Understanding a Waiver of Subrogation in Commercial Real Estate

By Published On: August 23, 20212.1 min read

As you’re reviewing documents for a new insurance policy, you may come across the phrase, “waiver of subrogation.” But what is it, and how does it affect you?

Subrogation happens when an insurer pays the insured for a loss caused by a third party. The insurance firm is then “subrogated” — or, takes on the role of the insured to sue the third party for the loss suffered by the insured.

Basically, the insurance company compensates its insured for their losses before taking any money for itself, making the insured “whole.” The insurer, to make themselves whole, can then sue the third party that was responsible for the damage.

What is a Waiver of Subrogation?

A waiver of subrogation renounces your right of subrogation. Some of your clients may want your company to waive your right of subrogation because they do not want to be held partly responsible for the loss, so you will probably not see this with liability insurance.

When a waiver of subrogation is included in a contract between your company and your client, it will prevent your business and your insurer from going after a share of the damages paid. This eliminates potential problems between you and the client.

When are Waivers of Subrogation Used?

Waivers of subrogation may be used in the following scenarios:

  • Construction contracts: These contracts may contain a waiver of subrogation clause. The owner will waive their right to sue third parties, including contractors, for damages caused by risks covered in the owner’s insurance policy. These clauses prevent delays in the construction process caused by potential litigation and disputes resulting from the losses.
  • Landlord/tenant contracts: Waiver of subrogation clauses may be included in lease contracts between a landlord and a tenant. This is good for both the landlord and the tenant because each party agrees to waive their subrogation rights against one another in the event of some type of loss, such as the loss of personal possessions from a fire. Waiver of subrogation clauses can also foster amicable relationships between landlords and tenants.
  • Auto policies: When an auto collision occurs, many injured parties will go through the responsible party’s insurer to seek payment for damages and losses. Sometimes, the at-fault party will seek to settle the claims without bringing insurers into the mix. A waiver of subrogation presented to the injured party ensures the at-fault driver can settle the claim with the injured party’s insurance company out of the picture.

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