What is a Waiver of Subrogation?

Why Might a Business use a Waiver of Subrogation

The term Subrogation refers to the right of an insurer (insurance carrier) to pursue an insurance loss to the insured (the person or entity being insured) in an attempt to recover funds paid in a claim. Conventional Subrogation refers to a relationship between the insured and insurer as defined in an insurance contract. A Waiver of Subrogation is a provision in a contract where an insured waives the right of their insurance carrier to seek reimbursement or seek compensation for losses from a negligent third party. A Waiver of Subrogation is between two parties where one party agrees to waive subrogation rights against another in the event of a loss. A Waiver of Subrogation can be used on a General Liability, Auto Liability, Umbrella Liability and Workers Compensation.

Waiver of Subrogation

What does it mean to waive your rights?

A waiver of subrogation is issued when one party within an insurance claim wants to relinquish the right of subrogation for damages paid out in a claim. Most of the time a waiver of subrogation is entered into between two businesses or a business and a contractor. When it comes to the workers compensation system the claim goes entirely on the insureds insurance history and will increase the experience modification rating of that business. The waiver is most frequently entered in to in order for one entity to force the other entity to not allow the insurance company of the insured to come after the other party within the insurance claim for damages that were the fault of that business or its employees. It is usually a requirement for a contract and the waiver gives a business the peace of mind they will not be held liable for damages if they are somehow partially responsible for a loss.

How do I obtain a waiver of subrogation?

Most insurance carriers accommodate a waiver of subrogation on most insurance policies. They are most commonly agreed upon with in General Liability, Auto Liability, Umbrella Liability and Workers Compensation Insurance. When engaged in to, the waiver increases the exposure of the insurer which may lead to a higher insurance premium. Before entering into a waiver, it is important to evaluate the probability that employees being injured while on the job. Additionally, it is important to consider whether your employees may be placed in situations where they could be injured themselves offsite due to the negligence of another third party.

Examples of Waiver of Subrogation

Construction Project

When a construction project requires adding on to an existing property. The engineers, architects, and construction company may want a waiver of subrogation for damages caused by the design and construction of the existing property.

Commercial Cleaning Company

A commercial cleaning company may be required to sign a waiver of subrogation in order to enter into a contract with a corporation to clean their property after hours. An example of where this might be necessary is if a cleaning company employee is injured on the property of the corporation they are cleaning, the insurance company of the cleaning company cannot sue the corporation for damages that caused the injury to the employee.

Landlord Tenant Agreements

When a Landlord is renting out a property to a tenant, it may require a two way agreement where both parties give up subrogation rights. The waiver subrogates rights against each other in the event of some kind of loss like damage to the building or fire.

What is an Additional Insured?

According to the Insurance and Risk Management Institute (IRMI), an Additional Insured is, ‘A person or organization not automatically included as an insured under an insurance policy who is included or added as an insured under the policy at the request of the named insured‘. Now let me try to help you understand what that means in layman’s terms. An additional insured refers to any person who is not the policyholder, but is covered by an insurance policy. This coverage may be limited to a single event (wedding), or it could last the lifetime of the policy (for a contractor who will be working for the business throughout the entire year). First you need to understand the three different entities involved in a certificate of insurance. Those three entities are the additional insured, the certificate holder, and the policy holder. Here is a brief description of each entity and when it is best to add an Additional Insured or use a Waiver of Subrogation.

Additional Insured listed on a certificate of insurance.

Entities to an Insurance Agreement

Policy Holder:

The policy holder of an insurance policy is the person or business whose name is on the policy. It is important to distinguish this person from the name insured. The named insured is the person or business the policy is purchased to cover.

Additional Insured:

An additional insured is a person or organization that is added to an insurance policy and that person or organization enjoys the benefits of being insured under the policy. This coverage is in addition to the person or organization who originally purchased the insurance policy. The additional insured is named on a certificate of insurance. They only have a certificate if you send them a copy.

Certificate Holder:

The certificate holder is the entity that is provided a certificate of insurance as evidence of the insurance maintained by another entity. In its most simple form, a certificate of insurance is proof of insurance. The certificate holder is holding the certificate of insurance proves a business made sure to check the insurance coverages of contractors they partner with.

Digital picture of a certificate.

When Should Someone Add An Additional Insured?

One of the most common examples of when it is wise to have an additional insured is if someone is a landlord of a commercial building. Landlords commonly require tennants to add the landlord under their insurance policies in order to lease the facility. Another good reason to be add is your business rents a piece of equipment from another business. You may want to add the other business as an additional insured under your insurance policies involving the equipment.

Additional Insured or Waiver of Subrogation

My Customer Service Representative (CSR) and I see a ton of requests for a Certificate of Insurance. Many of our clients do not understand what a Certificate Holder is or what being an additional insured means. I want to describe the differences between additional insured and a certificate holder. I want to explain this because, many clients don’t understand why an Additional Insured cannot be named on a workers comp policy. These same clients do not understand why the same person can be named on Liability Policies. Well I am going to shed some light on this situation. Here are four common terms that will help a business owner through the process.

Certified, additional insured, waiver of subrogation.

Certificate of Insurance:

A certificate of insurance is a document issued by an insurance company to verify insurance coverage to another person. The document tells what coverage is secured and under what specific conditions grated to the listed individuals. The document lists the effective date of the policy and the type of insurance coverage secured. Also, a certificate of insurance includes the limits of liability and the dollar amount of coverage. It is important to understand the holder of the certificate is not covered under the policy. The certificate serves as proof the holder made sure the person they are interacting with secured coverage.

Additional Insured:

When an insurance professional refers to an additional insured, they are referring to a type of status associated with General Liability Insurance Policies. Those policies provide coverage to other individuals or a group of individuals who were not initially named on the policy. After endorsement, the additional insured will be protected under the named insurer’s policy. They can file a claim in the event they are sued. Additional Insured is available on General Liability, Auto Liability and Umbrella Liability.

Certificate Holder:

A certificate holder is an individual or entity that is named on the certificate of insurance. When named on the certificate, they are notified when coverage is cancelled prior to the renewal date. This is needed in the event a business is partnering with a contractor or another business and that business does not hold the necessary coverage for the business interaction. No coverage protection under the contractor’s policies is provided to a Certificate Holder.

Waiver of Subrogation:

A Waiver of Subrogation means the insurance carrier agrees to relinquish any right to recover damages if it is determined in the course of investigating the claim that the client or one of the client’s employees was responsible for the loss. An insurance carrier may reserve the “right of subrogation” in the event of a loss. This means the company may choose to take action to recover the amount of a claim paid to a covered insured, if the loss was caused by a third party.

Waiver of Subrogation is available on General Liability, Auto Liability, Umbrella Liability and Workers Compensation. A Waiver of Subrogation provision prevents an insurance company (who steps into the shoes of the insured after it pays a loss) from suing the other party to the contract. This is likely the party who caused the loss.  Moreover, Waiver of Subrogation provisions found in contracts are generally upheld by Courts.

When a contractor works another person’s property, there are risks involved. Contractors can damage personal property or be injured while performing work. Companies and individuals that hire contractors want to be certain they will not be held liable for injuries, damages or substandard work. For this reason, they will frequently request to see a certificate of insurance from those contractors.

In my experience, most client’s call and request an additional insured to be added to a work comp policy.  An Additional Insured cannot be added to a Workers Compensation Policy. As stated above, an Additional Insured is naming someone else on a policy and a Work Comp Policy is written to cover injured employees. Workers Comp does not cover another company.  The alternative to this issue would be requesting a Waiver of Subrogation.  If you are a sub contractor and you are working with a larger company requesting a Waiver of Subrogation, it is important to make sure you the contractor understand what you are being asked to waive.

If your company hires subcontractors, it’s important to get a certificate of insurance from every subcontractor. Even if you trust your subcontractors. For example, if you have worked with these contractors in the past you need to get updated certificates. Even if you knew the to have insurance in the past they may not have it now. A business owner should submit a request for a certificate each time they hire a contractor. This insures they have proper insurance. Proper insurance at the time you hired them. Doing this can prevent a scenario where you inadvertently take on the risks associated with the work your subcontractors perform.