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What Is a Waiver of Subrogation?

Insurance coverage is vital for the success and security of various projects and operations, protecting against unexpected events and financial setbacks. Proper management of these policies is essential, which is why advanced certificate of insurance tracking software and vendor screening services from bcs are invaluable.

These tools not only ensure your policies are current but also, help to mitigate risks and streamline your insurance processes. Before signing off on a contract that includes a waiver of subrogation, there are several factors to consider.

For one, the endorsement waives an insurer’s legal right to pursue responsible third parties to recoup losses paid toward a claim—protecting vendors from hefty fees, soured business relationships, and interrupted productivity.

However, businesses that sign off on a waiver of subrogation run the risk of more costly premiums or the potential for breaching contracts with waiver-prohibiting language.

Before you approve a contract with a waiver of subrogation clause, it’s important to review how your business might be implicated by the decision.

To help you make an informed choice, this guide explains everything you need to know about subrogation, waivers of subrogation, potential pros and cons, examples, and how it relates to workers' compensation.

What Is Subrogation?

To understand what a waiver of subrogation is and its primary function, let’s first review “subrogation.”

When your insurance company covers a claim, they have a legal right to pursue the responsible third party to recoup their losses—a right known as subrogation.

In doing so, the insurer reimburses payments made toward the costs of a claim.

Virginia-based law firm Hirschler defines subrogation in the following way:

The principle under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. (Lee R. Rugg, Couch On Insurance § 222.2, at 222-14 (3d ed.2000))

Through subrogation, the insurer may step into the position of the insured after a claim has been made to recoup the cost of damages from the party responsible.

What Is the Meaning of Waiver of Subrogation?

A waiver of subrogation nullifies the insurance carrier’s legal right to seek compensation from a negligent third party to recoup costs from a claim.

Its main purpose is to contain a financial loss to a specific party’s insurance policy, as this helps companies control insurance costs and manage risk.

The key reason for using a waiver of subrogation is to contain a financial loss to the insurance policy of a specific party. The party is generally the one providing service to another. This helps clients control both the cost of their insurance and managing risk.

Waivers of subrogation are often included in construction-related contracts to protect third-party subcontractors from liability—revoking an insurer's right to recover losses from a claim in which the third party was at fault for damages.

Many subcontractors—especially in construction contracts—will include this legal endorsement without malicious intent, simply to protect their own liability. It is not the responsibility of the subcontractor to inform the insurance company of the waiver.

Examples of Waiver of Subrogation

For instance, let’s say Cristoff the Contractor purchases a commercial liability insurance policy from Fairweather Insurance Company. He then outsources a portion of a construction project to a third-party subcontractor, aptly called Clumsy Crew.

Before beginning work, Clumsy Crew presents Cristoff with a service contract, which includes a waiver of subrogation provision. Cristoff never informs Fairweather Insurance Company of this clause, and Fairweather never reviews the details of the third-party’s contract adequately enough to notice this in the policy.

During construction, Clumsy Crew causes $1 million in damages, and by law, Fairweather Insurance Company is liable to pay for it. When the company moves to sue Clumsy Crew, they are blocked by a waiver of subrogation, which revokes any rights Fairweather Insurance Company has to the claim. A court of law would likely rule in favor of Clumsy Crew because, in theory, Fairweather was in the most favorable position to protect itself from paying for damages.

In an alternate—and more thorough—universe, Fairweather Insurance Company would perform due diligence before beginning Cristoff the Contractor's construction project. Fairweather notices there's a waiver of subrogation involved and responds by raising Cristoff the Contractor's insurance premium—shrinking the amount of risk for their own bottom line in the event of damages incurred by Clumsy Crew.

In most cases, there will be language in commercial or general liability policies prohibiting the insured from signing contracts that revoke or alter the insurer's rights to subrogation.

If the waiver-prohibiting language is present in Cristoff's policy, but he still goes ahead and signs the contract with Clumsy Crew that includes a waiver of subrogation, he is now in breach of contract. In the event of damages incurred, he may be dropped from coverage by Fairweather and also become liable for losses.

What Are the Two Different Versions of a Waiver of Subrogation?

A waiver of subrogation can be categorized into two types: blanket waivers and scheduled waivers. Each serves a distinct purpose in managing risk and insurance claims.

Blanket Waiver

A blanket waiver of subrogation provides broad protection by automatically applying to any contract that includes such a clause. This eliminates the need to request a waiver of subrogation for each individual contract. By incorporating a blanket waiver, companies can streamline their processes, ensuring that all relevant agreements are covered without requiring additional endorsements or permissions for each new contract.

This approach is particularly useful for businesses with multiple contracts or ongoing relationships with various clients and vendors, as it simplifies risk management and administrative tasks.

Scheduled Waiver

On the other hand, a scheduled waiver of subrogation is specific to certain individuals or organizations named in the insurance policy. This version explicitly lists the entities for whom the insurer waives its right to subrogate.

Scheduled waivers are typically used in situations where particular relationships or agreements need to be addressed separately. For example, if a company enters into a high-value contract with a specific client, it might use a scheduled waiver to ensure that the client's interests are explicitly protected. This targeted approach allows for more precise risk management, catering to the unique needs of significant partnerships or critical projects.

What Is the Difference Between Additional Insured & Waiver of Subrogation?

A waiver of subrogation and additional insured status serve distinct purposes in managing insurance liabilities.

A waiver of subrogation stops an insurer from seeking reimbursement from a third party responsible for a loss after compensating the insured. This prevents disputes and litigation between parties involved in a contract, ensuring that the financial burden does not shift back to any party.

Additional insured status extends the policyholder's insurance coverage to another entity or individual, protecting them against third-party claims. This provision is beneficial in contracts where one party provides services to another, offering liability protection if a third party sues the additional insured.

Is Waiver of Subrogation the Same as Transfer of Rights of Recovery?

No, a waiver of subrogation is not the same as a transfer of rights of recovery, though they are related concepts within the realm of insurance.

A waiver of subrogation means you are waiving your insurance company's right to subrogate against another party, usually the one you are entering into a contract or agreement with. This waiver prevents the insurer from seeking recovery from the third party responsible for a loss after compensating the insured. It is often used to maintain amicable relationships between contracting parties and avoid additional legal disputes.

On the other hand, a transfer of rights of recovery, also known as subrogation, is the process where an insured party transfers their rights to recover damages from a third party to their insurance company. After the insurer compensates the insured for a covered loss, it steps into the shoes of the insured and seeks recovery from the party responsible for the loss. This helps insurers recoup their payments and mitigate overall claim costs.

While a waiver of subrogation prevents an insurer from pursuing recovery from a responsible third party, a transfer of rights of recovery allows the insurer to pursue such recovery.Infographic with the question: Is Waiver of Subrogation the Same as Transfer of Rights of Recovery?

How Does a Waiver of Subrogation Relate to Workers’ Compensation?

It is also possible for companies to add a workers’ compensation waiver of subrogation that would protect the business in the event of an employee accident.

While this might seem like a no-brainer, there are several factors to consider with such a decision.

Perhaps the most glaring is that since the claim payment would come from a third party instead of your insurer, this would reduce your experience modifier (e-mod)—a multiplier used by carriers to calculate your workers’ compensation premium.

As a result, this score will likely increase your workers’ compensation costs for the next few years the e-mod takes into account the claim, explains an analysis from Wisconsin-based insurance agency McClone.

What Are the Pros & Cons of a Waiver of Subrogation

As is evident by the examples we’ve highlighted, waived subrogations come with several caveats—some of which are favorable to vendors and others, not so much.


  • Protects Third Parties Financially: Waivers of subrogation prevent third parties from hefty payments or other costs of assuming responsibility for a claim.
  • Avoid Lawsuits: By preventing lawsuits, businesses and tenants can avoid fees and interrupted productivity that may have been compromised by legal action.
  • Preserves Business Relationships: While it’s important to hold parties responsible, avoiding the courtroom also helps ensure organizations maintain good working relationships with clients.


  • Potential Breach of Contract: If organizations do not read contract terms thoroughly, as in the example above, they could potentially be in breach of contract if they neglect any present waiver-prohibiting language.
  • More Expensive Premiums: Insurers have to somehow compensate for not being able to legally pursue responsible third parties, and that usually comes in the form of hiking up your insurance premiums.

How bcs helps

Instead of playing roulette with contract and policy provisions, maintain total transparency regarding contract language and hire professionals to track, review, and improve your insurance documents in real time.

bcs’ full-service tracking solutions automatically highlight compliance discrepancies as they occur, and instantly flag them for an easy return to compliance.

By maintaining this high-level transparency over all your processes, you can proactively stave off risks, protect vendor compliance, and maintain healthier business connections.

bcs offers certificate of insurance tracking solutions that make it easier to review contract language, maintain current documentation, and find qualified contractors in your area. Contact us today or watch a demo to learn more about how bcs can help protect your exposures.

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