WAIVERS OF SUBROGATION
By Attorney Randall J. Andersen
February, 2015
By Attorney Randall J. Andersen
February, 2015
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
Construction contracts frequently include “waiver of subrogation” clauses. These clauses can have a significant impact on the parties and their insurance carriers. It is important for contractors to have a general understanding as to the significance of these types of clauses and how waiver of subrogation works.
“Subrogation” is the assignment of a cause of action by the original holder of the claim to a “ subrogee.” The concept of subrogation typically arises in connection with an insurance claim. The “subrogee” is often an insurance company that has paid a claim. After an insurance company pays a claim, it may seek reimbursement from the responsible party. For example, if you are involved in a car accident caused by another driver’s negligence, and your insurance company pays for the damage to your vehicle, then your insurance company will in most cases seek reimbursement from either the responsible driver or his insurance carrier. This occurs because your insurance company has “subrogation rights,” meaning that it steps into your shoes, and is entitled under the terms of the insurance policy to collect the damages from the responsible driver or his insurance company.
Contractors often enter into contracts with owners or prime contractors containing contract provisions which call for the waiver of subrogation rights. These clauses typically include provisions which contractually waive the rights of the party’s insurance carriers to pursue subrogation rights against one or more of the project participants.
Waiver of subrogation clauses are intended to reduce litigation, cross suits and counter suits by preventing the parties’ insurance companies from seeking reimbursement from the parties identified in the waiver of subrogation clause (such as the owner, general contractor, etc.). If a waiver of subrogation clause is included in a construction contract, it may be preferable to have it phrased so that it is mutual or reciprocal, meaning that each party to the contract is required to waive the same subrogation rights.
It is important that contractors work closely with their insurance agents to make sure that waiver of subrogation provisions are acceptable under the terms of the contractor’s insurance policies. It is important to verify that the waiver of subrogation language is permissible under the terms of the contractor’s own insurance policy, before the construction contract is signed. In some cases, it may be necessary to obtain an endorsement from the insurance company in order to avoid insurance gaps and/or denial of coverage under the policy.
“Subrogation” is the assignment of a cause of action by the original holder of the claim to a “ subrogee.” The concept of subrogation typically arises in connection with an insurance claim. The “subrogee” is often an insurance company that has paid a claim. After an insurance company pays a claim, it may seek reimbursement from the responsible party. For example, if you are involved in a car accident caused by another driver’s negligence, and your insurance company pays for the damage to your vehicle, then your insurance company will in most cases seek reimbursement from either the responsible driver or his insurance carrier. This occurs because your insurance company has “subrogation rights,” meaning that it steps into your shoes, and is entitled under the terms of the insurance policy to collect the damages from the responsible driver or his insurance company.
Contractors often enter into contracts with owners or prime contractors containing contract provisions which call for the waiver of subrogation rights. These clauses typically include provisions which contractually waive the rights of the party’s insurance carriers to pursue subrogation rights against one or more of the project participants.
Waiver of subrogation clauses are intended to reduce litigation, cross suits and counter suits by preventing the parties’ insurance companies from seeking reimbursement from the parties identified in the waiver of subrogation clause (such as the owner, general contractor, etc.). If a waiver of subrogation clause is included in a construction contract, it may be preferable to have it phrased so that it is mutual or reciprocal, meaning that each party to the contract is required to waive the same subrogation rights.
It is important that contractors work closely with their insurance agents to make sure that waiver of subrogation provisions are acceptable under the terms of the contractor’s insurance policies. It is important to verify that the waiver of subrogation language is permissible under the terms of the contractor’s own insurance policy, before the construction contract is signed. In some cases, it may be necessary to obtain an endorsement from the insurance company in order to avoid insurance gaps and/or denial of coverage under the policy.