If you have employees on your payroll, you’re likely familiar with workers’ compensation insurance. But a workers’ comp waiver of subrogation? You don’t often see that term on the break room poster. A workers’ comp waiver of subrogation cedes your insurer’s right to sue a third party, like a client, on your behalf after your employee files a workers’ comp claim.

The insurance world is full of complex terminology, and subrogation is no exception. Fear not — we’re here to explain what a waiver of subrogation for workers’ comp is, why you might need one, and how to get it.

What is workers’ compensation?

Workers’ compensation insurance (or workers’ comp) is an insurance policy that protects your business and your workers if one of your employees gets sick or injured on the job. Workers’ comp covers many costs related to employee injury and illness, including:

  • Medical expenses
  • Lost wages
  • Rehabilitation costs
  • Survivor benefits
  • Employers’ liability

You need to have workers’ comp in most states (except Texas) unless you’re a self-employed independent contractor. Even then, some clients might ask you to carry workers’ comp to mitigate their own risk.

What is subrogation?

To get technical, subrogation is the exchange or substitution of one entity for another, specifically when it comes to insurance claims. That means subrogation gives your insurance company the legal right to sue a third party on your behalf without your involvement in the lawsuit.

Here’s a quick rundown on how subrogation works: When a claim is approved, your insurance company agrees to pay the injured worker on behalf of their employer. To recoup the money it paid out to the injured employee, the insurance company can sue the third party responsible for the damages that led to the claim. The legal ability for the insurance company to go after that third party is called subrogation.

That’s all well and good for the insurance company, but how about for you as the policyholder? Subrogation has the potential to reflect negatively on you because it can hurt your relationship with customers if they end up getting sued by your insurance company. The good news is that a waiver of subrogation can prevent this from happening.

That said, there is a potential downside for employers who elect to waive subrogation for workers’ comp. If you suffer a large loss and the insurer is unable to recover the money, it could result in a poor loss ratio, potentially causing the insurance company to non-renew your workers’ comp policy or raise your premiums. As an employer, you must weigh the benefits of protecting your clients versus the risk of increasing the cost of your workers’ comp insurance.

What is a workers’ comp waiver of subrogation?

A waiver of subrogation clause can be included in your workers’ comp policy. As the name suggests, it waives the right for one entity (usually your insurance carrier) to subrogate against others in the event of a workers’ comp claim.

Here’s an example of how a workers’ comp waiver of subrogation works. Imagine that you own a house cleaning business with several full-time employees. During a cleaning service, one of your workers stumbles on a rotting step in the entryway, falls and breaks their wrist.

Your employee files a workers’ comp claim with your insurance company, and the insurance company reimburses your employee’s medical expenses. But now your insurance company wants to sue the homeowner — in other words, your customer — to recover the money they paid out. The insurer believes that the homeowner is technically liable for the injury because they knew about the defect in the staircase and neglected to alert your cleaning crew.

If you had a waiver of subrogation for workers’ comp, your insurance company would not be allowed to sue the homeowner (and potentially ruin your relationship with your customer).

When do you need a workers’ comp waiver of subrogation?

A waiver of subrogation for workers’ comp is typically granted when your customer asks for one. It provides peace of mind for your customer.

A waiver of subrogation protects your customer from being held financially liable for your employee’s injury or illness which occurred while performing work for the customer. It acts as a guarantee that if something were to happen that led to a workers’ comp claim, neither you nor your insurance company would sue the customer in an attempt to recoup the insurance payout.

For you as the Named Insured, having a mutual waiver of subrogation in place also prevents the other party from going after you. It’s a mutual agreement that the other party cannot sue you, even if they think you are partially responsible for the situation that led to the claim.

Workers’ comp waiver of subrogation formats

There are several formats that your insurance carrier may use when you add a waiver of subrogation to your workers’ comp policy. They include:

  • Scheduled: If you have a scheduled waiver of subrogation for workers’ comp, the waiver is tied to a specific entity. Using the cleaning business example, you might have a scheduled waiver of subrogation for workers’ comp for each of the homeowners on your regular cleaning schedule.
  • Blanket: With a blanket workers’ comp waiver of subrogation, the waiver doesn’t apply to only one named entity. Instead, it applies to all of your clients collectively. So, in the event of a claim, your insurance company would need to ask you directly if they have permission to sue the third party to reimburse some or all of the payout they gave you. In this case, you’re allowed to either approve or deny their request.

Get a workers’ comp waiver of subrogation

If you need workers’ comp insurance to satisfy your state’s requirements, or you want extra protection as an independent contractor, Thimble has you covered. No business is too small. We specialize in coverage for any size business, at any stage.

To get workers’ compensation insurance from Thimble, click “get a quote” or download the Thimble app. Answer a few questions and you can purchase coverage in a few minutes. That’s flexibility at its finest.

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Need a workers’ comp waiver of subrogation? We have those, too. When you purchase workers’ compensation insurance from Thimble and add Additional Insureds to your policy, you automatically get a waiver of subrogation. You can find your waiver of subrogation under the “My Policies” section of your account, where you can change, remove and add as many Additional Insureds as you want at no extra cost. Did we mention we’re flexible? At Thimble, we’ve got you covered — quickly.