Wednesday, 4 March 2015

What does it means by waiver of subrogation?

First understand that subrogation is the process where an insurer pursues reimbursement from another insurer for claims they paid that were caused by the actions of their policyholder.  Waiver of subrogation prevents the insurer from pursuing reimbursement the other insurer for such claims.

For example, a general contractor requires waiver of subrogation status from a subcontractor on General Liability, Commercial Auto and WC policies. The subcontractor‘s insurer grants the request and a certificate of insurance is issued.  

Later on the job site, a general contractor employee drops a tool while on the second level, striking a subcontractor employee on the first floor.  The employee is rushed to the hospital for a head injury and damage to his eye. The subcontractor’s workers compensation policy responds by paying for the medical bills and lost wages of the injured employee. The total claim is expected to run about $185,000.

Under normal circumstances, the subcontractor’s workers compensation insurer would then subrogate against the general contractor’s general liability policy for reimbursement of the $185,000.  However, since the subcontractor agreed to grant the general contractor waiver of subrogation status, the subcontractor’s workers compensation insurer is blocked from doing so.  The end result is that the general contractor’s insurance program is spared from having to pay for the actions of their employee that resulted in bodily injury to a third party.



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