Learn about waiver of subrogation in commercial property insurance. Commercial property insurance policies typically include a subrogation clause, which allows one party to have the right to 'step into the shoes' of another party to bring a claim for damages.
Waiver Of Subrogation In Commercial Property Insurance
When it comes to insurance - and especially property insurance - there are some rather confusing and daunting sounding terms and expressions. Take 'waiver of subrogation in commercial property insurance' for instance. What does that mean? Why do you need to know? Let's find out.
Firstly, waiver of subrogation in commercial property insurance is primarily going to be of interest to businesses. Often, there will be a waiver of subrogation in commercial property insurance in a contract that outlines the details of a partnership between two different companies.
The provision is there to ensure that both parties will surrender their right to sue each other. If you go into business with another company and they fail to deliver the materials, services, or support that was agreed, then you could lose money and you might be tempted to sue that other party.
Likewise, if the other party should fail to do their part of the job correctly, leading to losses and damages, then again you may be tempted to get financial compensation. But with a subrogation clause, this right is instead transferred to the insurer. That way, you 'waive' (lose) your right to sue the other companies and instead, this will be handled by the third party.
What You Need to Know
A lot of commercial property policies will include this subrogation clause, and this will often be similar to the one found in the ISO Property Conditions form. This clause is for those whose insurers have paid claims for property damage or loss of income. The clause will state that if you have the right to recover damages from someone else - in this case the business partner - then you will instead be able to transfer the rights to the insurer. Waiver of subrogation in commercial property insurance changes that scenario.
So, if you rent office space in a building owned by a company, you might choose to insure your office contents in a commercial property policy.
Now if another company were to rent the office next door to yours, this could create problems. Suppose that a fire breaks out in the other business' office and that fire spreads to your office, damaging your desks and supplies and causing a loss of income. If this fire was caused by the neighboring business, then you usually be able to sue that company. However, instead your insurer will pay for the damage to the property and then attempt to sue the neighbors in order to recover the amount.
In this scenario then, your right to sue the neighboring business has transferred to the insurer.
Protection of Subrogation Rights
Commercial property policies will often require you to protect the rights of your insurers to subrogation against third parties. As you can't voluntarily absolve another company's liability, this is necessary.
Most subrogation clauses will enable you to waive your rights of subrogation prior to a loss. So you might sign a contract to agree to waive your right to sue another party for waive your right to sue another party for losses that occur after the time that you sign.
Usually, standard subrogation clauses also enable you to waive your rights to sue other parties after the loss, as long as the other party is:
- Insured under the same policy
- A company that you control
- A company that controls your business
- A tenant
In many contracts, you will find a mutual waiver of subrogation. Here, the parties will agree to waive their rights to sue one another. The waiver will usually only apply to those losses that are already covered by property insurance however.
So if your business has signed a lease with a property management company and that company is the primary source of recovery for damage to the landlord's business, then the insurance might just a single policy to cover the entire building and the individual properties within.
Now if you and another company were both to buy separate policies with a mutual waiver, then this could protect both of you. Say one of you should directly cause damage to the other's property, then your insurance company would pay your claim, and their insurance company would pay theirs. Because the rights to sue one another have been waived, no one is paying out of their pocket.
Sometimes contracts contain what is known as a unilateral (meaning 'one sided') waiver. This waiver of subrogation is normally there to benefit the landlord and it means that the tenant will waive their right to sue the landlord for damage that the landlord might cause to their property. So if there is a leak that damages their belongings for instance. However, the landlord will retain their rights to sue the tenant for damage they cause - hence the unilateral nature.
For tenants, it is of course a good idea to avoid such contracts if at all possible.
Construction projects also often include a waiver of subrogation under property insurance. This time, the idea is often to protect both the contractor and the property owner. That way, the companies might waive their right to sue each other as long as the property insurance is able to cover the amount. This way, an accident that occurs on site due to the actions of a builder won't cost that builder thousands of dollars. Likewise, it means that if they should injure themselves while working on a project, they won't be able to sue their clients.
Waiver Of Subrogation In Commercial Property Insurance - The Bottom Line
We hope you learned something about waiver of subrogation in commercial property insurance. A Waiver of Subrogation is an endorsement that prohibits an insurance carrier from recovering the money they paid on a claim from a negligent third party.
Further Reading On Business Property Insurance
- Commercial Flood Insurance
- Commercial Property And Business Interruption Insurance
- Commercial Property Insurance Basics
- Commercial Earthquake Insurance
- Flood Insurance Requirements For Commercial Property
- How To Calculate Commercial Property Insurance Rates
- Landlord Insurance
- Types Of Insurance For Landlords
- Waiver Of Subrogation In Commercial Property Insurance
ISO Property Insurance Forms
You can download a copy of the ISO coverage form here: Building And Personal Property Coverage Form.
You can find more ISO Building And Personal Property insurance coverage forms here: