insurance

Waiver of Subrogation

A contractual provision where an insurance company agrees to give up its right to seek reimbursement from a third party who caused a loss to the insured. This means the insurer cannot pursue the responsible party for damages after paying a claim to its policyholder.

Example

“The construction contract included a waiver of subrogation clause, so when the electrical contractor accidentally caused a fire, the building owner's insurance company couldn't sue the contractor for reimbursement after paying the claim.”

Memory Tip

Think 'WAIVE the right to SUE' - the insurance company waves goodbye to suing the responsible party.

Why It Matters

This provision promotes business relationships and reduces litigation costs by preventing insurance companies from pursuing legal action against contractors, tenants, or business partners. It provides certainty in commercial relationships and can help keep project costs lower by reducing the legal risks that parties face when working together.

Common Misconception

Many people think waiver of subrogation means they can't be held responsible for damages they cause, but it only prevents the specific insurance company from suing them - other parties may still pursue legal action. Some also believe it's automatically included in all policies, when it's actually a specific provision that must be negotiated and often increases premium costs.

In Practice

ABC Plumbing is hired to work on a $2 million office building renovation. The building owner's property insurance includes a waiver of subrogation for all contractors. When ABC accidentally breaks a pipe causing $50,000 in water damage, the building owner's insurance pays the full claim. Normally, the insurance company would then sue ABC Plumbing to recover the $50,000, but the waiver prevents this legal action. ABC Plumbing faces no financial liability despite causing the damage, which helps maintain their business relationship with the building owner.

Etymology

From 'waiver' meaning to relinquish a right, and 'subrogation' from Latin 'subrogare' meaning to substitute or put in place of another, referring to stepping into someone else's legal position.

Common Misspellings

waiver of subogationwavor of subrogationwaiver of subrogrationwaver of subrogation

Related Terms

subrogation

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