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Posted on March 14, 2019 at 1:10 PM

What is subrogation?

Subrogation, in the context of insurance, is when an insurance company, after paying a loss, inherits your rights to recoup its payment from another party (e.g., your client or your landlord) if they are also partially responsible for the loss. An insurance company waives its right to seek subrogation against the third party if you have waived your right to recoup any losses against that other party. The third party may want your policy to cover 100% of a loss for which they may be partially at fault, without having to face the potential of you or your insurance company attempting to recoup some of the loss against them.

For example, suppose you and your client face a common lawsuit for negligence. Part of that claim alleges you were faulty in delivering your services and part of it alleges fault due to your client’s faulty services. A judgment may be awarded that your insurance company pays in full in order to release you from the claim. However, if your client was also partially responsible for the loss, you would have the right to recover the part of the loss that is their fault. But, since your insurance company has paid the full amount on your behalf, they now inherit your right to recover that portion of the loss. The insurance company can in turn seek to recover damages directly from your client or their insurance company.

What does it mean to waive your right of subrogation?

A waiver of subrogation is when the right of subrogation is relinquished. Clients that want your business to waive your rights of subrogation want peace of mind that they will not be held liable for damages if they are somehow partially responsible for a loss.

This waiver of subrogation prevents your business (and your insurance company) from seeking a share of any damages paid, eliminating potential business conflicts between your business and client.

Purposes of Subrogation

There are two primary purposes of subrogation:

• It allows you the insured to benefit from working with your insurer for easy claims handling

• It allows the insurance company recovery of all funds paid on your claim settlement.

The two benefits can only be realized if you the insured is cooperative during the entire claims process, not to harm the chance of your insurer to subrogate. How so?

• For one, you are not allowed to independently settle the claim with the party liable as this would hamper the insurer’s ability to subrogate and be reimbursed what was paid to you.

• One of the requirements of the policy is always be cooperative with investigations. There are cases, you may have to appear in court or provide testimony depending on the claim process.