Working with third-party contractors and suppliers often opens the door to liabilities such as property damages and losses. A waiver of subrogation helps you manage the risk of your business while maintaining positive relationships with third parties.
What is a waiver of subrogation?
Subrogation describes the right held by an insurance company to legally pursue a negligent third party that caused an insurance loss to the insured. This is done after paying a loss and is intended to recover the amount of the claim paid by the insurance company to the insured.
A waiver of subrogation forfeits a business’ right of subrogation. If a waiver is in place and the insurance company pays out a filed claim, the insurance company cannot recover that money from the third party that was at fault in the claim.
When businesses waive their right of subrogation, they—and their insurance company—are prevented from seeking a share of any damages paid. Although this eliminates potential conflicts between businesses, insurance companies and third parties, it increases exposure to risks.
How does a waiver of subrogation work?
Once assigned to the insurers by the parties, the risk is determined to stop there, without allowing the insurer to seek compensation from the party at fault. An effective waiver will prevent the various insurers involved from suing the parties of the agreed upon contracts. Most signed contracts assign the responsibility for procuring the applicable insurance, for demonstrating the coverage is in place, and for the cost.
Waivers of subrogation often are used in general liability, commercial auto, commercial property policies and workers' compensation insurance. A waiver of subrogation often comes in two different formats. The verbiage will either specifically name an entity that the carrier waives its’ right to subrogate against or will be in the form of a Blanket Waiver of Subrogation. If a Blanket Waiver of Subrogation is provided, the carrier must obtain permission from the named insured to subrogate against a third party.
Why do you need a waiver of subrogation?
A waiver of subrogation provides peace of mind and eliminates the potential for business conflicts between parties should a claim be filed. A simple accident could put the subcontractor’s entire business in danger. However, if a simple waiver of subrogation clause is present in the signed contract, that nightmare could be avoided. A waiver of subrogation clause is placed in a contract to minimize lawsuits and claims, helping manage the risk and associated expenses.
Both parties agree that the risk of loss is to lie with the insurers, and the cost of the insurance coverage is contractually allocated among the parties—waiving all rights against each other and against others for damages covered by any property insurance in place during work. By waiving rights to subrogation, businesses are communicating that they will not pursue a right to recovery for any damages if they are somehow found partially responsible for a loss.
How does having a waiver of subrogation affect finances?
With liabilities falling on the insurance company, insurance premiums may increase with a waiver of subrogation. Businesses will want to factor in any premium increase when determining the price they charge for work. But in essence, property damages and liabilities are almost inevitable, so the extra fee is worth not dealing with the aggravation later down the road.
Monitoring your suppliers’ insurance is a burden, but not doing so is risky. See how Avetta’s insurance monitoring solution can help you save time and money.