Waiver of subrogation: what it is and when contracts require it

A waiver of subrogation is an agreement that your insurer will not sue a particular party to recover what it paid on your claim. Contracts ask for it so that a customer, landlord or general contractor is not pursued by the other side's insurance company after a loss. Most policies do not grant it automatically. You get it by endorsement, and the endorsement usually has to match what the contract says.

Subrogation in one paragraph

After an insurer pays a claim, it steps into your shoes and can pursue anyone who caused the loss. That is subrogation. The standard commercial general liability form (CG 00 01, 04 13 edition) puts it in Condition 8, Transfer of Rights of Recovery Against Others to Us: if the insured has rights to recover any payment the insurer made, those rights transfer to the insurer, and the insured must do nothing after the loss to impair them. A waiver of subrogation is the exception. It is a promise, made before a loss, that the insurer will not enforce those rights against a named party.

Why contracts demand it

The purpose is to keep a loss inside the insurance program the parties chose, rather than having it turn into a lawsuit between the parties.

• Workers' compensation. Under workers' compensation insurance: how it works, a subcontractor's employee is injured on a project. Comp pays the employee, and then the comp insurer could sue the general contractor as a third party whose negligence contributed. The waiver stops that.
• Property. A tenant causes a fire. The landlord's property insurer pays the landlord and would normally pursue the tenant. A lease with mutual waivers, backed by endorsements, keeps each side's insurer in its own lane. Lease terms are covered in insurance requirements in commercial leases.
• Construction. Standard owner-contractor agreements, including the AIA general conditions, commonly contain waivers for losses covered by property insurance, and builders risk policies commonly extend recovery protection to the parties on the project. See builder's risk insurance: covering a building while it is under construction.
• General liability and auto. Less common, but contracts frequently ask for it across all lines, since the insurer of one party could otherwise seek recovery from another party that contributed to a loss.

The endorsements

The mechanism differs by policy, so each coverage line needs its own wording. Waivers are one piece of contractual risk transfer: shifting liability by contract and insurance, alongside indemnity and additional insured status.

General liability: CG 24 04

ISO's CG 24 04, Waiver of Transfer of Rights of Recovery Against Others to Us, adds to Condition 8. Two editions are in circulation.

• The 05 09 edition, as shown on a public copy of the form, has the insurer give up recovery rights against the scheduled person or organization for payments tied to your ongoing operations or your work done under a contract with that party and included in the products-completed operations hazard. It applies only to the party named in the schedule.
• The 12 19 edition is broader in one way and narrower in another. A specimen copy shows a schedule that can be completed as "persons or organizations as required by written contract" executed before the loss, and a waiver that applies to payments under the whole coverage part, but only to the extent the insured waived its recovery rights before the loss.

Check which edition is on the policy. A scheduled form that names three entities does not help the fourth, and a blanket schedule helps only if the contract was signed before the loss.

Workers' compensation: WC 00 03 13

The NCCI endorsement WC 00 03 13, Waiver of Our Right to Recover From Others Endorsement, is short. The insurer keeps its right to recover from anyone liable for the injury but agrees not to enforce it against the person or organization in the schedule. A parenthetical, which carriers may include, limits the agreement to work performed under a written contract that requires the waiver. The agreement does not benefit anyone not named in the schedule. The form is a 1984 edition and is published by NCCI, but carriers and states modify it, and some carriers and residual market pools restrict blanket waivers or construction classifications. In the four states with monopolistic workers' compensation funds (North Dakota, Ohio, Washington and Wyoming), private carriers cannot write comp, so what you can get depends on the state fund. Many comp insurers also charge for the endorsement, as public contract guides such as Sonoma County's note. Ask your broker for the cost before you accept the clause.

Property, auto and umbrella

On property policies, the ISO commercial property conditions (CP 00 90) let you waive recovery rights in writing before a loss, and after a loss only in narrow cases such as someone insured by the policy, a firm you own or that owns you, or your tenant, according to FC&S's summary. Commercial auto and umbrella policies have their own waiver endorsements, and the umbrella has to follow the underlying wording if the contract asks for it on excess limits.

Reading a typical clause

To the fullest extent permitted by law, Subcontractor waives, and shall cause its insurers to waive, all rights of recovery against Contractor, Owner and their officers and employees for any loss covered by the insurance required by this Agreement.

• "To the fullest extent permitted by law" gives the clause a savings provision in case a state statute limits it. It does not substitute for a state-by-state check.
• "Waives, and shall cause its insurers to waive" is two promises. The first is yours. The second needs the insurer's cooperation, which is why the endorsement matters. If the insurer will not endorse, you are in breach of the contract even if you meant well.
• "All rights of recovery" is broad. A narrower clause would limit the waiver to the amounts insurance actually pays.
• "Contractor, Owner and their officers and employees" lists the beneficiaries. Each must appear in the schedule or be captured by the blanket wording.
• "Covered by the insurance required by this Agreement" links the waiver to specific policies. If the contract does not require workers' compensation, say, the waiver should not demand a comp endorsement either.

A worked example (hypothetical)

Say a roofing subcontractor signs a subcontract with a general contractor that requires a waiver of subrogation on its general liability, auto and workers' compensation policies. The broker issues CG 24 04 for the contractor, but the subcontractor's workers' compensation carrier refuses to add the comp waiver in the state where the work occurs, or quotes a premium the subcontractor did not expect. If the subcontractor signs anyway, it is exposed to a breach claim from the general contractor, and a roofing worker's injury could expose the general contractor to a comp recovery action. The better move is to find out before signing. Options include asking the general contractor to narrow the clause, to accept a waiver on the policies the market will support, or to bear the cost.

What to negotiate

• Review the whole insurance section together; how to review the insurance requirements in a contract and managing subcontractor insurance and certificates cover the other clauses that travel with it.
• Make waivers mutual where the exposure is mutual, as in most leases.
• Limit the waiver to the extent of insurance you are required to carry, not to every loss.
• Keep the clause aligned with the additional insured and primary and noncontributory requirements so you are asking for one coordinated program. See additional insured endorsements explained and primary and noncontributory wording in contracts.
• Ask who pays the premium for waiver endorsements.
• Confirm that the endorsement applies to work under the written contract rather than to the party in every circumstance.

Key takeaways

• Subrogation lets your insurer pursue whoever caused a loss it paid; a waiver gives up that right against a named party, before a loss.
• Waivers come by endorsement: CG 24 04 for general liability, WC 00 03 13 for workers' compensation, and separate wording for property, auto and umbrella.
• The edition and schedule decide who is protected and when. Blanket wording usually depends on a written contract signed before the loss.
• Workers' compensation waivers often cost extra and are limited in some states, so check availability and cost before signing.
• A certificate that says "waiver of subrogation: yes" is not the endorsement. Ask for the form. See certificates of insurance: what they prove and what they do not.