Risk Transfer – Waiver of Subrogation
Subrogation is the process where an insurance carrier stands in the place of the insured and pursues a claim against a third party to recover claim payments that the carrier made to the insured. The underlying theory is that if the damages were caused by that third party, the insurer is entitled to recover those damages. Insurance companies have dedicated units to pursue subrogation and the recoveries are an important part of the finances of the carrier. Recoveries can benefit the insured by reducing their loss dollars related to a claim.
There are times when the insured and a third party agree to not subrogate claims. This is often seen in real estate transactions and in some service agreements and contracts. This is often presented as a routine item and one that requires no action on behalf of the party signing this agreement. There are some items to consider when this is presented to you.
Does the waiver of subrogation apply equally to each party? Do you both have the same amount of risk assumed in this agreement? If the waiver is unilateral in favor of the third party, what benefit are you receiving for assuming the additional risk? Without subrogation the cost of damages that are the fault of the other party will not be recovered. Carefully read the terms of the contract to determine if the waiver is bilateral or unilateral.
Insurance Company Agreement
Generally, insurance companies do not bar coverage when an insured waives it own right to recover against a third party. The insurance company may not agree to waive their rights to subrogate as it would violate the principle of indemnity. You do not want to find out that the carrier has language in their policy that restricts coverage in the event of a waiver of subrogation.
To clarify this question, you can ask that the policy be endorsed with a waiver of subrogation endorsement that details the parties that the insured has agreed to waive their right to subrogate claims against. As this closes a potential recovery avenue for the insurance carrier, there may be a charge for this endorsement.
The Driehaus Difference
We have the knowledge of carrier coverage forms to know when a waiver of subrogation becomes an issue for a given insurance company. We can also help you review contracts, leases, and agreements to see that the proper insurance coverage is in place to satisfy those contractual agreements. This is not a topic that is easily covered in an online form. If you are not aware of the issues around waiver of subrogation, you will not know you need to confirm policy coverage. This is where a professional insurance advisor is your best protection. Call us at 513-977-6860 or contact us vis our website www.dreihausins.com to get professional assistance.