If you own a business, you may eventually encounter a Waiver of Subrogation requirement in a lease, vendor agreement, contractor agreement, or other business contract.
The term can sound complicated, but the basic concept is relatively straightforward.
A waiver of subrogation can limit an insurance company’s ability to seek recovery from a specific party after paying a covered claim.
Understanding what this means can help you review insurance requirements before signing a contract.
What Is Subrogation?
Subrogation is a legal concept that can allow an insurance company to seek recovery from a party that may have caused or contributed to a covered loss after the insurer has paid the insured’s claim.
For example, imagine a business’s equipment is damaged because of an incident involving another party.
The business submits a covered claim to its insurance company, and the insurer pays for the covered damage.
Depending on the circumstances, the insurer may have the right to pursue the responsible party to recover some or all of what it paid.
That recovery process is known as subrogation.
What Does a Waiver of Subrogation Do?
A waiver of subrogation generally means that the insured has agreed to waive certain rights of recovery against another party, and the insurer agrees to honor that waiver when the applicable policy conditions are satisfied.
For example, a commercial lease may require a tenant to provide a waiver of subrogation in favor of the landlord.
If a covered loss occurs and the waiver applies, the tenant’s insurance company may be restricted from pursuing the landlord for recovery of the claim payment.
The exact effect depends on the policy language and applicable endorsement.
Why Would a Business Agree to a Waiver?
Waivers of subrogation are often used to allocate risk between parties that have an ongoing business relationship.
A landlord and tenant are one common example.
A contractor and property owner may also agree to contractual provisions involving waivers of subrogation.
The idea is generally to reduce the possibility that one party’s insurance company will pursue the other party after a covered loss.
The parties can therefore establish their expectations about insurance and risk before a loss occurs.
Where Might You Encounter One?
A waiver of subrogation can appear in many types of business agreements, including:
- Commercial leases
- Construction contracts
- Vendor agreements
- Service contracts
- Property management agreements
- Facility-use agreements
- Contractor agreements
The exact wording varies from contract to contract.
Waiver of Subrogation vs. Additional Insured
These two requirements are sometimes confused, but they serve different purposes.
An Additional Insured is a person or organization that receives certain coverage under another party’s insurance policy, subject to the applicable endorsement.
A Waiver of Subrogation generally limits the insurer’s ability to pursue recovery against a specified party after a covered loss, when the waiver applies.
A contract can require both.
For example, a commercial landlord might require a tenant to provide:
- General liability insurance
- Additional Insured status
- Waiver of Subrogation
- Primary and Noncontributory coverage
Each requirement addresses a different aspect of the insurance relationship.
Does a Waiver of Subrogation Cost Extra?
It can.
Some insurance carriers charge an additional premium for a waiver of subrogation endorsement, while the cost and availability depend on the carrier, policy, business type, and type of waiver requested.
A specific waiver applying to one identified party may be treated differently from a blanket waiver that applies more broadly.
If a contract requires a waiver, your insurance agent can determine what endorsement is available and whether an additional premium applies.
Is a Waiver of Subrogation Always a Good Idea?
A waiver of subrogation isn’t automatically something that should be added to every insurance policy.
It is generally something to consider when it is required by a contract or when the parties have intentionally agreed to allocate risk in that manner.
Because a waiver can affect the insurer’s recovery rights, the business should understand what it is agreeing to before accepting the requirement.
If you receive a contract containing a waiver of subrogation requirement, provide the requirement to your insurance agent before assuming your existing policy satisfies it.
What About a Blanket Waiver?
There is a difference between a waiver that applies to a specific party and a blanket waiver.
A specific waiver may apply to an identified party, such as a particular landlord or contractor.
A blanket waiver may apply more broadly when the insured has agreed in writing to waive subrogation in accordance with the policy’s requirements.
The availability and wording depend on the insurance carrier and policy.
What Should You Do If a Contract Requires One?
Don’t simply check a box saying that you have a waiver.
Give the insurance requirement to your agent and ask them to verify whether your policy provides the required coverage.
Your agent can review:
- The contract language
- The applicable policy
- Existing endorsements
- Whether a specific or blanket waiver is required
- Whether additional insured status is also required
- Whether primary and noncontributory wording is required
- Any additional premium
This can help prevent a situation where a business believes it has satisfied a contract when the policy does not actually contain the required provision.
The Bottom Line
A waiver of subrogation is a contractual and insurance provision that can limit an insurer’s ability to pursue recovery from another party after a covered loss.
It is commonly encountered in commercial leases, construction agreements, and other business contracts.
It is also important to remember that a waiver of subrogation is not the same thing as Additional Insured status, and a Certificate of Insurance does not automatically create either coverage.
If a Florida business receives a contract requiring a waiver of subrogation, the safest approach is to have the insurance requirement reviewed by an insurance professional before signing or assuming that the existing policy meets the requirement.
Nieves Insurance Group helps Florida small businesses understand their insurance requirements and explore coverage options based on their individual operations.
