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With the ever-changing landscape of insurance, it’s difficult for a newcomer to understand all the nuances of a given policy. Which is exactly why we’re here—to simplify the language and help you understand exactly what type of insurance you need, what you’re paying for, and where you’re actually covered.
To that end, what’s all this talk about a waiver of subrogation? And why do some vendors and clients require that you have one attached to your Certificate of Insurance?
What is subrogation?
Subrogation is defined as “the substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties.”
In simpler English, it’s when your insurance company acts as you and assumes your right to pursue an entity or individual for an insurance claim. This means that your insurance company can actually sue a third party as you, representing your interests in the courtroom.
Who does subrogation benefit?
Subrogation first starts with your insurance company paying you for losses that occurred at the hands of an insurance claim. This means that your claim was accepted and your insurer paid you for the losses. Now, your insurance company wants to recoup the money they “lost” to your claim.
Thus, it’s the insurance company that benefits from subrogation. They then sue the third party which caused the damages they had to pay you for, acting on your behalf.
This is particularly bad for insureds (you), being that it can harm their reputation and make it hard to grow their business.
You’re working as a contractor on a remodel and, during the job, a part of the home catches fire. The client files a property damage claim against you and your insurance steps in to cover it. Should your insurance agency conduct an investigation and discover that it was the client, after leaving the gas on, that is actually the one responsible for the damages—they can then sue on your behalf to recoup their costs.
In which case, if this was a client that gave you tons of business, it could damage that relationship and result in a loss of revenue. Additionally, being known as someone that sues their clients after paying a claim can hurt your professional reputation.
What’s a waiver of subrogation?
At its core, a waiver of subrogation is a clause that waives the right of a party to subrogate another. In simpler language, this means that someone waives the right—of themselves or their insurance company—to seek compensation should something happen (usually, in the case of business-to-business subrogation, this involves property damage).
The above might still be a bit confusing. Let’s put in example form.
Say you get a bodily injury or that someone damages your property. It’s their fault that this injury or damage occurred. Being that you have insurance, your policy then compensates you for the appropriate costs. But, now that your insurance agency has shelled out the cash, they just might want to sue this at-fault person—if only to replenish their own pockets.
A waiver of subrogation ensures that the agency, after having paid you for their reimbursements, can no longer try and sue the responsible third party.
When is a waiver of subrogation used?
Most commonly, a waiver of subrogation is used in a general liability insurance policy to serve as a backbone for the passing of risk (from one party to another under contract).
Let’s say, for instance, that you’re a contractor with your own business. You have this client, called Incredible Client, who supports half your revenue. One day, you’re doing a construction contract job for Incredible Client and, while reconstructing one of their business properties, one of their employees steps on some loose flooring, and their legs goes through it.
Now, Incredible Client’s employee wants some compensation. They have some hefty medical bills associated with their injury and they think it’s your fault that the floorboard was weak. At the very least, there should’ve been precautions in place to ensure no one would walk in that area. This injured employee files a claim.
The claim then arrives at your insurance provider’s doorstep. They say, okay, sure, we’ll pay it. So they pay it. You think all is well and that the universe is in balance. Incredible Client respects you even more, now, being that you are covered by insurance and have a policy in place to protect them.
Little do you know, the next day your insurance agency files a lawsuit against the injured employee—claiming that they should’ve known better than to walk freely through a construction zone; that it was their own negligence which caused the error. Now Incredible Client is outraged. They ask you how such a thing could happen. They blame you for this entire debacle.
And, while you don’t want your insurance to continue with the lawsuit, you forfeited that right after they “stepped in as you” and paid for the bodily injury that occurred on your jobsite. But how would you have prepared for this? What preventative measures could’ve been in place?
Enter the waiver of subrogation.
Why would you want a waiver of subrogation in place?
Effectively, having a waiver of subrogation is like you telling your client, “Look, if you’re somehow at fault or even partially at fault for an injury or damage, I’m not going to come after you. Nor is my insurance company.”
Additionally, many vendors or clients might require you to have a waiver of subrogation as part of your insurance policy. They want to know for certain that if they accidentally make a mistake, you’re not going to come at them to recoup costs.
A mutual white flag
It’s not just beneficial for them, either. Oftentimes, a mutual waiver of subrogation means that the protection runs both ways. They are not going to sue you if you’re somehow at fault for an injury or property damage, and you’re not going to sue them. You can both operate and carry on with the peace of mind knowing that this is the preliminary agreement.
It is an act of faith amongst both parties, saying that the claim will be honored, but there won’t be any additional backlash thereafter.
What are the typical formats?
In most cases, there is either a blanket waiver of subrogation or one that names the specific entity. In which case, to refer back to the previous example, it could be a waiver of subrogation for Incredible Client. If it’s a blanket waiver of subrogation, then, more often than not, the insurance company needs to come to you and ask:
“Do we have your permission to sue the heck out of this client for what we had to pay them?”
In some cases, you might wilfully agree. In others, it might be best to let the entire thing fall to the wayside.
General liability insurance & waiver of subrogation
Are you currently in the market for a general liability insurance policy? Has a client asked that you have a waiver of subrogation in place? Do you need a Certificate of Insurance with one attached to it—like, yesterday?
You’ve come to the right place. Here at Thimble, we provide on-demand, flexible insurance that works when you do. What does that mean? It means that you’re only ever paying for insurance when you’re on the job. You can choose between an hourly, daily, or monthly policy tailored specifically to the minutes in which you need to be covered by insurance.
Can you include a waiver of subrogation?
Of course. Thimble includes a waiver of subrogation on any policy that comes with Additional Insureds. Once you download the Thimble mobile app, input your details, receive your quote, and make a purchase, then you’ll be able to find your waiver of subrogation in the “My Policies” section. From there, change, modify, include Additional Insureds all for free—with Thimble.