For nearly every job and every general contractor, there is a contract in place for subcontractors. As part of that contract, there are insurance requirements. Those insurance requirements usually include a requirement for a waiver of subrogation in favor of the general contractor and/or the project owner.
The questions are: what is a waiver of subrogation, and should you give it to them?
What is Subrogation?
So what, exactly, is subrogation? The term itself translates to “in place of another”. In insurance terms, subrogation is the right of an insurer to attempt to recover money from another party for their involvement in a claim.
For example you have full coverage auto insurance and you are involved in an accident for which you are not at fault. Your insurer pays your claim and then turns to the at-fault driver or his insurance company to recover the money paid to you.
In contractor’s terms, if a subcontractor’s insurance pays a claim and the general contractor was wholly or partially responsible for the claim, the subcontractor’s insurance carrier may try to recover all or some of the money paid out on the claim.
Why You Should Get a Waiver of Subrogation
If you are a contractor and you work with subcontractors, it is a good idea to get a waiver of subrogation to protect both your insurance policy and your claims history. Here is how this works:
Your policy is protected: Requiring your subcontractors to provide a waiver of subrogation means that if they are sued due to work done by a subcontractor on a job for you, their insurance company cannot come back and try to recover funds from your insurance company.
Your claims history is protected: Any money paid out by your insurance company goes on your loss history. Even if the claim isn’t your fault, if your insurance company reimburses another carrier on your behalf, the claim goes on your record. This can result in higher insurance premiums later and possibly nonrenewal for frequency or severity of claims.
Why You Should NOT Give a Waiver of Subrogation
As a subcontractor, many contractors may require that you provide a waiver of subrogation to them by contract. Here is why you shouldn’t give it to them, if at all possible:
Your insurance carrier isn’t protected: If there is the slightest chance that your contractor or another subcontractor on the job contributed to a claim that your policy paid on, your insurance carrier cannot go back and recoup their losses.
Your claims history isn’t protected: If there is a claim, the entire payment falls on your claims history. This increases the chances that your policy premiums will increase or be nonrenewed due to frequency or severity of claims.
Unfortunately, in this day and age, most contractors will require a waiver of subrogation not only for workers compensation but also for general liability and auto liability. If your contract requires it, there isn’t a whole lot you can do about it other than comply or walk away from the job.
How To Get A Waiver On Your Policy
Waivers may be purchased for insurance policies on an individual basis, or as a blanket waiver. The cost can vary from free to a small percentage of your gross policy premium.
On many general or auto liability policies for contractors, a waiver may be included as part of an expanded or broadened endorsement. On workers compensation policies, typically a blanket waiver must be requested at the start of the policy period, and costs a small percentage of the manual premium before any discounts are applied.
For waivers added throughout the policy period on any policy, an additional charge usually applies (usually anywhere from $25 to $500 and up). The insurance company will require details about the job for which the waiver is required, including costs, payroll or revenue for the job.
Contact our office today for a free, no-obligation risk management analysis. Hayes can help you determine what insurance is right for your business.