What is a Waiver of Subrogation and how does it effect restoration contractors?

Common client requests for restoration contractors are for types of liability insurance. Clients have increasingly requested a waiver of subrogation to go along with their professional liability insurance or general liability insurance policies. So, what exactly is a waiver of subrogation?

What is subrogation?

In simplest terms, subrogation is when an insured party agrees to have the insurer cover the losses incurred by a third party. The insurer then inherits the right to recover those losses from the third-party responsible for the failure of a paid claim.

For example, suppose you and your client face a joint lawsuit for negligence. Part of that claim alleges you were faulty in delivering your services and part of it alleges fault due to your client’s faulty services. A judgment may be awarded that your insurance company pays in full to release you from the claim.

However, if your client were also partially responsible for the loss, you would have the right to recover the part of the loss that is their fault. But, since your insurance company has paid the total amount on your behalf, they now inherit your right to recover that portion of the loss. In turn, the insurance company can seek to recover damages directly from your client or their insurance company.

What does it mean to waive this right to subrogation?

A waiver of subrogation is when the ownership of subrogation is relinquished. Clients who want your business to waive your subrogation rights with peace of mind will not be held liable for damages if they are somehow partially responsible for a loss.

This waiver of subrogation prevents your business (and your insurance company) from seeking a share of any damages paid, eliminating potential business conflicts between your business and client.

How do I obtain one?

A waiver of subrogation request can typically be accommodated on most general liability policies. Since you are giving up your right to recover any losses, your insurance company now has fewer rights to recover any loss they might pay. This increases their exposure will probably lead to a higher premium.