Waiver of Subrogation: Why It Matters for Business Owners

Understanding Waiver of Subrogation in Business Insurance

When reviewing a contract or an insurance policy, business owners may come across the term “Waiver of Subrogation.” While it might seem like just another insurance clause, it can have significant implications for how claims are handled and who ultimately pays for damages in the event of a loss.

What Is a Waiver of Subrogation?

A waiver of subrogation is a contractual provision where one party agrees to waive its right to seek reimbursement from another party for damages covered by insurance. In simpler terms, it prevents your insurance company from suing a third party to recover claim payments, even if that third party was responsible for the loss.

Why Is It Important for Business Owners?

For business owners, a waiver of subrogation can be crucial when working with clients, subcontractors, vendors, or landlords. Many contracts require this clause to avoid legal disputes and ensure smooth business relationships. Here’s why it matters:

1. Protects Business Relationships – If your insurer subrogates against a client or partner, it can create tension or legal disputes that could harm business relationships.

2. Ensures Contract Compliance – Many contracts mandate a waiver of subrogation. Failing to include it could put your business in breach of contract.

3. Avoids Additional Legal Costs – If your insurance company subrogates, it can lead to expensive legal battles that may involve your business, even indirectly.

4. Encourages Risk-Sharing – In industries like construction, waivers of subrogation ensure that all parties take responsibility for their own risks, rather than passing the blame around.

   
   

Example of a Waiver of Subrogation in Action

Let’s say you own a commercial roofing company, and you’re working on a project for a general contractor. Your contract requires you to carry a waiver of subrogation on your general liability insurance policy.

• During the project, a fire starts due to faulty wiring in the building, causing significant damage.

• Your insurance company pays for the damages under your policy.

• Normally, your insurer might try to recover the costs by suing the general contractor for negligence.

• Because of the waiver of subrogation, your insurance company cannot sue the general contractor, avoiding legal disputes and maintaining your business relationship.

  
  

How to Ensure Your Policy Includes the Right Waiver of Subrogation Language

If your contracts require a waiver of subrogation, you’ll need to work with your insurance agent to ensure your policies include the proper endorsement. Some policies automatically include waivers of subrogation, while others require an additional endorsement and fee.

Final Thoughts

Understanding waiver of subrogation is critical for business owners who enter into contracts with clients, landlords, or vendors. Ensuring that your insurance policies align with your contractual obligations can protect your business from potential legal conflicts and financial liabilities.

If you need assistance reviewing your insurance policies to confirm proper waiver of subrogation endorsements, contact our agency today! We can help you navigate policy language and ensure your business is protected.