What Are Waivers of Subrogation?

A waiver of subrogation is a clause found in many business contracts that prevents an insurance company from suing a third party to recover damages they paid on an insurance claim.

Waivers of subrogation can impact your insurance coverage. Learn when they are used and how they work.

What Is a Waiver of Subrogation?

Subrogation describes the legal right of an insurance carrier to sue a negligent third party that caused an insurance loss that the carrier had to pay.

If you suffer injury or damage due to an accident caused by someone else, you have the right to seek compensation for your loss by suing the responsible party. If your insurer has compensated you for the loss, your right to sue that party is transferred to your insurer. The insurer can sue the responsible party to recover its loss payment.

A waiver of subrogation is a provision in a contract that gives up this right. If you sign it and your insurance company pays out a claim you file, the insurance company cannot recover that money from the third party that was at fault in the claim.

Alternate name: subrogation waiver, no-fault no-subrogation waiver of liability

How Waivers of Subrogation Work

Waivers of subrogation often are used in general liability, commercial auto, and workers' compensation insurance. Waivers of subrogation can also be found in some commercial property policies.

Liability Coverage

Waivers of subrogation are used in liability insurance to reinforce a transfer of risk from one party to another in a contract. If a business assumed liability on behalf of a business partner or contractor, it can use a waiver of subrogation to protect itself against subrogation lawsuits by the partner's liability insurer.

This can protect the business in cases when the partner's employees or clients file insurance claims for bodily injury or property damage that occur on the business's premises, as a result of the partner working with the business, or due to negligence on the part of the business.

Most general liability policies contain a condition that prohibits you from waiving your rights of subrogation after a loss has occurred. They are typically silent on waivers executed before a loss occurs.

The party requesting the waiver may demand that you add a waiver of subrogation endorsement to your liability policy. This ensures that your insurance carrier is aware of the waiver. Your insurer may charge an additional fee for this endorsement.

There are two basic types of waiver endorsements used on liability policies: scheduled and blanket.

• A scheduled endorsement states that the insurer will not sue the party listed in the endorsement if you have waived your rights of subrogation against him or her.
• A blanket endorsement affords broader coverage and typically states that if you have agreed in a contract to waive your rights to sue someone, the insurer will not sue that party.

Commercial Auto Coverage

Commercial auto policies contain a "transfer of rights of recovery" clause similar to the one in the liability policy.

This clause prohibits post-loss waivers only. Before a loss occurs, you may waive your rights to sue someone in a contract without notifying your auto insurer.

The party that has requested the waiver still may demand that you add a waiver endorsement to your auto policy. As with liability coverage, your insurer may add either a specific or a blanket waiver endorsement to your policy.

In some states, you are understood to have waived your right of subrogation for auto claims if it has not been exercised after a certain period of time.

Workers' Compensation Coverage

The standard NCCI workers' compensation policy contains a subrogation clause entitled Recovery From Others. It states that the insurer has your rights, as well as the rights of your workers who are entitled to workers' compensation benefits, to recover its payments from anyone liable for the injury.

Under this clause, if your insurer pays benefits to an injured worker and another party is liable for the injury, your insurer assumes your rights and those of your injured employee, to sue that party to recover the value of the benefits it paid.

If two businesses working together have a contract that includes a waiver of subrogation, workers of the first business may file claims with that business's workers' compensation insurer for injuries caused by negligence on the part of the second business. However, the insurer cannot then sue the second business to recover the amount it paid in workers' compensation benefits.

An injured worker can sue a third party, even if they have already received workers' compensation benefits from their employer. However, if the worker's suit is successful, they may then be required to reimburse their employer's insurer for those benefits.

This is intended to prevent the worker from obtaining double recovery for a single injury. If the employer has waived its right to sue the partner company, however, the insurer may be barred from seeking reimbursement. The waiver will enable the worker to "double-dip."

Laws regulating waivers of subrogation in workers' compensation vary between states. Before entering into any contracts, check the local statutes to understand when such waivers are legal and how they can impact your business.

Commercial Property Coverage

In general, commercial property insurance policies protect your insurer's right to subrogation. However, the standard subrogation clause does allow you to:

• Waive rights of subrogation before a loss occurs 
• Waive your right to sue another party after a loss occurs if the other party is insured under your policy, a company you own or control, a company that owns or controls you, or a tenant of yours

Many contracts between businesses include mutual waivers of subrogation for losses covered by commercial property insurance. These waivers are also common during construction projects.

Landlords may ask for unilateral waivers of subrogation. These generally require that the tenant waive the right to sue the landlord for damage the landlord causes to the tenant's property. Waivers of subrogation between landlords and tenants may also be mutual, which protects both parties.