# Waiver of Subrogation: Definition, Types, and Why It's Important

![Waiver of Subrogation](https://www.investopedia.com/thmb/9yrjUWez9EO37aMze85uGuX1Pws=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/waiver-of-subrogation.asp-final-fff580d968404949b7347471c2795978.jpg)

*— Investopedia / Jake Shi*

> **Definition**
>
> A waiver of subrogation is a contract provision that prohibits an insurance company from seeking compensation from a negligent third party after paying a claim to the insured.

## What Is a Waiver of Subrogation?

A waiver of subrogation is a contractual provision whereby an insured waives the right of their insurance carrier to seek redress or seek compensation for losses from a negligent third party. Typically, [insurers](https://www.investopedia.com/articles/active-trading/111314/top-10-insurance-companies-metrics.asp) charge an additional fee for a waiver of subrogation endorsement. 

Many construction contracts and leases include a [waiver of subrogation clause](https://www.investopedia.com/ask/answers/031615/waiver-subrogation-clause-better-tenant-or-landlord.asp), to protect participants from lengthy litigation that would otherwise disrupt their business relationship.

### Key Takeaways

*   A waiver of subrogation is a contractual clause that prevents insurance companies from seeking recovery from a third party for damages covered by the insurer, minimizing the potential for legal disputes.  
    
*   Common in construction contracts, leases, and auto insurance policies, waivers of subrogation help maintain business relationships by avoiding conflict and litigation between parties.  
    
*   Such waivers often involve an additional fee charged by insurance companies, which compensates for the increased risk they undertake when subrogation rights are waived.  
    
*   Including a waiver of subrogation in agreements can expedite claims processing and provide parties with assurance against being held liable for certain losses, thus speeding up project timelines and avoiding costly legal battles.  
    
*   While beneficial in many scenarios, waivers of subrogation should be considered carefully, as they can limit the insurer's ability to recover losses, and may not always be permissible under certain insurance policies.

## How Waivers of Subrogation Work

A right of [subrogation](https://www.investopedia.com/terms/s/subrogation.asp) allows an insurer to stand in proxy for its insured after satisfying a claim paid to the insured per the company’s duties under the insurance policy. The insurance company may pursue a claim against other parties to cover its costs for that same loss, even when the loss involves a resolution of claims brought against the insured.

If subrogation is waived, the insurer can't take legal action against another party after paying a claim. Thus, if subrogation is waived, the insurer is exposed to greater risk.

> **Important**
>
> Insurance companies frequently charge an additional fee on top of the premium to include a waiver of subrogation clause. Parties to the contract avoid litigation, and the insurance company bears the loss.

## Common Types of Waivers of Subrogation

A waiver of subrogation is a provision that prohibits an insurer from pursuing a third party to recover damages for covered losses. Waivers of subrogation are found in various contracts, including construction contracts, leases, auto insurance policies, and more.

### Waivers of Subrogation in Construction Contracts

Sometimes, construction contracts contain a waiver of subrogation clause. These clauses make the owner give up the right to sue contractors or subcontractors for covered damages. Under this provision, the owner's insurer also agrees that they will pay covered losses and will not seek to recoup these losses from the negligent party.

Waiver of subrogation clauses can have exceptions. If the owner's property insurance does not insure against a specific risk, the owner may seek recovery from the responsible party. Also, if the loss exceeds the insurance policy's limit, the owner may pursue the responsible party.

### How Waivers Affect Landlord-Tenant Lease Agreements

Waivers of subrogation in leases work similarly. The insurer can't act for the owner to recover damages. If the injured party's insurance covers the claim, it must be paid, and no further action against the third party may occur.

These clauses protect the landlord and tenant from expensive litigation costs and interruptions to the terms of the contract. Subrogation of waiver clauses can also help preserve amicable relationships between landlords and tenants.

When a landlord includes a waiver of subrogation clause in a lease, the company issuing the tenant’s [renter’s insurance](https://www.investopedia.com/terms/r/renters-insurance.asp) policy usually requires an additional premium for coverage of losses paid by the insurer as a result of acts or omissions by the landlord.

This extra cost is applied because the waiver of subrogation clause prevents the insurer from asserting a claim against the landlord for the amount paid to the insured, or on behalf of the insured, in resolution of a covered claim.

For example, if the tenant’s guest sustains injuries incurred when a lighting fixture unexpectedly falls from the ceiling of the leased premises, the tenant’s insurance carrier is unable to assert a claim against the landlord for the amount paid in resolution of a claim by the guest against the tenant. Similarly, if the lighting fixture fell on the tenant’s expensive, antique table, the waiver of subrogation prevents the tenant’s insurance company from asserting a claim against the landlord for the amount paid to the insured for the damage to the table.

Some leases contain mutual waivers of subrogation, where both the landlord and the tenant waive recovery rights against each other for any claimed loss covered by insurance. In some states, existing statutory law may override a waiver of subrogation and permit claims to be brought; however, in most states, limitations of liability may absolve negligent defendants of responsibility.

### Waivers of Subrogation in Auto Insurance Policies

When auto accidents arise, most injured parties go through the at-fault party's insurer to seek payment for losses. Sometimes, the at-fault party seeks to settle such claims without involving insurers. One of the most common ways to do this is to present a waiver of subrogation to the injured party.

If accepted and signed, the injured party and their insurer have no rights to pursue the at-fault for damages beyond the settlement agreement. Future claims are forfeited, preventing recovery from the at-fault party or their insurer. Agreeing to this provision should be done with careful consideration, often after discussing the details with the insurer or an attorney.  

## Why Consider a Waiver of Subrogation

Parties may want to include a waiver of subrogation in order to cut down on the possibility of drawn-out and costly legal disputes that can arise from contractual obligations. Clients may want this provision to avoid being sued for or held responsible for a loss and to speed up the claims process in the event of such a loss.

For some, settling is quicker than claim processing. Accidents can adversely affect premiums or terminate coverage for at-fault parties; therefore, settling could prevent negative activity from being recorded on their insurance profile.

Waiver of subrogation clauses in construction contracts also prevent delays in construction caused by disputes and litigation resulting from losses. When these provisions are absent, investigations ensue to determine fault. As with many cases, this process can take time—more time than what the owner has allowed to complete construction. As a result, costs surmount, compromising the integrity of the project.

> **Fast Fact**
>
> Some insurance companies do not allow their insureds to participate in waiver of subrogation agreements as it compromises what they can recover.

## What Are the Benefits of a Waiver of Subrogation?

One of the most common benefits of a waiver of subrogation is the avoidance of lengthy litigation and negotiation, as well as the costs to pursue them. These provisions can also prevent conflict between parties to a contract, such as between a landlord and tenant. They also prevent certain parties from being held responsible for losses for which they did not cause.

## Should I Agree to a Waiver of Subrogation?

Waivers of subrogation vary per contract or agreement, as well as their benefits and risks. Therefore, it is best to consult the advice of an attorney or your insurer regarding a waiver of subrogation. Some insurers prohibit their insureds from signing waivers of subrogation as they put them more at risk. Understanding the associated risks will help you make an informed decision.

## How Does the Waiver of Subrogation Process Work?

Upon a loss, an insurer pays a claim to the insured for covered losses. If the loss was caused by a third party, the insurer may subrogate the claim, or recover damages from the party that caused the loss. With a waiver of subrogation, the insurer cannot pursue or sue the responsible third party for recovery. These provisions can be found in contracts or included as addendums to existing contracts. As with any contract, there must be an agreement by the parties to the contract to be valid.

## The Bottom Line

A waiver of subrogation is a legal endorsement that prevents an insurer from recovering the money they've paid out on a claim from a negligent third party. This avoids lengthy and costly legal disputes that could arise in the course of contracted activities like letting a property or subcontracting construction work.

These waivers are common in construction contracts, leasing agreements, and automobile insurance. However, an insurer may require an additional premium to compensate for the inability to pursue other parties for losses.

> **Article Sources**
>
> 1.  Construction Risk. "[The Catastrophe and Waiver of Subrogation](https://www.constructionrisk.com/2011/02/the-catastrophe-and-waiver-of-subrogation/#:~:text=Subrogation%20usually%20refers%20to%20the,insurer%20from%20pursuing%20such%20parties.)."
>     
> 2.  Lexology. "[Waivers of subrogation: when a waiver is not a waiver](https://www.internationallawoffice.com/Newsletters/Insurance/USA/Mendes-Mount-LLP/Waivers-of-subrogation-when-a-waiver-is-not-a-waiver)."
>     
> 3.  Allstate. "[Subrogation: What Is It and Why Is It Important](https://www.allstate.com/tr/car-insurance/subrogation.aspx)."
>     
> 4.  The Hartford. "[Auto Subrogation](https://www.thehartford.com/aarp/car-insurance/auto-subrogation#:~:text=A%20waiver%20of%20subrogation%20prevents,wants%20to%20settle%20with%20you.&text=Not%20every%20auto%20insurance%20company,its%20efforts%20to%20recover%20money.)."