Waivers of Subrogation

The regular review of every contract you sign is a highly important risk management task. This includes a contract’s waiver of subrogation clause.

Subrogation is a basic insurance concept used in insurance contracts. If a loss occurs, it typically happens through someone’s negligence. In general, the negligent or “at fault” party is liable for the cost of the loss; your insurance carrier can then choose to sue the at-fault party to recover the amount of a claim they paid for you in a process known as subrogation. You may not find the term subrogation in your contract, but it may be included—check for the terminology ”Transfer of Rights of Recovery Against Others to Us,” which some insurance policies use in place of subrogation.

When a waiver of subrogation is required in a contract, it means that you are waiving your insurance company’s right to subrogate against another party, most commonly the party you are in under contract with. Most policy contracts, with the exception of workers’ compensation, allow you to waive your rights of subrogation as long as it is done in writing and prior to the loss. Often an endorsement is added specifically referring to the exact contract as a means of clarification. However, there are associated risks:

  • In some jurisdictions, waivers of subrogation are not available. Therefore, a careful review of the state statute is required.  You should also obtain your workers’ compensation carrier’s position and agreement on waivers of subrogation.
  • Waiver of subrogation requirements should be built into a contract. The contract wording should be thoroughly reviewed to ensure the waiver of subrogation is being utilized appropriately for the situation. For example, mutual waivers may be beneficial in landlord/tenant contracts, where all parties waive their rights. However, in construction contracts, mutual waivers may not be acceptable or prudent.

The Value of Waiver of Subrogation Clauses

A waiver of subrogation clause is placed in a contract to minimize lawsuits and claims between the parties. The risk, once assigned to the insurers by the parties, is determined to stop there, without allowing the insurer to seek costs from a third party. This guarantees that if a loss occurs, the owner’s insurer pays the claim and the insurance proceeds can be used to fund the cost of repairs without determining who was at fault. Without a waiver of subrogation, litigation or arbitration is frequently needed to determine whose fault caused a loss, which can lead to long and costly delays.

Reviewing Contracts

It’s important that all contractual language mirrors your policy. As your insurance partner, we are committed to helping you understand how your policy language impacts your contractual risks. Call Tooher-Ferraris Insurance Group today to learn more about how we can assist you in mitigating your contract exposure.

Workers Compensation Insights

The Important of Prompt Claims Reporting

The rising cost of claims presents a significant challenge for employers today. However, there is a simple strategy that can significantly reduce your claims costs: report all claims promptly.

In fact, the sooner a claim is reported, the lower the cost is likely to be. Beyond cost, reporting claims promptly can help avoid unnecessary conflict with insurance companies, ensure a proper investigation, preserve employee morale and maintain compliance.

Minimize Cost

It’s no secret that delayed reporting of claims can add up to unnecessary costs for employers. Studies show that the longer it takes to report a claim, the higher the cost tends to be. For example, the National Council on Compensation Insurance (NCCI) conducted a survey and found that claims costs began to climb significantly after a lag time of just seven days. A reporting lag of 29 days or more after the incident resulted in costs that were 49 percent higher than costs of claims reported within a week.

In addition, by promptly reporting claims, day-to-day operations will be able to return to business as usual much faster, which can also save your company money associated with lost productivity.

Reduce Friction with Insurer

Many policies have reporting requirements, so it is possible that a late claim could void your coverage altogether. When your company delays reporting a claim, the process is much more difficult for a claims adjuster – making it less likely that your company will receive the most advantageous settlement or outcome.

It is also important that the insurer is able to conduct a thorough investigation as soon as possible after the incident. When reporting is delayed, the investigation can be much less conclusive due to faded memories and unpreserved evidence.

Preserve Employee Morale

Certain incidents can be upsetting for employees, and it is important for your company to demonstrate that you take the matter very seriously and care about your employees. Promptly reporting any claim can go a long way toward preserving employee morale and trust in your company.

Maintain Compliance

There are certain types of incidents that need to be reported not only to the insurer, but also to the Occupational Safety and Health Administration (OSHA). When a recordable work-related illness or injury occurs, the employer has seven calendar days to record it on their OSHA log, Form 300.

Contact Tooher Ferraris Insurance Group at 203-834-5900 to assist you in establishing effective claims reporting procedures so you can reduce lag time and protect your bottom line.