If your organization uses contracts or written agreements in its business transactions, you’ve probably heard the term “waiver of subrogation”. If you are tasked with managing certificates of insurance for your organization, you know the term all too well. But what do you really “know”? That you need to make sure your organization gets it in your favor? What does it mean? What are the implications if we ask for it and don’t get it? This blog takes a look at the concept of subrogation, what it means when there is a “waiver”, and how insurance policies address this issue.
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.
So what’s a “waiver”?
Now that we’ve covered the concept of Subrogation, let’s consider a Waiver of Subrogation.
If the option to subrogate is commonly written into most insurance policies and is a “right” that the insurance companies like to retain, how would we go about getting them to “give up” that right, or refrain from pursuing subrogation against specific parties? You would ask the insurance company to add a “Waiver of Subrogation” endorsement to your policy in favor of those specific parties. Waivers of subrogation can be obtained for any type of coverage or insurance policy – for General Liability, for Automobile Liability, for Workers’ Compensation, etc. For property coverage, the “waiver” is actually written into the policy form as insurance carriers anticipate that the scenario of being required to waive subrogation happens more frequently with regards to property.
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, etc that was signed). Think back to the definition of subrogation at the beginning of this blog: “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…” Waiver endorsements typically state that since you’ve given up your right by agreeing to it in writing, the insurer does also.
Having a good understanding of some of the insurance terms that are used in your organization’s business agreements makes a world of difference. You can now officially add “Waiver of Subrogation” to that list of terms.
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