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Insurance policies can often be complex, filled with legal jargon and various provisions that may be unfamiliar to many policyholders. One such provision is the “Waiver of Subrogation.” While it may sound daunting, understanding this concept is essential for both individuals and businesses seeking comprehensive insurance coverage. In this blog, we will break down what a waiver of subrogation is and the reasons why it’s so important in the world of insurance. 

What Is a Waiver of Subrogation?

A waiver of subrogation is a contractual provision in an insurance policy that prevents the insurance company from seeking reimbursement from a third party for the covered losses. Simply put, it bars the insurer from attempting to recover the claim amount from another party who might be at fault for the incident. A waiver of subrogation can be found in various contracts such as leases, general liability, and auto insurance policies to name a few. 

How Does Subrogation Work?

Before we dive further into the details of a waiver of subrogation, it’s crucial to understand how subrogation works. Subrogation is a standard practice in insurance where the insurer assumes the rights of the policyholder to pursue a claim against a third party who caused the covered loss or damages. The intention is to recover the claim amount and prevent the policyholder from receiving a double payment for the same loss.

Real-Life Example of Subrogation

To illustrate the practical implications of subrogation and the impact of having a waiver in place, let’s consider a hypothetical, real-life situation involving a construction company. 


Imagine a construction company, ABC Builders, is contracted to construct a commercial building for a client as General Contractor. During the construction process, there is an accident on the construction site where the subcontractor is working. The accident leads to property damage and bodily injuries to third parties.


Without a waiver of subrogation: In a typical insurance scenario without a waiver of subrogation, the third party may file a claim or lawsuit against the subcontractor. The insurance company for the subcontractor would then pay out the claim amount to compensate for the losses. After settling the claim, the subcontractor’s insurance company, would have the right of subrogation. This means the insurance company can step into the shoes of the subcontractor and pursue legal action against ABC Builders to recover the full or partial amount paid for the claim. The purpose behind subrogation is to hold the responsible party liable for the damages they caused and prevent the injured party from receiving double payment for the same loss.


With a waiver of subrogation: Now, let’s consider the same scenario but with a waiver of subrogation in place. In this case, the insurance policy of the subcontractor would contain a specific provision stating that the insurance company waives its right of subrogation against ABC Builders. As a result, the subcontractor’s insurance company would be barred from pursuing legal action against ABC Builders, even if they were responsible for the accident.

Reasons for Including a Waiver of Subrogation

Preserving Business Relationships

For businesses, an important reason to include a waiver of subrogation is to maintain amicable relationships with vendors, contractors, or other parties involved in a project. In the event of an accident, the waiver prevents the insurance company from pursuing legal action against the responsible party.

Contractual Obligation

In many cases, a waiver of subrogation is a contractual requirement between the parties involved. For example, in construction projects or property leases, one party might insist on obtaining a waiver as a condition for entering into the contract. 

Mutual Waivers

In certain circumstances, parties might agree to a mutual waiver of subrogation, in which both the policyholder and the responsible third-party waive their rights to pursue claims against one another. This mutual agreement can be beneficial for businesses involved in joint projects or partnerships. 

Navigating the World of Insurance With Biscayne Risk

A waiver of subrogation is a critical provision in many insurance policies that can safeguard a business from potential disputes and maintain professional relationships. Understanding how this provision works and the reasons for including it allows policyholders to make informed decisions when choosing the right coverage. At Biscayne Risk & Insurance, our team of insurance experts are here to navigate you through all the complexities and answer any questions you may have. Please contact us today to set up an appointment and see how we can help protect your business.

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