What is a waiver of subrogation?

A waiver of subrogation is a promise, usually added to your policy by an endorsement, that your insurer gives up its right to recover a claim payment from a particular person or company. Normally, when your insurer pays a claim that someone else caused, it can go after that someone to get its money back, and a waiver takes one party, or a whole category of parties, off that list.

Landlords, general contractors and corporate clients ask for waivers because they don’t want to be sued by your insurer after a loss in their building or on their project. That’s a reasonable ask, mostly. What isn’t reasonable is signing a contract that promises a waiver your policy doesn’t allow, and that’s the mistake this article is mostly about.

How subrogation works

SubrogationSubrogationSubrogation is an insurer’s right, after paying your claim, to pursue the person or company that caused the loss to recover what it paid.Read the definition lets an insurer step into your shoes after it pays you. The NAIC’s glossary describes it as the situation where an insurer, on behalf of the insured, has a legal right to bring a suit against a third party who caused the loss. The logic is simple enough: the party at fault should bear the cost, and you shouldn’t collect twice, once from your insurer and again from whoever caused the damage.

Policies build this right in. The standard general liability form reproduced in New York’s state contracting guidelines has a condition titled “Transfer of Rights of Recovery Against Others to Us,” which says that if you have rights to recover a payment the insurer made, those rights pass to the insurer, and that you must do nothing after a loss to impair them. So when you waive subrogation you’re giving away something your insurer was counting on, which is why it’s worth confirming your policy allows a waiver before you give one.

Why does the other side want you to waive it?

From the landlord’s or GC’s side of the table, a waiver does three jobs.

It keeps insurers from suing each other over one incident, which is why many commercial leases use mutual waivers so each side’s property insurer pays its own customer and stops there. It protects the working relationship, because a general contractor doesn’t want a subcontractor’s workers’ comp insurer suing it over an injury on its own site. And it makes the contract’s risk plan stick: if the contract says you’ll insure your own equipment, a waiver stops your insurer from shifting that cost back onto the party you agreed to protect.

None of that is unfair, though all of it shifts risk toward your insurer. Still, most of the time agreeing to a waiver is the cost of getting the lease or the job, and the business buying the policy still gets paid for covered claims.

How a waiver gets onto your policy

Look at the right side of the grid on a standard ACORD 25 certificate and you’ll find a narrow column headed SUBR WVD, with a Y or N next to each policy. That box is often the first place a waiver shows up, and it’s the least reliable place to confirm one. The form’s own header says a waiver may need an endorsement, depending on the policy’s terms, and that a statement on the certificate doesn’t give the holder rights in place of one.

What actually puts a waiver on your policy is an endorsement, and there are two common kinds, mirroring how additional insuredAdditional insuredAn additional insured is a person or company, such as a landlord or client, added to your liability policy so it can protect them from claims tied to your work.Read the definition status works. A specific waiver names the party in a schedule on the endorsement, which is precise but slow, because every new landlord or client means another policy change. A blanket waiver applies to any person or organization you’ve agreed in a written contract to waive subrogation against, and New York’s model contract language accepts a blanket waiver endorsement. It suits businesses that sign a lot of contracts. Read its conditions, though, since blanket waivers commonly apply only when the written contract existed before the loss.

So when a client asks for a waiver, send the certificate with the box checked and keep a copy of the endorsement ready, because a careful client will ask for it.

General liability, workers’ comp and property

Here’s how each line plays out in practice.

Workers’ compensation

On a job site, the workers’ comp waiver usually carries the most weight. If your employee is hurt on a job site partly because of the GC’s negligence, your workers’ comp insurer pays the employee’s benefits and may then go after the GC to recover them. A workers’ comp waiver gives up that right. A sample certificate in New York’s guidelines, issued by the New York State Insurance Fund, shows how one reads: the insurer agrees to waive its right to recover workers’ comp and medical benefits from the certificate holder when, before the accident, the holder signed a written contract with the insured that requires the waiver. Workers’ comp is governed by state law, though, and how waivers work can vary by state and insurer, so check with your own state’s agency through the Department of Labor’s list of state workers’ compensation agencies.

General liability

A waiver on general liability stops your insurer from recovering from the other party after paying a liability claim against you, and it commonly travels with additional insured and primary and noncontributoryPrimary and noncontributoryPrimary and noncontributory is policy wording that makes your insurance pay first for a covered claim, without asking the additional insured’s own insurance to share the cost.Read the definition wording in a GC’s subcontract or a corporate client’s vendor agreement, which is why the three tend to get added to a policy together.

Property

Leases often ask for a waiver on your property insurance so your insurer can’t pursue the landlord for damage to your equipment, stock or build-out. New York’s model language asks contractors to include a waiver in policies covering loss by fire or other insured casualty, and if the insurer won’t issue one, to provide either an express agreement that the policy won’t be invalidated by the waiver or some other written permission. If the lease leaves it out, ask the landlord for a mutual waiver on its own building policy in return.

Where waivers actually go wrong

This is where a contract and a policy most often stop matching, so slow down here.

Start with what the standard forms say. The general liability condition reproduced in New York’s guidelines bars you from impairing the insurer’s recovery rights after a loss. A waiver you sign in a contract before anything happens doesn’t obviously break that rule. But policies differ, and New York’s own model contract language assumes some of them prohibit waivers, which is why it tells contractors that if any of their policies prohibit one, they must get the insurer’s permission. That’s the right instinct for any business.

The bigger problem is usually the contract itself. Subcontracts and vendor agreements can require the waiver to be on the policy by endorsement, and some require a copy of it. If the contract only promises that your policy will include a waiver (“shall cause its policies to include”) and the endorsement never gets added, you’re in breach the day the GC or client checks, and if a loss comes first, your insurer may still pursue the GC, who will then turn to you for breaking that promise. Workers’ comp is where this bites hardest, since a comp insurer’s waiver, like the one on New York’s sample certificate, is granted by endorsement and tied to a written contract signed before the accident.

The fix is dull, but it works. Get the endorsement, or written permission, before the contract is signed, and keep a copy with the contract.

Will a waiver raise your price?

It might, but it depends on the line. A waiver removes one way for your insurer to recover money, so it can affect your price, especially on workers’ comp for trades that sign a lot of contracts with GCs. How it’s priced varies by insurer and by whether the waiver is specific or blanket, and the things that drive it are your class of work, how many of your contracts require waivers, and the size of your payroll or revenue. There’s no general rule to quote you. Your quote shows the price for the coverage you choose, and with Corgi you can get one online in about five minutes.

Reading the clause, then checking your policy

Here’s language like what you’ll see in subcontracts and leases. It’s written for this article as an illustration and isn’t taken from any real agreement.

A one-way waiver in a subcontract: “Subcontractor shall cause its commercial general liability, workers’ compensation and employer’s liability policies to include a waiver of subrogation in favor of Contractor and Owner, and their officers and employees.”

That one names three policies, counting employer’s liabilityEmployer’s liabilityEmployer’s liability insurance helps pay legal costs and damages when an employee, or their family, sues your business over a work-related injury or illness.Read the definition, and two parties, and “Owner” is usually a different company from your GC, so the endorsement has to reach both of them.

A mutual waiver in a lease: “Landlord and Tenant each waive all rights of recovery against the other for loss or damage to their property to the extent covered by property insurance, and each shall cause its property insurance to permit this waiver.”

That one is limited to property insurance, runs both ways, and puts the job of making your policy permit it on you. Property policies differ on whether and when they allow waivers, though, so confirm yours does.

Then work through the contract against your policy:

1. Find every waiver. They hide in the insurance exhibit, the indemnity section and a lease’s casualty section.
2. List the policies. Note whether each waiver applies to general liability, workers’ comp, property or all three.
3. List the parties. Owner, landlord, manager, GC, lender and their employees may all be named.
4. Check your endorsements. Look for a blanket waiver, or a condition that allows written waivers made before a loss.
5. Ask about price. Find out whether adding a waiver changes your premium before you commit.
6. Get the certificate right. Make sure the SUBR WVD column and the description box match what the policy actually includes.

If a single contract asks for an additional insured, a waiver and primary and noncontributory wording all at once, how to read insurance requirements in a client contract covers the whole exhibit.