Waiver of Subrogation: What Subcontractors Need to Know
When you’re asked to provide a customer, a general contractor, or other third parties with a certificate of insurance, they’ll often require a waiver of subrogation.
You may ask what is a waiver of subrogation, and why is it necessary? And more importantly, how do you get it added to your policy?
In this article, we’ll dive into the ins and outs of the waiver of subrogation, what it means for you as a subcontractor, and how it fits into the broader context of certificates of insurance.
What is a Waiver of Subrogation?
A waiver of subrogation is a clause or endorsement commonly on your general liability insurance policy and workers comp policy that prevents your insurance company from going after the at-fault party once they’ve paid a claim. Essentially, you’re waiving the right of your insurance company to “subrogate” (or seek reimbursement) from the party responsible for the loss.
For subcontractors, this often comes into play when working under a general contractor (GC) or another third party. Most contracts you sign will require a waiver of subrogation as part of the risk transfer process. This ensures that once a claim is paid, there’s no back-and-forth litigation between the parties involved.
Understanding Subrogation
Before diving deeper into waivers, it’s essential to understand what subrogation means.
Subrogation refers to the right of an insurance company to recover the money it paid out on a claim from the party that caused the damage or loss.
For example, if your equipment is damaged on a job site by another contractor’s negligence, your insurance company can cover your loss. Then, they may attempt to recover that money from the other contractor or their insurance provider.
Without a waiver of subrogation, your insurer retains the right to pursue that reimbursement, which could complicate relationships between subcontractors and GCs or other parties.
Why is a Waiver of Subrogation Important in Construction?
In the world of contracting and construction, a waiver of subrogation plays a crucial role in minimizing conflicts and lawsuits between parties.
When a subcontractor agrees to a waiver of subrogation, they’re ensuring that if an insurance claim arises, it’s handled without blame or recovery attempts from other parties involved in the project.
In another example, say a subcontractor’s employee is injured on the job, and the general contractor required a waiver of subrogation on the subcontractor’s workers’ compensation policy, the GC can avoid any claims being brought against them for that injury and the GC’s liability is reduced.
Types of Waiver of Subrogation
There are two main types of waiver of subrogation endorsements you’ll encounter in your insurance policies:
- Scheduled Waiver: This type of waiver is specific to certain entities named in the endorsement. If a waiver of subrogation is required for a particular contractor, a scheduled endorsement will list that contractor and apply only to them.
- Blanket Waiver: A blanket waiver automatically applies to all entities that require a waiver by contract. It’s broader in scope and can save time since you don’t need a separate endorsement for each project or contract.
Subcontractors typically encounter these waivers in general liability, auto, and workers’ compensation policies. It’s important to know which type you’re agreeing to when you sign a contract.
How to Obtain a Waiver of Subro
To get a waiver of subrogation endorsement, you need to request it from your insurance broker or carrier. It’s typically an added endorsement on your policy, and there may be an extra cost involved, especially for scheduled waivers. Blanket waivers are often included automatically on general liability insurance policies for contractors.
Here’s how you can go about getting it:
- Contact your insurance agent or broker: They’ll help guide you through the process and determine whether a blanket or scheduled waiver is more appropriate based on your contracts.
- Review your contracts carefully: Be sure you understand when and where a waiver of subrogation is required. Some contracts may demand it across multiple policies (general liability, auto, workers’ comp).
- Request the waiver in advance: Don’t wait until the last minute to request a waiver of subrogation, especially for a scheduled waiver. It can take time to process.
The Risks for Subcontractors
While waivers of subrogation are often unavoidable, it’s important to understand the potential risks. By agreeing to this waiver, you could be assuming liability that isn’t entirely your fault. If your insurance pays a claim but the fault lies partly with another party, you’ve waived your insurer’s right to recover those funds.
This can impact your loss experience, which may lead to higher premiums in the future. In other words, your insurance history could reflect claims that you otherwise might not have been fully responsible for, and that can increase your costs down the line.
Best Practices for Subcontractors
When it comes to contracts and waivers of subrogation, there are a few best practices subcontractors should follow:
- Work with a skilled insurance broker: Navigating these endorsements and contract requirements can get tricky. A good broker will ensure you’re covered appropriately without taking on unnecessary risk.
- Understand the full implications: Before signing a contract, make sure you know what the waiver of subrogation means for your business. If possible, try to limit the scope of the waiver or negotiate terms that protect you from excess liability.
- Prioritize safety: The best way to minimize claims and reduce the impact of waivers of subrogation is to prevent losses in the first place. Building a strong safety culture and reducing incidents on the job will help keep insurance costs low and avoid the complications of claims.
The Value of Safety in Reducing Claims
At the heart of avoiding issues with waivers of subrogation is maintaining a safe job site. The fewer claims you have, the less you’ll have to worry about waivers impacting your premiums or liability. A strong safety culture not only protects your employees and assets but also ensures that you’re less likely to face claims that could complicate your insurance standing.
Conclusion: Let’s Connect
Waiver of subrogation is a standard requirement in most contracts, but understanding how it impacts your insurance is key to protecting your business. If you need help navigating the complexities of your insurance policies or want to ensure you’re not overexposing yourself to risk, let’s connect.
