What is a waiver of subrogation and do I need one?

What a waiver of subrogation means

Subrogation is your insurer’s right to step into your shoes after it pays a claim and go after whoever caused the loss. The Indiana Compensation Rating Bureau gives an example: a worker is hurt in a crash caused by another driver, and the workers’ comp insurer pays benefits, then recovers its costs from that driver.

A waiver of subrogation gives up that right against a named party. IRMI defines it as an insurer’s acknowledgment that it cannot subrogate against a liable third party after paying a loss. Insurers usually agree because you have already waived your own right to recover from that party in a contract.

Insureon offers an illustration: a retail store hires an electrician, faulty wiring causes a $50,000 fire and the store’s insurer pays the claim. Without a waiver, the insurer could sue the electrician to recover its money. With one, it cannot.

Why clients and landlords ask for one

The goal is to stop the parties to a contract from suing each other over losses insurance already pays for. As attorney Kenneth Slavens explains in an IRMI article, the risk is assigned to the parties’ insurers and stops there, which cuts down on suits and counter-suits during a project.

That is how the waiver benefits an architect. In the American Institute of Architects’ standard owner–architect agreement, B101–2017, the owner and architect waive rights against each other to the extent damages are covered by property insurance, so the owner’s property insurer generally cannot pay a loss and then sue the architect.

Requests usually come from:

• General contractors, in subcontracts on construction projects.
• Landlords, in commercial leases, so landlord and tenant rely on their own insurance rather than sue each other.
• Government agencies and large clients, in vendor and service contracts.

Which policies can carry a waiver

Each policy needs its own waiver, so a contract that asks for waivers on general liability, auto and workers’ comp means three endorsements. Property is the exception: standard commercial property conditions already let you waive recovery rights in writing before a loss, according to National Alliance for Insurance Education & Research training material.

Do you need a waiver of subrogation?

Usually only when a contract requires one. Hiscox describes the waiver as a negotiable contract term rather than a mandatory one. If you never sign a contract that waives your recovery rights, there is generally no reason to buy the endorsement.

Timing matters. IRMI notes that policies generally do not bar coverage when you waive recovery rights before a loss, but many exclude coverage if you waive them after a loss. If you sign a contract with a waiver clause, get the endorsement before work starts.

A waiver is not additional insured status. IRMI’s Mark Bell explains that a waiver stops subrogation claims between insurers but does not protect against third-party claims such as negligence suits; additional insured status does.

States that limit workers’ comp waivers

Most states allow workers’ comp waivers, but a few restrict them, mostly for construction. This summary comes from a state-by-state chart by the law firm Matthiesen, Wickert & Lehrer, last updated in January 2022; check your state’s workers’ comp agency for current rules.

How much a waiver of subrogation costs

Prices vary by insurer, policy and state; workers’ comp waivers are usually a percentage of premium. These published rates show the range.

Hiscox gives an example: on a $1,200-a-year general liability policy, a blanket waiver might add $50 to $120 a year. Assigned risk plans offer fewer options: Indiana’s plan does not offer blanket waivers, and SAIF offers its assigned risk policyholders only partial waivers, at 5% of related manual premium with a $250 minimum.

How to get a waiver of subrogation

A broker such as Florin can check which endorsements your contracts call for and compare how insurers price them. The steps themselves are simple:

• Read the contract’s insurance section to see which policies need the waiver and whom it must name.
• Ask your agent for the endorsement on each listed policy, and send the client the endorsement page with your certificate of insurance.
• Choose blanket or specific. Texas Mutual requires the choice at policy inception and needs payroll and class codes for the job on a specific waiver.
• Renew it. Texas Mutual says specific waivers must be requested again for each policy period.
• Price the charge into your bid. Hiscox suggests declining or narrowing a waiver when the extra premium exceeds your profit on the job.
• In New Hampshire, Kentucky or on construction work in Kansas and Missouri, point the client to the state rule before agreeing to a workers’ comp waiver.