Fair Share: Understanding Waiver of Subrogation

By Mike Drew, The Reschini Group

Avoid risk by understanding the concept of "waiver of subrogation".

Avoid risk by understanding the concept of “waiver of subrogation”.

Unless you’re a rockface climber, a skydiver, or a firewalker, you probably try to avoid taking on any level of risk that could otherwise be avoided.  That goes double for your business, most likely.

Because of this natural and understandable risk-avoidance tendency among business people, the concept of “waiver of subrogation” has become a commonplace element of basic business contractual relationships – yet it can become a confusing notion without the proper explanation.  The International Risk Management Institute, on its website*, defines waiver of subrogation as follows:

“A waiver of subrogation clause is placed in the professional services contract to minimize lawsuits and claims among the parties. The result is that the risk of loss is agreed among the parties to lie with the insurers, and the cost of the insurance coverage is contractually allocated among the parties as they may agree. The risk, once assigned to the insurers by the parties, is determined to stop there, without allowing the insurer to seek redress from the party ‘at fault.’”

At its most basic definition, for example, that means when a general contractor hires a subcontractor, they both sign a waiver of subrogation clause ensuring that – even if employees get hurt or equipment gets damaged in the course of their business relationship – neither side will come after the other for losses.  Instead, their insurers take the risk and pay the claims.

In the oil and gas industry, in particular, the goal remains minimizing or eliminating risk.

Having a clear understanding of how the waiver of subrogation clause may impact your particular business is extremely important.  Of course, it is not mandatory that a subcontracting business agree to this clause, but without doing so that business runs a much greater risk – namely, to not get hired at all by the general contractor.

The professionals at The Reschini Group are well-versed in the waiver of subrogation topic and how it applies to all types of businesses and contractual agreements.  A review by the team at Reschini also includes making sure that your insurance coverage currently in place is, in fact, adequate as well.  We stand ready to help you evaluate how all of these factors could affect your enterprise.

* https://www.irmi.com/articles/expert-commentary/what-is-subrogation-and-why-is-my-contract-waiving-it


Copyright 2016 The Reschini Group

The Reschini Group provides these updates for information only.  To make decisions regarding insurance matters, please consult directly with a licensed insurance professional or firm.