Waiver of subrogation: Overview, definition, and example
What is a waiver of subrogation?
A waiver of subrogation is a contractual provision in which one party agrees to relinquish its insurer’s right to pursue recovery from the other party for losses covered by insurance. This clause prevents the insurer from suing the other party to recover amounts paid for a claim, even if the other party’s actions contributed to the loss.
For example, a landlord may include a waiver of subrogation clause in a lease, preventing their insurer from suing the tenant if the tenant’s negligence causes a fire that leads to damages covered by the landlord’s insurance.
Why is a waiver of subrogation important?
A waiver of subrogation is important because it helps prevent litigation between parties who are working together or have ongoing relationships, such as landlords and tenants, contractors and clients, or business partners.
For businesses, including this clause in agreements can reduce conflicts and maintain goodwill while ensuring that losses are handled solely through insurance claims. However, this provision may lead to slightly higher insurance premiums, as insurers assume more risk.
Understanding waiver of subrogation through an example
Imagine a construction contractor accidentally damages a client’s property during a project. The client’s insurance pays for the repairs and, without a waiver of subrogation, could sue the contractor to recover those costs. However, if the contract includes a waiver of subrogation, the insurer cannot pursue the contractor for reimbursement, minimizing potential disputes.
In another example, a commercial lease includes a waiver of subrogation clause. If the tenant’s negligence causes water damage, the landlord’s insurance covers the repairs, and the insurer cannot sue the tenant for reimbursement, as the clause prevents such action.
An example of a waiver of subrogation clause
Here’s how a waiver of subrogation clause might appear in an agreement:
“Each Party agrees to waive any rights of subrogation their respective insurers may have against the other Party for claims arising out of incidents covered by insurance. This waiver shall apply only to the extent permitted by applicable law and provided such waiver does not void any insurance coverage.”
Conclusion
A waiver of subrogation protects parties from potential litigation by ensuring that insurance claims are the sole remedy for covered losses. It promotes cooperation and reduces conflicts in ongoing business relationships.
By including a waiver of subrogation clause in agreements, businesses can prevent disputes, streamline claims processes, and foster smoother relationships between parties.
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.