Waiver of Subrogation

Waiver of Subrogation

Landlords often require their vendors and tenants to carry liability and property insurance to protect them from expensive claims. One important caveat, however, is that these same insurers can turn around and sue the landlord or property manager if a Waiver of Subrogation is not in place.

What does ‘Subrogation’ refer to?

In order to understand what a Waiver of Subrogation is and why it may be required, we first need to delve into a few key concepts. Let’s break it down!

A. Rights to Recovery

When an accident occurs that causes damage to property or person, you have the right to seek financial compensation from any negligent third party that caused or contributed to the accident. The legal term for this concept is the “rights to recovery.”

B. Transfer of the Rights to Recover

You can also collect funds from your insurance company in this scenario. In doing so, you, the policyholder, give the rights to recovery to your insurance company. This is called “the transfer of the right of recovery.”

C. Subrogation

When your insurance company has the rights to recovery, it can recover whatever funds it has paid on your claim by suing the insurance company of the negligent third party. This process by which your insurer steps into your shoes and sues on your behalf is called “subrogation.”

What does ‘Waiver’ refer to?

Landlords never want their vendors or tenants’ insurers to subrogate them. The monthly premium the landlord must pay to its own insurance company will increase every time a claim is filed. In order to prevent this from happening, the landlord often requires tenants and vendors to make their insurers promise not to subrogate.

The insurer gives up this right through a provision called a Waiver of Subrogation (also known as a Waiver of the Rights to Recovery). A Waiver of Subrogation may be included in the underlying policy, but more often the insurer must amend the underlying policy with an endorsement in order to add a Waiver of Subrogation.