The legal concept of subrogation means to substitute the rights, duties, and debts of an insurance claim to another party—specifically, the one at fault.
While your insurance provider must, as part of your agreement with them, pay up for claims in the event of covered cases, there are times when another at-fault party’s insurance provider technically should be the one paying. In these cases, after covering the finances for your suffered losses, they would seek subrogation on your behalf against the at-fault party to reimburse them for your claim.
Make sense? We hope so. But there’s a lot more to know when it comes to subrogation, including the right to opt out of it through what’s called a waiver of subrogation. Follow along in myCOI’s new Certificates of Insurance 101 series. Today, we’re discussing subrogation waivers.
The Concept of Subrogation
According to International Risk Management Institute (IRMI), subrogation means “The assignment to an insurer by terms of the policy or by law, after payment of a loss, of the rights of the insured to recover the amount of the loss from one legally liable for it.” When an insurance company pays a claim, they always investigate the possibility of recouping those monies. That possibility is referred to as “subrogation”. If there is another party either directly involved in the claim, or shares responsibility for the loss happening and the insurance company can prove it, they will initiate subrogation against that other party after they have paid it. The most common example of this is in personal auto insurance. If you are involved in an accident and your insurer pays a claim to cover your injury or damage to your vehicle, they then will look to see if there is another driver determined to be at fault for the accident. If there is, the insurer will look to that driver’s insurance company to “reimburse them” through the process of subrogation. Typically this process occurs between insurance companies and individuals are not involved.
Most insurance policies have a subrogation clause written right into the policy language. It is a standard feature. When dealing with commercial insurance, the same concept 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.
What Is Waiver of Subrogation?
A waiver of subrogation is a provision added to a contract or business certificate of insurance (COI) that removes the right of one party’s insurer to subrogate or seek compensation from the other for insured losses. Without this right to pursue reimbursement from the parties involved in the contract, waivers of subrogation can help promote positive business partnerships by removing the threat of suing down the line. A waiver of subrogation form is the official endorsement an insured would fill out that modifies an insurance policy to declare their insurer’s right of recovery from a party waived.
What Is a Waiver of Subrogation Example?
To further explore this idea of subrogation further, let’s discuss an example of a waiver of subrogation. Pretend that you are a landlord of a commercial building that your tenants operate businesses out of. Through a waiver of subrogation, you could choose, smartly, to release both yourself and your tenants, as well as each other’s employees, customers, or other invitees, from all liability related to damages to the property. This removes the risk of your tenants’ insurance companies pursuing subrogation against you for things like negligence.
Waivers of subrogation are especially common in leases and construction contracts, two cases where damages are likely, and thus, third parties often take action to ensure they’re not held financially responsible for possible damages. Across many industries, waivers of subrogation provide an additional layer of protection for insured parties.
Why Would Someone Want a Waiver of Subrogation?
A subrogation waiver makes sense in some cases, especially when clients are likely to cause normal on-the-job damages that they’d like not to be held responsible for. By waiving subrogation, a party is agreeing not to pursue claims against the other, even if the other party’s actions caused or contributed to the loss. Ultimately, waivers of subrogation clauses reduce the potential for lawsuits stemming from losses or damages that can occur throughout a contractual agreement. This leads to lower risk for both parties and improved business relationships overall. A waiver of subrogation can also mean a speedier time-to-finish by removing the threat of lengthy litigation.
Does a Waiver of Subrogation Cost More?
Compared to a COI, which is free for a policyholder to request from their insurance provider, a waiver of subrogation costs more. Typically, insurance providers will charge more (in the form of raised premiums) for a policy with a waiver of subrogation endorsement present. This makes sense for them since, without the right of subrogation, they will be exposed to a higher level of financial risk. However, insureds can sometimes negotiate lower insurance premiums when waivers of subrogation are in place because they generally minimize the likelihood of claims and legal disputes.
Should You Agree to a Waiver of Subrogation in Insurance?
Insurance companies choose to subrogate because it helps to ensure that the ultimate financial responsibility for losses falls on the party who is legally liable for those losses. It protects you and them from having to pay for losses that aren’t your fault. However, there are cases, as we’ve outlined above, when either party may request to waive the rights of subrogation. You should carefully consider whether to approve this endorsement or not.
Some benefits of waivers of subrogation include efficiency, risk management, preserving business relationships, and potentially reduced insurance premiums. However, they also have implications for how potential disputes or losses will be handled. Ultimately, if you believe that you may need to recover costs from a third party for losses covered by your insurance policy, agreeing to a waiver of subrogation may not be in your best interests.
How Common Is a Waiver of Subrogation?
A waiver of subrogation is common in various types of contracts, especially in industries where insurance plays a significant role in risk management. Here are some examples of cases when waivers of subrogation are likely to come up:
- Construction contracts
- Property leases
- Real estate agreements
- Vendor agreements
- Service contracts
- Event planning and hosting
- Commercial leases
- Property management contracts
How To Get a Waiver of Subrogation
Now that we’ve discussed what a waiver of subrogation is and cases where it could make sense to use let’s walk through the process of obtaining a subrogation waiver:
- Identify the need for a waiver of subrogation.
- Review contract terms to understand the specific requirements for the waiver.
- Contact your insurance provider or broker for guidance.
- Request the waiver of subrogation from your insurance provider (usually done in writing and includes details about the agreement and why the waiver is needed).
- Your insurance provider will review the request and assess if granting it aligns with your policy. They may increase your monthly premiums or make other needed changes.
- Your insurer will then incorporate the waiver of subrogation endorsement into your contract (and it will show up on any COIs providing proof of the policy moving forward).
- Enjoy the active waiver of subrogation and keep a copy of it for your records.
Some people wonder if they can get a subrogation waiver form online. While there are PDF examples and templates, as always, we’d advise you to only trust your insurance provider in attempts to make changes to your policy.
How myCOI Can Help
Ready to get all of your insurance questions answered by an industry-leading certificate of insurance management software provider? myCOI has the team of experts you’ve been waiting for. Contact us today to book a complimentary demo.