How does a waiver of subrogation work in an insurance policy?
Normally, if your insurance company pays a claim — and someone else caused the damage — the insurer can try to get that money back from the business, person, or organization who caused the damages. That’s called subrogation.
When you add a waiver of subrogation, the insurer agrees not to take legal action against that other party for repayment. In other words, the insurance company pays the claim — and stops there.
Which types of business insurance usually include a waiver of subrogation?
Waivers of subrogation are sometimes added to general liability insurance and workers’ compensation insurance policies. And this type of waiver is often required in construction contracts, commercial leases or vendor agreements.
In workers’ comp, subrogation typically comes into play when a third party — like another contractor on a job site — contributes to an employee’s injury.
Without a waiver, your workers’ comp insurer could pursue the responsible person or business to recover what it paid in benefits. With a waiver, the insurance company agrees not to seek that recovery.
This matters in construction and other industries where multiple parties work on the same job site. A general contractor may require subcontractors to carry a workers’ comp waiver of subrogation to protect themselves from having a subcontractor’s insurance company take legal action against them after a workplace injury claim is paid.
If a client or a contract asks for this waiver, review your policy and confirm that your insurer can add the waiver before work begins.
Why would you include a waiver of subrogation in a contract?
In contracts, a waiver of subrogation can help clarify how risk is handled between parties after a claim. The waiver may:
- Help reduce lawsuits. It can prevent an insurer from seeking reimbursement from another party after paying a claim.
- Help preserve business relationships. The clause limits potential tension or disputes after a financial loss.
- Be required for some contracts. Common contracts where a waiver of subrogation may be required include commercial leases, construction agreements or vendor contracts.
- Require an endorsement. You may need to pay for an optional add-on to include a waiver of subrogation on your insurance policy, depending on the agreement.
Because requirements vary, it’s important to confirm what your contract specifies and whether your insurer can add the waiver.
Who typically requires a waiver of subrogation?
Waivers of subrogation are commonly requested in commercial agreements where two parties want to limit the risk of lawsuits between them. For example:
- Landlords or property managers may require a waiver of subrogation for their tenants.
- General contractors and venue owners may require waivers of subrogation from subcontractors or vendors.
The requirement is usually outlined in some sort of document like a lease, construction contract or service agreement. Requirements can vary depending on the agreement, the industry and the parties involved.
Can a waiver of subrogation increase insurance costs?
A waiver of subrogation can increase insurance costs. When you add the waiver, your insurer agrees to give up its right to recover money from another party after paying a claim. Because the insurer gives up its right to recover money, adding this endorsement may increase your monthly or annual premium.
But subrogation rights aren’t waived automatically; it’s usually an optional addition to your policy as an endorsement.
Does a waiver of subrogation protect the additional insured?
A waiver of subrogation and an additional insured endorsement are two different things, but it’s easy to mix them up because contracts often require both at the same time.
Being named as an additional insured gives someone direct coverage under your policy. A waiver of subrogation stops your insurer from going after them to recover money after a claim is paid. They protect the same person, but in different ways.
That’s why you’ll often see both required together in construction contracts and commercial leases — one covers the other party if something goes wrong, and the other makes sure your insurance company doesn’t come for them afterward.
If a contract asks you to name someone as an additional insured, check whether it also requires a waiver of subrogation. Chances are it does — and both need to be added to your policy before work starts.
What is the difference between a blanket and a specific waiver of subrogation?
There are two types of waiver of subrogation endorsements, and understanding the difference matters before you sign a contract:
- Blanket waiver of subrogation. This type of waiver applies automatically to all parties you have a written contract with who require a waiver. This option is more efficient if you work with many clients or contractors who regularly request waivers, but it may come with a higher premium than a specific waiver.
- Specific waiver of subrogation. This type of waiver applies to a named party or a single contract. So if a single client requires a waiver, you can add that specific organization to your policy endorsement. This approach gives you more control but requires a separate endorsement for each contract that demands one.
If you only occasionally need a waiver for specific contracts, a specific waiver may be more cost-effective. If your business regularly works under contracts that require waivers — such as in construction or commercial real estate — a blanket waiver might be worth the additional cost. Check your policy and confirm with your insurer which type of waivers are available and what each costs before agreeing to contract terms.
Waiver of subrogation example
Say you’re a contractor hired to renovate office space in a commercial building. Your contract says you have to carry general liability insurance and include a waiver of subrogation to protect the property owner.
During the project, a pipe bursts and causes water damage to the property, and your insurance helps cover the damage and pays the claim.**
- Without a waiver of subrogation: Your insurer may try to recover the money it paid out by taking legal action against the property owner if they believe the owner contributed to the loss.
- With a waiver of subrogation: Your insurer pays the claim and agrees not to seek repayment from the property owner.
The waiver helps prevent back-and-forth legal action between you and the client, which can make it easier to keep the working relationship (and your reputation) intact.
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