A waiver of subrogation is an agreement that your insurer will not try to recover what it paid on a claim from a specific party, such as a client or landlord. Contracts require it to keep disputes between business partners out of claims. It usually needs a policy endorsement, and some insurers charge for it.
What subrogation is
Subrogation is the right of an insurer, after paying a claim, to step into the shoes of its policyholder and pursue whoever caused the loss. If your employee is injured on a client’s site because of the client’s negligence, your workers compensation insurer may pay the claim and then seek repayment from the client.
Subrogation keeps the cost of losses with the party responsible for them. It also helps insurers control premium levels, because recoveries reduce the net cost of claims.
Subrogation applies across many types of insurance, including property, auto, liability and workers compensation. The insurer’s right usually comes from both the policy conditions and general legal principles, and the policy normally requires the insured not to do anything after a loss that would impair that right.
What a waiver does
A waiver of subrogation means the insurer gives up that right of recovery against a particular party. In the example above, your workers compensation insurer would pay the claim and would not pursue the client, even if the client caused the injury.
Waivers exist because business partners often prefer that each side’s insurance responds to its own losses, rather than having insurers sue the other party after a claim. They are common in construction contracts, service agreements, leases and vendor agreements.
There are two pieces to a valid waiver. The contract between the parties includes a waiver, and the insurance policy permits or confirms that waiver. If you agree to a waiver in a contract but your policy does not allow it, you may have breached the contract or compromised your own coverage.
Where waivers appear in policies
Different types of policies handle waivers differently. Contracts may require waivers on several lines at once.
- General liability. The ISO CG 24 04 endorsement, titled Waiver of Transfer of Rights of Recovery Against Others to Us, is commonly used to schedule waivers. Some policies include blanket waiver wording.
- Commercial auto. Many auto policies address waivers through endorsements or blanket provisions when required by written contract.
- Workers compensation. Waivers are added by a state specific endorsement, and state law governs whether and how they apply.
- Commercial property. Many property forms already permit the insured to waive recovery rights in writing before a loss, which matters for leases.
- Umbrella and excess. Contracts sometimes require the waiver to extend to these policies as well.
Blanket and scheduled waivers
As with additional insured status, a waiver can be scheduled or blanket. A scheduled waiver names a specific party. A blanket waiver applies to any party you have agreed in a written contract to provide a waiver to.
Blanket waivers are convenient for businesses that sign many contracts. Like blanket additional insured endorsements, they usually require the written contract to be in place before the loss. Confirm that the blanket language covers every line the contract lists.
Workers comp waivers in California
Workers compensation waivers are among the most frequently requested and the most likely to carry a charge. In California, insurers use a California specific endorsement for this purpose, and the waiver charge is calculated according to filed rules. Some insurers offer a blanket version, while others schedule each party.
Because workers comp waivers can increase premium, check whether every contract truly requires one. Some contracts ask for a workers comp waiver only for work performed on the client’s premises or projects. A narrowly scheduled waiver may cost less than a blanket waiver for an employer with only a few contracts requiring it.
What a waiver costs
Liability waivers are often included at no charge or for a small flat fee, though insurer practice varies. Workers compensation waivers more often carry a charge based on a percentage of the premium attributable to the work covered by the waiver, sometimes with a minimum.
The cost reflects what the insurer gives up. Once it waives recovery, it can no longer offset a claim by pursuing a responsible third party. Ask for the specific charge before agreeing to a contract that requires a waiver on several lines.
If the charge is significant, it is reasonable to raise it with the client during contract negotiation. Some clients will accept a waiver limited to their own projects, or will agree to share the cost, once they understand what is involved.
Leases and mutual waivers
Commercial leases often contain mutual waivers, where landlord and tenant each waive recovery against the other for property losses covered by their own property insurance. A fire that damages the landlord’s building and the tenant’s contents would then be paid by each party’s own insurer without one suing the other.
For this to work, both parties’ property policies need to permit the waiver. Many standard property forms allow written waivers made before a loss, but confirm this with your broker before signing.
Waivers, indemnity and additional insured status
A waiver of subrogation is often confused with indemnity and additional insured status, but each does something different. An indemnity clause is a promise in the contract that one party will defend and pay for certain claims against the other. Additional insured status gives the other party rights under your liability policy. A waiver stops your insurer pursuing the other party after it pays your own claim.
Contracts usually ask for all three together because they work as a package. Each must be checked separately against the policy, since having one does not mean you have the others.
Risks of agreeing without checking
The main risk is agreeing in a contract to a waiver your policy does not support. If your insurer’s recovery rights are impaired by a contract it did not agree to, coverage questions can follow. The other party may also claim breach of contract if the waiver is not in place when a loss occurs.
A certificate of insurance that marks the waiver box without a matching endorsement does not create a waiver. The policy controls, and the certificate only reports what the policy says.
Questions to ask before agreeing
- Does the contract require the waiver on all policies or only some?
- Is the waiver limited to work performed under this contract, or is it general?
- Does each policy already permit the waiver through blanket wording?
- What will the insurer charge for each scheduled waiver?
- Does the other party give you a matching waiver in return?
- Are there any state specific rules that affect the workers comp waiver?
Waiver of subrogation checklist
- List every line of coverage the contract requires a waiver on.
- Check whether your policies include blanket waiver wording for each line.
- Ask the insurer to add scheduled waivers where needed and confirm any charge.
- Confirm the contract is signed before work starts so blanket terms apply.
- Keep the endorsements with the contract and review them again at renewal.
- Issue a certificate only after the waiver is actually in place.
Related questions, answered
What does a waiver of subrogation do?
It stops your insurer from recovering what it paid on a claim from another party, such as a client or landlord, when that party caused the loss. Contracts ask for it so that disputes between the parties are not revived by an insurer after a claim is paid.
Does a waiver of subrogation cost extra?
It can. Some policies include a blanket waiver where a written contract requires it, while others need a specific endorsement. On workers’ compensation policies, insurers often charge a premium for a waiver because they give up a recovery right.
Which policies need a waiver of subrogation?
Contracts commonly ask for waivers on general liability, workers’ compensation, commercial auto and sometimes umbrella policies. Read the contract to see which policies it names, then confirm each one has the matching endorsement before a certificate shows the waiver.
General information only. It is not advice about any policy and does not create a broker relationship. Only issued policy documents describe actual coverage.