Restoration Contractor: What is a waiver of subrogation?

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

What is subrogation?

Subrogation, in the simplest of terms, 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 loss for a paid claim.

• For example, suppose you and your client face a common 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 in order to release you from the claim. However, if your client was 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 full amount on your behalf, they now inherit your right to recover that portion of the loss. The insurance company can in turn 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 right of subrogation is relinquished. Clients that want your business to waive your rights of subrogation want peace of mind that they 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 can typically be accommodated on most general liability policies. Since you are giving up your right to recover any losses, the insurance company now has fewer rights to recover any loss they may pay. This increases their exposure which may lead to a higher premium.

As part of an insurance company's underwriting, they will want to make sure they fully understand the additional risk being undertaken. This may lead to questions about the person requesting the waiver, what services you perform, and what the value of those services. It is also a requirement that you must waive your subrogation rights in writing (as part of your client contract) and do so prior to any loss occurring.