Waiver of Subrogation

What is meant by waiver of subrogation and how does it affect insurance coverage?

A waiver of subrogation endorsement means your insurance company agrees to waive (forfeit) their right to sue or make claim against the party that's asking for the waiver, even if that party is 100% responsible for an accident or loss.

Example:

This is based on an actual case in our office a few years ago.

A general contractor (GC) required all subcontractors to provide certificates of insurance that included waiver of subrogation endorsements.

Midway through construction of a commercial building, the GC failed to cover a hole in the slab floor.  A fire sprinkler contractor, installing pipe and fixtures overhead was creeping slowly across the room on a manlift, unaware of the hole.  One wheel of the manlift dropped into the hole, upsetting the entire machine along with the installer.  

The employee fell 12 ft onto the concrete floor suffering serious multiple injuries.   

The employee filed a workers comp claim against his employer, our subcontractor. The comp carrier paid the lost time and medical bills, but could not recover from the GC because they had issued the subrogation waiver. 

Furthermore, the employee's spouse filed a claim against the GC for negligence.

The GC's liability carrier passed the claim back to the sprinkler contractor's GL carrier because of the "additional insured" wording and contractual agreement. Again, no problem except that at the end of the line, the spinkler contractor's carrier had no recourse against the GC, because they had issued the waiver.   

In the final analysis, the sprinkler contractor's workers comp and general liability carriers paid a ton of money for a loss that their client, the sprinkler company, was not responsible for.  

The negligent party (the GC) got off Scot free.

Yes, this is a miscarriage of justice, but since the sprinkler contractor's carrier agreed to the subrogation waiver in the first place, that's the chance they take. No one forced them to do it. 

In the year 2009 we have seen lots of requests for these types of waivers so it's here to stay for the forseeable future.  In a sense, it's a step toward a "no fault" system, which might actually keep some of these claims from being over litigated. And that might be the one silver lining to this issue.

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For more information about waiver of subrogation endorsements, please contact Southern California Insurance Brokerage, Inc. directly.