Certificates of Insurance: Understanding “Waiver of Subrogation”
- Jonathan Zschau
A waiver of subrogation, sometimes referred to as a transfer of rights of recovery, is a provision in insurance contracts that plays an important role in risk management and business relationships. Often requested in contracts and reflected on Certificates of Insurance (COIs), this provision impacts the rights of insurers and the responsibilities of policyholders.
Understanding what a waiver of subrogation means and why it matters can help both insured parties and third parties protect their interests and avoid unexpected legal disputes.
What Is Subrogation?
Subrogation is the right of an insurance company to pursue a third party responsible for a loss after the insurer has paid a claim. Essentially, the insurer “steps into the shoes” of the insured to recover damages from the party that caused the loss. This right helps insurers recoup their payments and ensures that the party at fault ultimately bears the financial responsibility.
For example, if a contractor damages property while working on a project, and the property owner’s insurer pays for the repairs, the insurer may then file a subrogation claim against the contractor to recover those costs.
What Does a Waiver of Subrogation Do?
A waiver of subrogation prevents the insurer from pursuing recovery against the third party responsible for the loss. By agreeing to this waiver, the insurer gives up its right to sue or recover funds from the other party, even if that party caused the damage.
This waiver is typically added through an endorsement to the insurance policy. It’s a common requirement in industries like construction, real estate, and professional services, where multiple parties collaborate on a project and want to avoid inter-party litigation.
Why Is a Waiver of Subrogation Important?
Preserving Business Relationships A waiver of subrogation helps maintain positive business relationships by reducing the likelihood of lawsuits between project partners, contractors, landlords, or tenants. It ensures that parties work together harmoniously, focusing on project goals rather than disputes over liability.
Compliance with Contractual Agreements Many contracts require a waiver of subrogation as a condition of doing business. For example, a landlord might require a tenant to waive subrogation rights to ensure that their insurance policies won’t lead to disputes if a claim arises.
Risk Management By waiving subrogation rights, parties can better manage risks and reduce their exposure to costly legal battles. This approach is particularly valuable in complex projects involving multiple stakeholders.
Simplifying Claims A waiver of subrogation can streamline the claims process by limiting litigation and ensuring that insurance coverage functions as intended. Each party’s insurer handles its own losses without seeking repayment from others.
Practical Application in Certificates of Insurance
To satisfy contractual requirements, the insured party must request a waiver of subrogation endorsement from their insurer. This endorsement should specify:
The type of policy it applies to (e.g., general liability, workers’ compensation).
The parties in favor of whom the waiver is granted.
The Certificate of Insurance should then reflect the waiver, providing proof to the requesting party that the endorsement is in place.
Key Considerations for Insured Parties
Additional Costs: Insurers may charge an additional premium for adding a waiver of subrogation endorsement.
Limited Scope: Waivers are typically limited to specific parties or circumstances outlined in the policy or contract. Verify the exact terms.
Impact on Recovery: Policyholders should understand that agreeing to a waiver limits the insurer’s ability to recover funds, which could indirectly affect their claims history or premiums.
Conclusion
A waiver of subrogation is an important tool for managing liability and fostering collaboration in multi-party agreements. While it simplifies claims and reduces conflict, it requires careful review of policy terms, contract requirements, and business implications.
Disclaimer
This article is for informational purposes only and is not intended to stand alone as insurance or legal advice. Individual circumstances may vary, so when in doubt, contact Partridge-Zschau directly to discuss your specific needs.