Ever heard of the term, “waiver of subrogation”? Sounds pretty foreign, doesn’t it? Well it kind of is. If you’re a business owner with liability insurance, you may have had a request from a client or landlord at some point asking for a certificate of insurance with a “waiver of subrogation” for general liability, workers compensation and/or auto liability. I’m actually writing this post because it’s something that I have been working on this week trying to place a new client with an insurance carrier. This client happens to be a self-storage facility.
You see, this self storage facility houses a beer distributor. One of the conditions of writing insurance for this client (the storage facility) with this particular carrier, is to have the tenant (beer distributor) provide a “certificate showing that the insured is named as an additional insured on the General Liability policy with waivers for both the GL and auto. Minimum $1 million limits.”
What does Waiver of Subrogation mean?
The definition of ‘Waiver of Subrogation” is: “The relinquishment by an insurer of the right to collect from another party for damages paid on behalf of the insured. A waiver of subrogation is often referred to as “transfer of rights of recovery.” A waiver prohibits an insurance carrier from recovering the money they paid on a claim from a negligent third-party.
For example, suppose you own a building which burns down due to the negligence of a third-party. Normally you could sue the negligent third-party for causing your building to burn down. If your fire insurance company pays off your claim, however, the insurance company is then “subrogated” to your claim against the negligent third-party. This means your claim against the negligent third-party is treated as having been assigned to the insurance company, which may sue him/her to recover the amount it paid you on account of the fire loss.
Many, but not all, general liability policies allow you to waive your rights of subrogation as long as it is done in writing and prior to a loss. Some contractual agreements, such as some facility rental agreements, require you to waive your right of subrogation (and therefore your insurance company’s rights) against them in the event of a claim.
The good news is that you, the insured, doesn’t have to worry too much about what this terminology means should you get a request from a client or landlord. Simply forward to your insurance agent/broker and be sure to bounce any questions that you may have off them. Our job is to be your insurance partner and deal with these types of insurance requirements or questions you have.
As a business owner, it’s likely you’ve been asked at some point or another to add a client, landlord, or similar entity onto your general liability insurance policy as an “additional insured.” You might ask, why do I need to put them on my business insurance policy?? What about their insurance policy? Well, here’s a little background on what it means and why it is requested so often in doing business.
Adding another entity as an additional insured on your general liability insurance policy serves to protect that additional party in the event of negligence on your part as the primary policyholder, or “named insured.” It is not the intent of your policy to pick up the liability of another party when you had nothing to do with a claim or occurrence.
Here are some loss examples to give you a better understanding:
• You are a sub-contractor and have added a general contractor on your policy as an additional insured by request. An individual walking the grounds of your job site sustains a serious injury from a fall caused by a pothole in a parking lot. The parking lot is being built by you. This individual brings a suit against the general contractor who is covered as an additional insured on your policy.
• You are a tenant of a commercial building and have added the landlord of your building as an additional insured per the terms of your lease. A customer visits your premises and slips on a wet spot on the vinyl floor. The customer cracks their head open and brings a suit against the landlord who is covered under your policy.
Typically, a larger and more powerful business will require that smaller entities (desiring to do business) have the larger business named as an additional insured. This reduces the loss exposure of the additional insured and keep its premiums manageable.