Definitions and Examples of a Waiver of Subrogation

A waiver of subrogation means you give up your right (or your insurance company’s right) to seek a share of damages paid from a third party. And while this situation is risky for the insurance company, there are valid reasons to have this endorsement in place.

When used, this waiver can help minimize the number of lawsuits, cross-suits, and countersuits that arise from one claim.

You usually won’t find a waiver of subrogation in a personal insurance policy. It is usually available in professional or commercial policies as well as some auto and property insurance policies.

For example, if you were involved in a car accident that wasn’t your fault, your auto insurance company would use the subrogation process to recover their losses from the at-fault party. But if the at-fault driver wants to settle, you may be asked to sign a waiver of subrogation. This prevents your insurance company from acting on your behalf to recover the cost of damages.

If you don’t have a waiver of subrogation in your insurance policy and sign one with a third party, you’re likely in breach of contract with your insurer—potentially making you personally liable for claims.

You may also find waivers of subrogation in workers’ compensation policies, although some states—including Kentucky and Missouri—don’t allow it.1

How Does a Waiver of Subrogation Work?

If you’ve signed an insurance policy with a waiver of subrogation, you’re preventing your insurance company from seeking a share of the damages from a negligent third party.

For example, let’s say you are a contractor using subcontractors for different parts of a construction project. If one of your subcontractors does something that damages your client’s property, their insurance company pays for the damage.

However, this subcontractor was working for you. So typically, the subcontractor’s insurance company would then subrogate your insurance company, since you may also be found liable.

Subrogate is a legal term that means your insurance company can bring a claim against a third party if they believe that party is responsible for some of the costs from your own claim.

In the above example, the subcontractor’s insurance company may turn to your insurance company to recover the damages it already paid. But if the subcontractor’s insurance policy includes a waiver of subrogation, their insurance company no longer has the right to seek that compensation from your insurance company.

A Waiver of Subrogation in Contracts

It’s common practice for insurance companies to try to recoup the cost of damages when possible, so most insurance policies have a standard subrogation clause included.

But you might find a waiver of subrogation in some types of contracts, especially in the construction industry. If you sign a contract with this clause in it, you’re agreeing that your insurance company won’t seek subrogation.

What Does a Waiver of Subrogation Mean for You?

A waiver of subrogation means you’re asking your insurance company not to try to recover claims from a third party. Since you’re putting more risk onto the insurance company, this endorsement usually increases the cost of your policy.

However, a waiver of subrogation can also simplify business relationships, especially if there is a mutual waiver of subrogation in place. If both you and your client have this endorsement, you don’t have to worry about getting caught up in cross-suits or other lawsuits if you’re found partially responsible for an incident that another insurer covered.