Learn about subrogation and waiver of subrogation in commercial insurance.
Read about the Waiver of Subrogation Endorsement/Clause and why your business may need it.
Practically, and to a large extent legally, businesses need the protection provided through commercial insurance. The trains don’t run without proper commercial insurance in force. For some business sectors, a not-so-well-understood provision may be added upon request to an insured’s commercial insurance policy. That provision is the Waiver of Subrogation Endorsement/Clause.
First, let’s back up the train and address subrogation. Basically, subrogation allows the insurance company to seek legal recovery from a third party(ies) who is responsible for a covered insurance loss that the insurance company has paid its insured. Following an investigation and/or inspection, the usual process is that the insurance company pays its insured for a covered insurance loss or claim, and then pursues the negligent third party(ies) for damages paid. Without subrogation, an essential principle of insurance, the cost of insurance would be substantially higher.
The Waiver of Subrogation Endorsement/Clause in an insurance policy relinquishes the insurer’s right to subrogate. If subrogation is essential to the insurance mechanism, why would insurance companies offer a Waiver of Subrogation Endorsement/Clause? The simple answer is that waivers of subrogation are common clauses in the business contracts of some commercial entities, such as those involved in construction, service, and leasing. The waiver extends to the insurer of the business owner, meaning the insurer agrees to pay covered insurance losses without seeking reimbursement from a negligent third party(ies). The waiver of subrogation clause in business contracts is a benefit to business owners in certain situations, as it removes the potential of investigations and litigation that may be lengthy, costly, and/or disruptive to the business. The engines of some businesses run better when waivers of subrogation are in place to minimize lawsuits between parties.
Because the Waiver of Subrogation Endorsement/Clause on an insurance policy results in greater financial risk to the insurance company, insurers often charge a fee for it. Importantly, the Waiver of Subrogation Endorsement/Clause on an insurance policy is only available prior to a loss or claim. Legal issues involving waivers of subrogation may be complex, and standard wording for these insurance waiver endorsements/clauses may not meet the needs of some insureds, so individual insureds should consider engaging an insurance attorney specializing in this area.
Richey-Barrett Insurance is your Trusted Choice Independent Insurance Agent for commercial insurance. Contact us to review your current insurance coverage and discuss any changes or additional coverage that your business needs.