What is a Waiver of Subrogation on a Certificate of Insurance?

Now, we work with a lot of contractors. We issue a lot of certificates of insurance out of this office, and often, we receive requests that include a waiver of subrogation.

There's nothing wrong with having a client who asks for a waiver of subrogation. It's just important for you to understand what that means.

Now, most contractors are like, "Just give me the darn endorsement because I want to get paid by this client, and they're telling me they won't pay me if I don't have this clause." I completely get that.

Trust me, I do. My dad was a contractor for a very long time, so I have a lot of familiarity with this particular topic and just the idea of how a client can hold you hostage with a certificate request.

When a client requests a waiver of subrogation, and you endorse your contractor's insurance policy, you are foregoing your insurance company's right to subrogate against another insurance company.

In this case, the person you're working for, in the event that there's an accident in which the loss would've been split between the two companies.

Why it's important to understand this clause

So what do I mean by this? So let's say that you do work in a commercial building.

So you're an electrician, and you do work in an outlet or in a panel, and a client goes a week later, after you finish the job and they load up an outlet, pop the outlet, and that causes a loss.

Maybe it sparks a wall and there's a small fire. In this case, in most states, there would be some sort of split blame.

So say the total loss was $100,000. A judge may say the client is responsible for 40% of the loss, and you, the contractor, are responsible for 60% of the loss.

In this case, your insurance company would respond with $60,000 minus any deductible, and your client's insurance company would respond with the remainder, and that's how the claim would get paid.

Now, when you have a waiver of subrogation on a certificate of insurance, what you are doing is saying, "My insurance company is going to pay the full loss. We will not subrogate against your company."

You will not be held responsible, or your insurance carrier will not be held responsible, in this case. What that does, is it puts the full burden of the loss onto your policy.

Now, if it's a small loss, maybe it doesn't mean anything to you, but you are gambling that there won't be a loss.

Because if there is, and there would've been subrogation, and you take on the full brunt of that loss, then your insurance premiums are going up.

You've just taken on a large loss, and that company's going to have to respond. You may have to change carriers if it's part of a number of losses that you've had.

You may have to go to an assigned risk pool or excess lines, and all those scenarios are bad.

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