What is a waiver of subrogation?

A waiver of subrogation is a legal clause or form that prevents an insurance company from attempting to recover any money from another insurance company or policyholder. In car insurance, a waiver of subrogation usually keeps the not-at-fault driver’s insurer from recouping claims payments from an at-fault driver.

Subrogation is the process through which an insurance company tries to recover costs from another party after paying a claim. It takes place between insurance companies, so drivers usually aren’t directly involved. For most consumers, subrogation is most relevant in the context of car insurance and home insurance. Subrogation and related waivers are often associated with post-accident settlements.

Many auto insurance policies include provisions telling policyholders not to sign any waiver of subrogation, since it exposes the insurer to more risk. If your policy bans waivers of subrogation but you sign one anyway, you would be violating your insurance contract, and your insurer could legally deny you coverage. In short, it’s always a good idea to ask your insurance company before signing a waiver of subrogation.

Waiver of Subrogation Example

Say Driver B ran a red light and hit you when you were driving legally. You need your car repaired soon, but Driver B won’t admit fault, so you file a collision claim with your own insurance company and pay your deductible. Then, your insurer begins the process of subrogation, negotiating with Driver B’s insurance company to try to replace the money it paid for your claim. You will even get your deductible back if subrogation is successful.

However, Driver B may offer to pay a set sum for the damage if you agree to sign a waiver of subrogation. Signing this waiver would mean forfeiting your right to get any more money from Driver B or his insurance company, regardless of any expenses from the accident that might arise in the future.

A waiver of subrogation limits the rights of the insurance carrier of one of the two parties involved in a business transaction. The concerned party pays an additional premium to receive a special policy endorsement, offering coverage in such situation. 

Insurance companies do not like waiver of subrogation as it limits their right to file a claim against the contractual party in their attempt to recover the claim money paid to the insured. 

Waiver of Subrorgation is one of the most complicated things to explain to clients.

Dmitriy is correct in his answer.  I can only add the need for Waiver of Subrogation is an extremely important consideration within insurance policies.  Ask your insurance broker or agent if you should consider it.