Waivers of subrogation
The contract clause that keeps your insurer from suing your own contractor after a covered loss
A waiver of subrogation is a contract clause in which the parties, and by extension their insurers, give up the right to recover a covered loss from each other after the insurer pays a claim. Boards see it in construction and vendor contracts, alongside the insurance requirements, so a loss the association's own property policy already paid does not turn into a lawsuit against the contractor who caused it.
What subrogation is, and what waiving it does
When an insurer pays a claim, it usually inherits the insured's right to go after whoever actually caused the loss. That right is called subrogation.
"'Subrogation' is a term used which describes the right most insurance carriers have to pursue another party that caused a loss to the insured."
Source: Waiver of Subrogation, Association Insurance Policies, Williams and Strohm, LLC
Say a pipe a contractor was working on bursts and floods the clubhouse. The association's property policy pays for the repair. Without a waiver, the insurer can then turn around and sue the contractor to recoup what it paid. A waiver of subrogation clause takes that option off the table: the parties agree in advance that neither one, nor their insurers, will chase the other for a loss the property insurance already covered.
Where boards run into this clause
It shows up in construction and vendor contracts, usually in the same paragraph as the insurance requirements the association is imposing on the contractor.
"[t]he Owner and Contractor waive all rights against [ ] each other ... for damages caused by fire or other causes of loss to the extent covered by property insurance obtained pursuant to this [contract]"
Source: Association Construction Contracts, Waiver of Subrogation Term, Kaman and Cusimano, LLC
Contractors ask for this because it protects them from being sued by an insurer standing in the association's shoes. It is usually reasonable for the board to agree, since the association's own property insurance already funded the repair, and chasing the contractor for the same money adds legal cost without changing what the association actually recovers.
What it does not cover
The waiver only reaches losses covered by the specific property insurance named in the contract. Read that scope line closely before you sign; it is the entire boundary of what you are giving up.
An accident the named policy would not have paid for anyway falls outside the waiver, and the association or its insurer can still pursue that claim normally. Check your own contract's wording and your policy's coverage terms rather than assuming a waiver clause reaches every incident involving the vendor.
A waiver of subrogation is also a different protection from a certificate of insurance or additional insured status. All three often sit in the same contract paragraph, but each one does a different job, and having one does not mean you have the others.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
A roofing contract requires a waiver of subrogation for losses covered by the association's property insurance. A fire during the job, paid out under that policy, damages the clubhouse. What happens to the insurer's right to sue the contractor?
A vendor's contract waives subrogation for losses paid under the association's required property insurance. The vendor's truck later hits a resident's parked car, unrelated to the vendor's actual job. Can the association's auto insurer still pursue the vendor?
Two directors are debating a construction contract's waiver of subrogation clause. One says it means the association gives up its own right to sue the contractor for any damage. What is the more accurate description?
- Waiver of Subrogation, Association Insurance Policies, Williams and Strohm, LLC
- Association Construction Contracts, Waiver of Subrogation Term, Kaman and Cusimano, LLC
Related elsewhere in the Academy
Insurance
Read your next vendor contract's insurance section before you sign it, not after a loss.
Whether a waiver of subrogation clause is enforceable, and how broadly it applies, depends on the exact wording of the contract and the state law that governs it.