Subrogation Waivers: The Risky Business of Risk Transfer 


Subrogation is a process that insurance carriers use to respond quickly when you, the policyholder, suffer damage caused by someone else. Through subrogation, your insurance carrier steps into your shoes, pays for your damages up front, and then seeks reimbursement of the claim costs from the at-fault party. Problems arise when small business owners sign contracts that waive the right to subrogation. 

Waiver of subrogation clauses are common in multi-tier contractor and tenant-landlord contracts, and they are making their way into contracts for many other business categories. These contract clauses come in many forms and go by many names—waiver of subrogation, hold harmless, transfer of risk, etc. You can see some examples of waiver language here. Be sure: because these clauses are becoming more widespread doesn’t mean waiving this right is in your best interest.  

Subrogation Waivers Increase Your Risk 

Anytime you waive your rights, or in this case your insurance carrier’s rights, your risk goes up. Certainly, subrogation waivers attempt to head off the costs, delays and headaches of lawsuits. Sometimes this effort backfires. 

For example, an electrician signs a contract with a general contractor to wire a new office building. The contract contains a section with a waiver of subrogation or other hold-harmless provision. What happens when a week later, the electrician’s employee accidentally does something that sets the building on fire? The electrician’s General Liability (GL) policy should respond and pay for the loss, right? Not necessarily. 

What if the employee was acting under the direction of the general contractor? The insurance carrier would have both the right and reason to seek recovery from the general contractor. The right to subrogate is included in all insurance policies. Signing a contract that includes a waiver of subrogation provision—without a proper endorsement to the GL policy (more on this below)—breaches the GL policy terms, making the claim subject to rightful denial and leaving the electrician on the hook to pay for the damage. 

The subrogation provision can be found on page 53 of your Coterie Insurance policy (before the endorsements), Section K, under Transfer of Rights of Recovery Against Others to Us. 

Manage Your Risk with a Waiver of Subrogation Endorsement 

If you rely on contract work in your small business, Coterie Insurance offers a Waiver of Subrogation endorsement that you can add to your Business Owner’s or General Liability policy. With this endorsement, both you and your insurance carrier agree to waive subrogation against any parties included in your business contracts, eliminating the risk of a claim denial for breach of contract. 

This endorsement is offered as blanket coverage, too, so you don’t have to schedule or constantly change the name(s) of those with whom you are waiving right of recovery. It takes only minutes to add, and your Certificate of Insurance will reflect you are covered by the endorsement within four hours. That’s how you embrace the easy. 

Tips for Reviewing Subrogation Waivers 

As a business owner, carefully reviewing every contract you sign is an important risk management task. When presented with a contract that includes a waiver of subrogation, you want to be sure the: 

  • Waiver of subrogation requirements are built into the contract, not included as a separate document. 
  • Contract wording ensures the waiver of subrogation is being utilized appropriately for the situation. For example, mutual waivers may be beneficial in landlord-tenant contracts, where all parties waive their rights. In construction contracts, though, mutual waivers may not be acceptable or prudent. 
  • State statutes permit waivers of subrogation (some states do not

A New Day Dawns 

Small businesses have been forced to adhere to large business insurance processes for too long. Coterie Insurance is designed to meet you where you are and deliver the small business insurance you need. Find a licensed agent in your area, and discover the difference of speed, simplicity and service. 

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