What is subrogation?
Subrogation is the insurance concept where the insurance company, who has paid an insurance claim to an insured party, can then seek reimbursement from the negligent party for the claim amount. The insurer can recoup the money paid to the party by “stepping into their shoes” in court and suing the negligent party.
Why is the right to subrogation waived?
Many construction contracts contain a waiver of subrogation provision. This provision will bar the insurer from pursuing a claim against the other contractual party to recover the money paid to the insured or third party resolve a covered claim. Waiving subrogation rights limits the liability of the contracting parties and limits the opportunity for costly lawsuits.
How does waiving the right to subrogation affect the insured party?
Many insurance policies contain provisions that limit the insured party's ability to enter contracts that waive the right of subrogation. If the insured party enters a contract that waives subrogation, this will breach the insurance contract and give the insurer the right to deny the insured coverage for the loss. This can be catastrophic for the insured.
What should the insured party do when faced with a waiver of subrogation provision?
If a party is faced with a contract that requires waiving the right to subrogation, the party should contact their insurer. Typically, the insurer will issue an endorsement to the insurance contract that will allow the party to enter into the contract. In return, the insured's premium will likely increase allowing the insurer to manage its risk. It is better to face a higher insurance premium than to take the risk of being denied coverage in the event of a loss because the insured party waived the right to subrogation.
The information contained on this blog is intended to be general information only and not legal advice. This blog topic is not intended to be fully comprehensive. For these reasons, we suggest you seek a licensed attorney to help you review your agreements. If you have any questions about the contents of this blog or if you need legal advice, please contact the Beavers O'Connell Group at (720)538-0363 or contact the firm on BOG's Contact Us page.