What is a Waiver of Subrogation?

When someone is owed a debt, he generally has a right to use acceptable, legal measures to collect payment. Subrogation is a term which refers to the right of a creditor to allow someone else to acquire and collect a debt. A waiver of subrogation is a clause, usually in a contract, in which a person or company gives up the right to take legal action against someone to recover damages.

One of the most common places a waiver of subrogation is employed is in automobile insurance policies. Many policies include coverage which protects against any damages caused by an uninsured motorist. This means that if an uninsured driver hits you your insurance company will pay for the damages even though you are not at fault. Under the waiver, the insurance company compensates you for the loss and you no longer have a right to sue the person who hit you; that right has been transferred to the insurance company. If the company desires, it can pursue legal action against the uninsured driver and get reimbursed for the claim it paid.

A waiver of subrogation clause may also be found in many real estate leases. This is a clause in which both tenant and landlord agree to not sue each other for claims which are covered by the building’s insurance policy. The lease may also require both parties to purchase hazard insurance in which the insurance company signs a waiver giving up its rights to sue either party for claims caused by negligence. If this clause does not exist, then a tenant could find himself paying for damage caused by the negligence of his employees or agents. It is important, however, to make certain that such a provision in a lease does not violate any clause in the insurance policies.

It is also common to find a waiver of subrogation clause in construction contracts. In many projects, the owners, architects and building contractors each sign a waiver for any damages that are covered by insurance. These contracts also generally require all of the parties to purchase hazard insurance to minimize risk and make certain that the project proceeds without financial loss to anyone if accidents occur. The primary purpose of such waivers is to create a cooperative environment and reduce potential lawsuits.

Another insurance product that may include a waiver of subrogation is a private workman’s compensation policy. These may come in a variety of forms; blanket clauses which apply to all claims, those that apply to all of the contracts with a particular contractor, and those that only apply to one contractor for one particular project. Since the insurance company is agreeing to pay claims without seeking reimbursement from the party or parties responsible for the injury, the cost of the premium is increased with the inclusion of these waivers. The cost of the policy will be increased proportionately depending upon the type of waiver of subrogation required.