If someone crashes into your car or steps on your computer, you have the right to sue. Subrogation occurs when you hand over your right to sue to your insurer. A waiver of subrogation prevents you from transferring your right. It's a requirement written into some business-to-business contracts.
Insurance contracts usually give a company the right of subrogation. If someone crashes into your car, for instance, your insurer reimburses you for the damage. The company wants to recompense the amount it paid you; one way to do that is sue the other driver. Although your insurer wasn't a party to the accident, the right of subrogation gives it the legal standing to sue in court. Then it can collect for its losses from the other party or his insurer.
When two parties sign a commercial contract, the document may have a waiver of subrogation written into its clauses. A company that hires a contractor to repair its offices, for instance, doesn't want legal liability for any accidents, such as someone falling off a ladder. Waiving subrogation prevents the contractor from reassigning her right to sue to her insurer. That way, after the insurer covers the injuries, it can't go to court against the contractor's client.
Signing a contract with a subrogation waiver sometimes create legal problems. Insurance contracts can include clauses that mandate a policyholder not do anything to interfere with the insurer's subrogation rights. If the policyholder then signs away his power to subrogate, the insurer can legally declare a breach of the insurance contract. That gives the insurer grounds to refuse to pay for the damages. Hirschler Fleischer recommends anyone asked to sign a waiver discuss it with the insurer first.
One solution for satisfying all parties is a waiver endorsement. This addition to the insurance contract allows the policyholder to sign a waiver of subrogation. In exchange, the policyholder may pay a higher premium to the insurer to compensate the company for its increased risk. Premium charges vary according to the field of insurance and the individual company. Some companies make no extra charge at all. Workers' compensation insurers may charge as much as five percent of the premium.
- International Risk Management Institute: Subrogation
- International Risk Management Institute: Waiver of Subrogation
- Hirschler Fleischer: Waiver of Subrogation: What Does It Mean To You?
- General Insurance Services: Understanding Waivers of Subrogation
- Matthiesen, Wickert & Lehrer: Understanding Waivers of Subrogation