If you’ve ever signed a lease agreement or business contract, you might have come across the term “waiver of subrogation.” When engaging with a landlord, client, or business partner, the other party may request for you to include this technical-sounding term in your insurance policy. In this article, we’ll explain what “waiver of subrogation” means, the implications of including this waiver in your insurance, and how to get a waiver of subrogation endorsement in your policy.
What is a Waiver of Subrogation endorsement?
The meaning of subrogation:
To understand what a waiver of subrogation is, it’s probably best to start by explaining what subrogation is in the first place. In law, subrogation means the right of one party to substitute the position of another party (“stepping into another person’s shoes”, in layman’s terms).
When it comes to insurance, subrogation is the legal ability for an insurance company to sue another party that caused you to suffer an insurance loss. The insurance company will “step into your shoes”, and then sue the other party to reclaim damages that your insurance company had to pay out.
The meaning of endorsement:
In insurance, an endorsement is simply a modification to your policy. Since insurance policies are legal contracts between your company and the insurer, the insurer cannot simply erase or edit parts of the original contract document. Instead, if changes are made, it will issue another document (the “endorsement”), to state the exact policy changes, and when precisely these changes will take effect.
Subrogation example 1:
For instance, let’s say that while driving, another driver hits your car. Your car is damaged. Your motor insurance company will first compensate you for your loss. Your motor insurance company will then sue the other driver to recoup the claims that they paid to you. Since all drivers must have motor insurance in Singapore, your motor insurance company will likely initiate legal action directly against the other driver’s insurance company.
Subrogation example 2:
Another common scenario where subrogation is commonly carried out is in landlord-tenant relationships. Let’s say that you rent a shop space. The landlord did not carry out proper maintenance of the electrical sockets, causing a fire to break out in the building. The landlord’s premises, and your shop, are destroyed. You file a fire insurance claim with your insurance company for the losses you have sustained. Your insurer compensates you.
Your insurer then assumes your legal persona (i.e. “steps into your shoes”), and sues the landlord for negligence to recoup the claims paid out to you.
The meaning of a waiver of subrogation endorsement:
Now that we’ve established what subrogation means, it’s much easier to understand what a waiver of subrogation means. Since subrogation refers to the right of an insurer to sue another party to recover their losses, a waiver of subrogation simply means that you give up this right to allow your insurance company to sue other parties that caused you to suffer losses.
Let’s look back at our earlier example of the fire in the retail shop (subrogation example 2), to see how a waiver of subrogation endorsement would have affected the outcome scenario. Let’s assume that you had a signed a waiver of subrogation endorsement in your fire insurance policy. This waiver of subrogation endorsement names the landlord, thus waiving your insurer’s right to subrogation against the landlord. Because you had agreed to a waiver of subrogation endorsement in your fire insurance, your insurance company cannot sue the landlord for negligence in causing the fire.
Do Waiver of Subrogation endorsements cost extra money?
Some insurance brokers may charge you a small admin fee to include waivers of subrogation endorsements. Some may even decline to offer this service, as it’s extra work for them. However, Provide offers waivers of subrogation endorsements at no extra charge.
How Waiver of Subrogation endorsements work across various types of insurance
Waivers of subrogation endorsements are often used in commercial property insurance, and public liability insurance.
Waivers in Commercial Property Insurance
Landlords will often request their tenants to carry Commercial Property Insurance (also commonly known as Property All Risks Insurance/Industrial All Risks Insurance). Additionally, landlords will also typically ask their tenants to include a waiver of subrogation endorsement in their Commercial Property Insurance policy. This is meant to protect the landlord against lawsuits from their tenant’s insurance companies. Such protection is most relevant in case the landlord commits acts of negligence that end up damaging their tenant’s property. For instance, let’s say the landlord contracts a plumber to perform regular servicing on the building’s water pipes and bathrooms. The plumber accidentally causes a pipe to burst, causing major flooding throughout the building. This ends up causing severe water damage to the landlord’s building, and also damage to all the property belonging to the tenants in the building. If the tenants did not have a waiver of subrogation endorsement that named their landlord, it is likely that the tentant’s insurers will sue the landlord. The insurers will use this lawsuit to recover the claims they paid out to the tenants.
If you’re a tenant, do consider negotiating with your landlord to include mutual waivers of subrogation endorsements. This protects you against lawsuits from your landlord’s insurance company if you’re found to be negligent in causing property damage.
Waivers in Public Liability Insurance
Waivers of subrogation endorsements are commonly requested in Public Liability Insurance, particularly when you’re working with large companies. This is meant to protect the company from lawsuits from your insurance company, should the other party be found to be negligent.
Common examples where waivers of subrogation endorsements are useful are in cases of personal injury or property damage. For instance, let’s say you take up an engineering project at a shipyard. The shipyard will commonly require you to carry Public Liability Insurance. The shipyard will also commonly require you to include a Waiver of Subrogation endorsement, so that your insurer cannot sue the shipyard owners. If the shipyard owners are negligent (e.g. improper maintenance of cranes at the shipyard causes an accident injuring your employees), then the waiver of subrogation will protect the shipyard from lawsuits filed by your insurers.
What are the main types of Subrogation Waiver endorsements?
There are two types of waiver endorsements used on liability policies: scheduled endorsements, and blanket endorsements.
- A scheduled endorsement will specify a list of names. The insurer will not sue the parties that have been explicitly named in the endorsement, if you have waived your rights of subrogation against them.
- A blanket endorsement does not specify a list of names, and affords broader coverage. Blanket endorsements typically state that if you have agreed in a contract to waive your rights to sue someone, the insurer will not sue them. Blanket endorsements are helpful if you have many clients that require waivers of subrogation. It is much more convenient to have a blanket cover, which saves you from the trouble of having to add a new endorsement each time a client requests for it.
Key takeaways on Waivers of Subrogation:
- A waiver of subrogation prevents an insurance company from suing a 3rd-party to recover claim amounts that they have paid out.
- If you negligently cause a 3rd-party to suffer losses, the 3rd-party’s insurance company can sue you to recover the claims they paid out.
- When entering into a contract, both parties can consider mutually waiving their rights to subrogation. This can be helpful in reducing liability risks, if one party ends up negligently causing losses to the other party. Always consult a legal professional or qualified insurance professional before making any such decisions.