A waiver of subrogation is a contractual provision in which one party agrees to relinquish its (or its insurer’s) right to seek reimbursement from another party for certain losses. To fully appreciate the significance of this provision, it is helpful to first understand the concept of subrogation itself.

What is Subrogation?

Subrogation is an equitable doctrine that lets a party who pays another’s claim step into the injured party’s shoes and pursue recovery from the third party responsible for the loss. It appears most often in the insurance context.

For example, if a contractor negligently starts a fire that damages a building, the owner’s insurer may pay the owner’s claim under the property policy, then seek to recover those funds from the negligent contractor. The party at fault ends up bearing the financial burden of the loss.

What is a waiver of Subrogation?

A waiver of subrogation is a contract provision in which one party agrees to relinquish its own or its insurer’s right to seek reimbursement from another party for certain losses. It is one way contracting parties allocate risk and create certainty when loss or damage occurs.

The waiver can be broad or narrow. It may apply only to certain types of claims, only to specific parties, or only to losses arising from particular activities. Reading the exact scope matters.

Why do construction contracts include a waiver of subrogation?

Construction contracts commonly waive subrogation rights to avoid the cost and delay of litigating fault. Instead of chasing the responsible party, each party agrees to look first to insurance proceeds for covered losses.

This creates predictability. Everyone on the project knows how covered losses will be handled before a loss ever happens.

What does a waiver of subrogation cover?
The AIA A201 example

The scope of a waiver depends on its wording. The widely used AIA A201 General Conditions provides a common example:

“The Owner and Contractor waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents, and employees, each of the other; (2) the Architect and Architect’s consultants; and (3) Separate Contractors, if any, and any of their subcontractors, sub-subcontractors, agents, and employees, for damages caused by fire, or other causes of loss, to the extent those losses are covered by property insurance required by the Agreement or other property insurance applicable to the Project, except such rights as they have to proceeds of such insurance.”

Under this language, the owner and contractor waive claims against each other and against a defined group that includes subcontractors, sub-subcontractors, agents, employees, the architect and the architect’s consultants, and separate contractors, but only to the extent the losses are covered by the project’s property insurance.

What should parties check before agreeing to a waiver of subrogation?

Parties should pay close attention to the conditions that trigger the waiver.

Consider a scenario where the carrier does not pay a “covered” claim because it has already exhausted the policy limits. A party could inadvertently waive its rights against a negligent party even though no insurance money ever changes hands. The precise wording may control the outcome.

What is a waiver of subrogation endorsement?

A waiver of subrogation endorsement is the insurer’s written consent to the waiver. The waiver between the parties is not enough on its own. The party suffering the loss also needs its own carrier to agree not to pursue the other party.

Insurers document this consent through an endorsement, commonly titled the “Waiver of Transfer of Rights of Recovery Against Others to Us” endorsement. Construction contracts typically require the endorsement as part of the insurance requirements, so parties should confirm the endorsement is actually in place on the policy.

Key takeaways

• A waiver of subrogation typically shifts covered losses to insurance instead of litigation over fault.
• Scope varies. Confirm which claims, parties, and losses the waiver reaches.
• Read the waiver and the insurance policy together, not in isolation.

Conclusion

Waivers of subrogation are valuable tools for managing risk. When properly implemented, they provide clarity and predictability by ensuring that each party relies on insurance coverage for specified losses. However, like any contractual provision affecting waiving rights, waivers of subrogation require careful attention to the specific terms of the construction contract, and the insurance policies.