No subrogation: Overview, definition, and example
What is no subrogation?
"No subrogation" is a contractual provision that prevents one party (such as an insurer) from stepping into the shoes of another party to recover costs from a third party. It limits the right of reimbursement, meaning that if one party pays for a loss, they cannot seek compensation from another responsible party.
For example, if a business has an insurance policy with a no-subrogation clause, the insurer cannot sue a third party to recover the costs it paid to the business for a claim.
Why is no subrogation important?
A no-subrogation clause is important because it protects contractual relationships and avoids disputes over reimbursement. Businesses often use these clauses to maintain good relationships with vendors, partners, or clients by preventing insurers or other parties from pursuing legal action against them.
For insurers, a no-subrogation clause means they assume full responsibility for covered losses without the ability to recover costs, which may affect premium pricing and coverage terms.
Understanding no subrogation through an example
Imagine a construction company hires a subcontractor to complete part of a project. The contract includes a no-subrogation clause, meaning that if the construction company’s insurer covers damages caused by the subcontractor, the insurer cannot sue the subcontractor to recover those costs. This protects the working relationship between the construction company and the subcontractor.
In another scenario, a business leases office space, and the lease includes a no-subrogation clause. If a fire damages the office and the business’s insurer pays for the loss, the insurer cannot pursue a claim against the landlord—even if the landlord’s negligence contributed to the fire.
An example of a no subrogation clause
Here’s how a no subrogation clause might appear in a contract:
“Each Party agrees to waive any rights of subrogation against the other Party for any claims arising under this Agreement, and shall ensure that its insurers also waive such rights.”
Conclusion
A no-subrogation clause prevents one party from seeking reimbursement from another, helping to protect business relationships and avoid legal disputes. Businesses commonly use these clauses in contracts and insurance policies to allocate risk and ensure that claims are settled without further litigation or financial recovery efforts.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.