May 10, 2017

What Exactly Is Waiver of Subrogation, Anyways?

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Most organizations that utilize the services of third party vendors or subcontractors have to deal with contracts often. Those contracts are often in the form of written agreements, meaning that the term ‘Waiver of Subrogation’ is something most likely seen often. Does your organization use contracts for vendors or subcontractors? Does your compliance staff know the meaning of this term and why it’s so critical to compliance and coverage?

In this post, we’ll review frequently asked questions about the subject, such as: the definition, why it matters, and what your compliance team should seek in terms of waiver of subrogation.

Waiver of Subrogation Definition

Investopedia defines a waiver of subrogation as:

“A contractual provision where one party agrees to limit the rights of its own insurance carrier and usually pays an additional premium for a special policy endorsement allowing for coverage under such a situation. Many construction contracts and leases include waiver of subrogation clauses. 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 its insured or to a third party in resolution of a covered claim.”

Why Does The Waiver Matter?

A waiver of subrogation lets an insurance carrier stand in the place of its insured after satisfying a claim paid to or on behalf of the insured in accordance with the company’s duties under the insurance policy. The article goes on to explain that the insurance company may then pursue whatever claim its insured could assert against other parties for that same loss, even when the loss involves resolution of claims brought against the insured. Because they cannot recover the money paid to or on behalf of their insureds when such waivers apply, insurance companies frequently charge an extra premium for an endorsement covering the insured for claims barred by such contractual provisions. Parties to the contract avoid suing each other, and the insurance company bears the loss.

As a standard feature, most insurance policies have a waiver of subrogation clause written right into the policy language. When dealing with commercial insurance, the same concept usually applies. If a claim is paid out and other ‘responsible’ parties exist that are also liable for the loss, an insurance company has the right to pursue subrogation to recover any funds paid out.

Getting Waiver of Subrogation In Your Favor

Most contracts contain a clause requiring a ‘waiver of subrogation’ in favor of one party to be added to the other party’s insurance. Just as contracts typically require one party to be an additional insured on the other’s policy, they might also request a waiver of subrogation to agree in advance of any loss that their insurance company will give up their right to pursue it because you have already agreed to do so in writing (as part of the contract/agreement/lease and so on that was signed).

Waivers typically state that since your organization has given up the right by agreeing to it in writing, the insurer does also.

Insurance Tracking Services Help You Stay On Top of Waivers

Insurance Tracking Solutions exist for one reason: to help you handle the everyday tasks of managing certificates of insurance and protecting your company against underinsured claims, costly litigation and failed audits. The software is an easy-to-use, cloud-based solution developed and supported by a team of insurance professionals and is built on a foundation of insurance industry logic to automate the certificate of insurance communication process and ensure you remain protected.

Interested in learning more about their insurance tracking services, or want to see myCOI in action? Request a product demo or sign up for our newsletter to stay in the know.

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