Waiver of Subrogation

Subrogation is the right of an insurer that has paid a claim to step into the shoes of its insured and assert claims against another party to recover some or all of the amount it paid to its insured. Construction contracts often contain waiver of subrogation provisions to prevent an insurer from recouping its payment on a claim from the upstream party.

Policies issued to subcontractors typically contain a blanket waiver of subrogation endorsement, which permits the subcontractor to waive the insurer's subrogation rights, if done in a written contract prior to the loss. Some endorsements, however, require that the subcontractor waive its own right of recovery in order for the insurer to waive its right of subrogation. Thus, consider including language requiring that the subcontractor waive its own right of recovery to the extent of loss that is covered by insurance.

Prime contracts also may require that any subcontractors waive their (or their insurer's) subrogation rights against the owner. Contractors should ensure that their subcontracts reflect the subrogation waiver requirements in their prime contracts. As with additional insured endorsements, however, some blanket waiver of subrogation endorsements require that the named insured be in contractual privity with the party against whom it is waiving subrogation rights. Thus, it is important for contractors to review a copy of the subcontractor's waiver of subrogation endorsement in order to ensure that the subcontractor and contractor are in compliance with their contractual obligations.

Insurance from Sub-Subcontractors

If a subcontractor will be using subcontractors of its own for some or all of the work, it is important to ensure that the subcontractor requires appropriate insurance from them. This is particularly important with additional insured and waiver of subrogation requirements because, as discussed earlier, many blanket endorsements require contractual privity. Since a contractor will not be in contractual privity with the sub-subcontractor, it is important for contractors to require sufficient proof of insurance from not only their subcontractors, but also from any sub-subcontractors being used.