions prevent one party’s insurance carrier from pursuing a claim against another contractual 3rd party in an attempt to recover money paid by the insurance company to resolve a covered claim.

Have questions about waivers of subrogation or your current business insurance program? Schedule an appointment with me today. 

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