Waiver of Subrogation

Legal Matters By: Patrick Cella

Within last month’s newsletter, we addressed insurance requirements within a contract. Regardless of which party agrees to purchase and maintain insurance, it will also be important for your company to look for a waiver of subrogationclause in your contracts. A waiver of subrogation clause may protect you if the other party to a contract agrees to maintain insurance coverage; however, it can hinder your company and your insurance provider if your company has agreed to maintain insurance for the benefit of the other party. In practice, once a loss occurs, if one party has agreed to maintain insurance to protect the other party, the insurance company will be forced to cover the loss, even if it was caused by the negligence of the other party. If the contract also contains a waiver of subrogation clause, the insurance company will have no recourse to recoup these funds from the at-fault party. However, without the waiver of subrogation clause, the insurance company would be free to pursue a claim against the at-fault party.

Therefore, when your company agrees to maintain insurance coverage for both your company and the other party, it will be important to look for a term within the contract that would waive your company’s ability, through its coverage provider, to pursue a subrogation claim against the other party. Of course, the converse is true, as well. If another party has agreed to maintain insurance for your company, then a waiver of subrogation clause is recommended to protect your company against a potential subrogation action by the other party’s insurance company.

Examples:

A waiver of subrogation clause limits an insurance company’s ability to make a claim on its insured’s behalf against an atfault party. The following example of a waiver of subrogation clause provides that the organization will have the right to pursue subrogation if its coverage is affected, but the other party will not have the same opportunity. We normally recommend striking these provisions, unless, of course, there is little to no chance that your insurance company will offer coverage under the given circumstances. If, on the other hand, your company’s coverage may be affected, it is best to simply strike any waiver of subrogation provision within the contract.

To the extent damages are covered by insurance during the course of this agreement, the Owner and the Vendor waive all rights against each other and against the employees and agents of the other for damages, except such rights as they may have to the proceeds of such insurance as set forth in this agreement. The Owner or Vendor, as appropriate, shall require similar waivers in favor of the other parties enumerated herein from any and all parties affiliated with them.

The waiver of subrogation clause below provides that the other party (Third-Party, Inc.) will waive its right to pursue subrogation against your company for damages covered by insurance. This clause is beneficial if the insurance provision in your contract requires the other party to purchase and maintain coverage naming your company as an additional insured. In the event of a loss, the insurance purchased by the other party would cover the loss and the carrier would not be able to pursue a subrogation claim against your company, even if the loss was caused by your wrongful conduct.

Waiver of Subrogation: Third-Party, Inc., waives all rights against the Your Company for damages caused by any peril to the extent covered by insurance provided under the insurance requirements of this Agreement. Third-Party, Inc., shall require similar waivers by Subcontractors and Sub-Subcontractors. All insurance policies required hereunder shall permit and recognize such waivers of subrogation.