What Is a Waiver of Subrogation and Why Should You Care?

Construction contracts are full of legal terms, but the waiver of subrogation stands out as one you can’t ignore. Why? Because it directly impacts how risks are shared and handled during a project.

In this article, we’ll break down the waiver of subrogation in a way that makes sense, even if you’re not a legal expert. From its purpose and mechanics to its benefits and risks, we’ll cover everything you need to know.

Waiver of Subrogation Meaning

A waiver of subrogation is a crucial clause in construction contracts that helps manage risk. It prevents an insurance company from suing a third party after paying out a claim.

Simply put, if your insurance covers damages, the waiver of subrogation stops them from turning around and blaming someone else involved in the project.

So, why is this such a big deal? Construction projects are a team effort. Contractors, subcontractors, and project owners rely on each other to get the job done. Without a waiver of subrogation, one mistake could spiral into a legal mess, slowing everything down.

Would you want to waste time in court when there are deadlines to hit? Probably not. That’s why this clause is so valuable.

How Does a Waiver of Subrogation Work in Construction Contracts?

The waiver of subrogation works by limiting what insurance companies can do after settling a claim. Normally, insurers might go after other parties involved in the incident to recover their money.

But when a waiver of subrogation is included in a construction contract, that option is off the table. The insurance company handles the claim, and the project moves forward without extra legal drama.

Here’s an example to make it clear:

Imagine a subcontractor accidentally damages an on-site structure. The general contractor’s insurance pays for the repairs. Thanks to the waiver of subrogation in the contract, the insurance company cannot sue the subcontractor to recover the money.

What’s the result? The issue is resolved, relationships are preserved, and everyone gets back to work. This clause is an important aspect of contract administration, where managing risks and resolving claims efficiently is critical. 

Things to Know About a Waiver of Subrogation:

• It’s typically included in general liability, workers’ compensation, or property insurance policies.
• Insurance providers often charge higher premiums for policies that include the waiver.
• The waiver only applies to claims that fall under the scope of the specific policy.

Isn’t it better to resolve claims quickly and move on, instead of getting stuck in a blame game? That’s the beauty of the waiver of subrogation—it keeps everyone focused on the project.

Why Should You Include a Waiver of Subrogation in Construction Contracts?

Aside from waiver of subrogation being a legal formality, it’s a practical tool to keep construction projects on track. By preventing lawsuits between project stakeholders, this clause encourages collaboration and reduces conflict.

Benefits of a Waiver of Subrogation:

• Minimises Legal Disputes: Insurance companies can’t involve others in lawsuits over covered claims.
• Strengthens Teamwork: Stakeholders can focus on the project without fear of legal backlash.
• Speeds Up Resolution: Claims are settled faster since disputes are avoided.

For example, if a subcontractor’s mistake damages expensive equipment, the general contractor’s insurance handles the claim. The waiver of subrogation stops the insurer from suing the subcontractor.

This approach is particularly useful when combined with milestones like the certificate of practical completion, which signals the project is ready for handover and reduces further risks.

This saves time, avoids delays, and ensures everyone keeps working together. Isn’t that what every construction team wants—a smooth, conflict-free process?

What Risks Are Involved in Using a Waiver of Subrogation?

While the waiver of subrogation reduces conflicts, it also comes with some trade-offs. It shifts certain risks to the policyholder, which can impact costs and recovery options.

Risks of Including a Waiver of Subrogation:

• Higher Insurance Costs: Adding the waiver can increase your policy premiums.
• Reduced Legal Options: You might not be able to recover losses caused by another party’s negligence.

Think about it: If another contractor damages your work but the waiver of subrogation is in place, your insurance must absorb the cost. Over time, this could raise your premiums and affect your bottom line.

Does this mean you should avoid the waiver entirely? Not necessarily. The benefits often outweigh the risks, but it’s important to fully understand what you’re agreeing to.

How Much Does a Waiver of Subrogation Cost?

The cost of including a waiver of subrogation in a construction contract often depends on your insurance provider and the type of policy. Most insurance companies treat it as an add-on, which means it comes with an extra premium.

So, how much are we talking? In many cases, the additional cost ranges from a small percentage of your policy premium to a flat fee.

For instance, workers’ compensation policies might charge a nominal fee per project, while general liability policies could factor in the complexity of the job.

Why the variation? It boils down to risk. Insurers know that waiving subrogation limits their ability to recover costs, so they charge more to offset that risk.

If you’re a contractor managing multiple projects, these costs can add up. Wouldn’t it make sense to discuss this with your broker upfront? Knowing the fees and potential savings can help you make an informed decision.

Additional Insured vs Waiver of Subrogation

At first glance, an additional insured clause and a waiver of subrogation might seem similar, but they serve very different purposes.

An additional insured clause extends your insurance coverage to another party, like a project owner or subcontractor. On the other hand, a waiver of subrogation prevents your insurance company from suing another party after paying a claim.

Here’s how they differ in practice:

• Additional Insured: Provides liability protection to another party under your policy.
• Waiver of Subrogation: Stops your insurer from pursuing legal action against another party.

Let’s say a project owner requests both clauses in your contract. If their employees are injured on-site due to your work, the additional insured clause would protect them from liability.

Meanwhile, the waiver of subrogation would prevent your insurance company from suing the project owner for reimbursement. Together, these clauses create a safety net for both sides.

What Are the Two Types of Waivers of Subrogation?

There are two main types of waivers of subrogation: blanket waivers and specific waivers. Each serves a different purpose, and knowing the difference can help you decide which one fits your project.

• Blanket Waiver of Subrogation: Applies to all contracts or projects covered by your insurance policy. This type is often more convenient, especially if you work on multiple projects. But, it can come with higher premiums due to the broader coverage.
• Specific Waiver of Subrogation: Tailored to a single contract or project. This type is less expensive but requires a separate negotiation for each project.

If you’re juggling multiple contracts, like many professionals in contract administration, a blanket waiver could save you time and effort. For smaller, one-off projects, a specific waiver might make more sense.

When Should You Use a Waiver of Subrogation?

The waiver of subrogation is most useful in projects where collaboration between stakeholders is essential. Construction projects, by nature, involve shared risks.

A well-placed waiver can prevent finger-pointing and ensure smoother operations. Here are common scenarios where a waiver of subrogation is beneficial:

• Large-Scale Projects: Where multiple contractors and subcontractors are involved, and disputes could derail progress.
• High-Risk Jobs: Such as industrial or infrastructure projects, where accidents are more likely.
• Contractual Requirements: If the project owner demands it as part of the agreement.

Imagine working on a complex project with multiple teams on-site. A single incident, like equipment damage, could spiral into a blame game. Including a waiver of subrogation ensures everyone’s insurance covers their own claims, keeping the project on track.

This clause works hand-in-hand with avoiding risks like a breach of contract, which could disrupt the project entirely.

Does a Waiver of Subrogation Fit Your Construction Needs?

While the waiver of subrogation clause helps reduce disputes and strengthen collaboration, it also shifts some risks to the policyholder.

Contractors, subcontractors, and project owners must weigh the costs, benefits, and specific project requirements before making a decision.

Are you dealing with a complex project where disputes are likely? Do your contracts frequently include high-risk scenarios?

If so, including a waiver of subrogation might be a smart move. But always review the terms with your insurer or legal advisor to ensure you’re fully protected.

In the end, the waiver of subrogation is about one thing: making construction projects smoother and more efficient. Isn’t that what every team wants? Absolutely.