Have you ever been asked to sign a waiver of subrogation? This contractual endorsement can sound sort of confusing, but it's actually a very simple, convenient waiver. Learning a little more about waivers of subrogation can help you figure out if it's right for your situation.
To understand how a waiver of subrogation works, it's helpful to first understand some imported related terms.
Subrogation is an insurance carrier's right to pursue a third party for damages. Essentially, when a person files a claim with their insurance, the insurer can sue any other involved parties who caused the problem. In any situation involving an insurance claim and a third party, subrogation is usually an option.
A waiver is a legal document that allows someone to set aside their right of subrogation. When a person signs a waiver of subrogation, they are saying their insurance company doesn't have the right to seek compensation from a third party.
The victim can still get paid for any damages, but the person paying will be the insurance company, not the negligent people who caused the problem. This type of waiver is called a contractual endorsement because it's a change to your existing policy.
There are a few different types of endorsements. These waivers can be a:
There are all sorts of situations where you might see a contractual endorsement clause. Here we give you the three of the most common scenarios where you’re likely to see one:
A common example of a waiver of subrogation occurs in construction contracts. Typically, the owner will agree to waive their subrogation rights for all contractors or subcontractors working on the building. This can be very helpful for the contractors because it ensures they won't be held liable if something goes wrong.
Waivers of subrogation also frequently show up in leasing contracts. A landlord can ask their tenant to sign a waiver as part of their lease. This waiver of subrogation ensures that the tenant's insurance can't seek compensation from the landlord for things like a slip and fall injury or items damaged in a fire.
A final example of waivers of subrogation occurs in the paperwork following an accident. Usually, both insurance carriers have the option of trying to sue a negligent party for compensation. However, you may have the option of just agreeing to a settlement and signing a waiver of subrogation. This allows the injured party to get a payment while preventing future litigation.
In two words: yes….lots! These are just some of the benefits to a waiver of subrogation:
Simpler for both parties: Both the party waiving their rights and the party requesting the waiver may find that this endorsement makes things simpler. More specifically, the injured party still gets paid for any damage, but the whole process is quicker and less stressful.
Cuts back on litigation: Any time something goes wrong, the injured party just files an insurance claim and gets their payment. Everyone else involved in the situation doesn't have to sit through depositions and lengthy lawyers' meetings.
Lower payouts if you’re at fault: If you’re the party who could potentially be at fault, this waiver could ensure that you don't end up having to pay a lot of money if you negligently cause damage to another party. The insurance company remains responsible, while any other parties don't have to pay extra. This means that the waiver can give extra protection to your finances.
Preserves business relationships: When one company is worried about the other suing them, they can end up in all sorts of nasty arguments. A waiver of subrogation helps everyone stay civil. If something goes wrong, the injured party simply talks to their insurance company, so a lot of stress and tension is avoided.
To keep things short and sweet… yes, there are risks. The two biggest risks to signing a waiver of subrogation clause are:
Higher premiums: Expect higher insurance premiums if you regularly use waivers of subrogation. Since this waiver puts a lot more risk directly on your insurance company, they'll need a higher payment to justify the risk.
More paperwork: You are usually required to notify your insurance company if you're going to sign any waivers of subrogation. Forgetting to alert them can mean that you end up paying out-of-pocket costs yourself.
A waiver of subrogation can cover a lot of situations, but it isn't all-inclusive. Even if you sign a waiver of subrogation, you should be aware of three situations where it won’t be enforced:
1. Local laws protect subrogation rights: Some state laws require that workers' compensation insurers always have subrogation rights, so even if you sign a waiver, the insurance carrier can still seek compensation.
2. It’s outside the scope of the policy: A waiver of subrogation is only relevant for damage that is covered by a person's insurance policy. For example, if a plumber causes flooding in a building without flood insurance, the owner will probably still be able to sue the plumber for the damages. The waiver usually only applies to damages up to a policy's limit. If the loss is pricier than the insurance policy, the injured party can usually seek compensation for the extra costs.
3. Other contracts take precedence: A waiver of subrogation cannot override certain other legal documents you might have signed. For example, some insurance policies specifically state that you cannot retain coverage with them while signing a waiver of subrogation. This sort of phrasing can end up invalidating any waiver of subrogation clauses you might have signed.
If you want to include a waiver of subrogation in your next contract, note down these three important reminders on a post-it note:
1. Get advice from an experienced insurance professional: Though you can print a random waiver off of the internet, these sorts of free waiver of subrogation forms are often too vague. They can end up being invalidated if they do not specifically address your situation and your state's laws. It’s better to get help from those with experience in the insurance sector. You can typically call one on a freephone number and tell the insurance agent that you’re thinking of including a waiver of subrogation and you want his/her opinion. You’ll be getting free advice from somebody who has seen lots of these clauses hundreds of times before.
2. Keep it clear and specific: You'll need to make sure to include things like the specific situation you are involved in and the amount of time the waiver applies. All involved parties, including the insurer, will need to be properly listed as well. It's essential to be precise when writing a waiver because otherwise it could end up not applying to certain things.
3. Let your insurance provider know: A waiver of subrogation is a somewhat unusual document because it means you are essentially signing away another company's rights. Therefore, you may need to also get your insurance company involved. When in doubt, it's a good idea to contact them and discuss potential waivers of subrogation. They can help you create a document that does not violate your own policy in any way.
If you have any more questions about how waivers of subrogation work or you want to know about liability waivers, remember that CoverWallet is always here to help with your insurance coverage. Fill out our online contact form to learn more.
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