What Is a Waiver of Subrogation?

Transcript

In this video we are going to understand what Waiver of Subrogation is.

In order to understand what a “ Waiver of Subrogation” is we first need to understand what is the meaning of the word “ subrogation”.  Subrogation is when an insurance company pays for a claim caused by a third party.  For example, suppose you were involved in a car accident where your car was hit by a car that ran a red light. In this case, the other party was totally at fault. Usually your insurance company will pay you for the loss and will try to recover their payment for that loss from the third-party insurance company.

Waiver of subrogation is when someone waives the rights of their insurance companies to recover damage from a third-party company.

On a Certificate of Insurance, the waiver of subrogation provision can be found in two main areas. The first is located at the column SUBR WVD where an Agent can put an X in the field to indicate that a waiver of subrogation applies. And the second place that a waiver of subrogation can be shown is within the Description of Operations. In such cases, it may indicate that a WOS is provided by specific endorsement number or version or by written contract.

The key reason for using a waiver of subrogation is to contain a financial loss to the insurance policy of a specific party. The party is generally the one providing service to another. This helps clients to control the cost of their insurance and the cost of managing risk. 

As usual, let’s take a look at an example to better illustrate this principle.

Mr. Lopez enters the building through the commons entrance and takes the elevator to this accountant’s office. Upon entering his accountant’s office Mr. Lopez does not notice a torn piece of carpeting which catches his foot, causing him to fall and breaking his leg. Mr. Lopez broken leg will keep him out of work for 6 months, so he takes legal actions against the accounting firm whose general liability insurance pays $250,000 as compensation. However, the accounting firm has signed a new lease which includes a waiver of subrogation requirement that favors both the building owner and the property manager. The new lease was executed prior to the claim. Upon investigation the accounting firm general liability insurance company determines the following parties to have fault for Mr. Lopez injury. First, the original carpet was installed by the building owner. Second, maintenance of the carpet was to be overseeing by the property manager. Third, the tenant who could have brought the torn carpet to the attention to the property manager prior to the injury.

The insurer wants to assume the rights of the insured and seek compensation from the building owner and property manager. As a new lease has a WOS requirement and the insurer has a waiver of subrogation endorsement the accountant’s general liability is waived or stopped from taking action against the building owner and the property manager in order to recover the money paid on behalf of their insured.

From the prospect of the building owner and the property manager, the WOS requirement has protected their insurance policies and contained the loss to the general liability insurance policy of the accounting firm.