Before signing any contract - and that includes an insurance contract, it’s important to understand every aspect of it. This way, you will know exactly what the responsibilities are of the insurer and the insured. One type of clause found in insurance contracts is a subrogation clause. We explain what this is and the implications it can have below.
The purpose of subrogation clauses
The main purpose of subrogation clauses is to enable insurance companies to pay out the insurance reimbursement to the insured party while going after a third party for additional payment or reimbursement. Thus, subrogation shifts liability from one party to another when paying an insurance claim.
In allowing the insurance provider to seek remuneration from a third party, subrogation clauses also help avoid delayed payments for customers. The insured won’t have to wait until the insurance company obtains the payment they are after. Instead, the insurance company will issue the payout to the insured party promptly.
Typically, the details of an insurance company’s subrogation rights will be clearly laid out in the insurance contract. All car insurance, property insurance, business insurance, and life insurance policies should contain subrogation clauses, so be sure to check your policy to learn more about these important terms and conditions.
If you need help locating the portion of your policy where the insurer’s subrogation rights are laid out, reach out to BrokerLink. One of our licensed insurance brokers would be pleased to review your policy and explain how subrogation works in your case.
Subrogation clause insurance examples
As mentioned, subrogation clauses can be found in all types of insurance contracts, from auto insurance contracts to commercial contracts. Thus, a few examples of these types of clauses and how they come into play are as follows:
- After a collision, an insurance company decides to file a car insurance claim against a third-party driver.
- A commercial insurance provider sues a specific subcontractor or contractor of a construction company that they insure after a loss.
- A health insurance company decides to pursue a claim for third-party services.
A waiver of subrogation explained
A waiver of subrogation is a contractual clause through which the policyholder for insurance waives the right of their insurance company to seek compensation for losses from a negligent third party.
Where a right of subrogation allows an insurance company to go after a third party on behalf of the insured after paying a claim to the insured according to the company’s responsibilities under the insurance contract, a waiver of subrogation prevents the insurance company from doing just this. More specifically, it prevents them from stepping into the insured party’s shoes once a claim has been settled and suing another party to recoup or cover its costs for losses.
In essence, a waiver of subrogation prevents one party’s insurance company from pursuing a claim against the other contractual party. This type of thing is usually done to recoup money paid by the insurance company to the insured or to a third party to resolve a claim. Thus, when a waiver of subrogation is added to an insurance contract, the insurance company is exposed to greater risk.
In most cases, a waiver of subrogation is added as an endorsement to an insurance policy. Insurance companies will charge extra to add this to your policy, so you should expect your premium to go up if you wish to add this type of coverage to your plan.
Subrogation clauses are most commonly found in insurance policies for businesses, but they can also be found in property insurance policies, life insurance policies, car insurance policies, and more.
Why add a waiver of subrogation to an insurance contract
There are several reasons that a policyholder might choose to add a waiver of subrogation to an insurance contract. For example, adding a waiver of subrogation eliminates the possibility of a long, drawn-out legal dispute that can arise from contractual obligations. For instance, a customer might choose to add this endorsement to their policy to avoid being sued for or held liable for damages, which in turn, will accelerate the claims process in the event of a loss.
There are also additional benefits of adding a waiver of subrogation to other types of contracts, such as construction contracts or lease agreements. For instance, when a waiver of subrogation is added to a lease agreement, it prevents a lengthy litigation or negotiation process between a landlord and their tenant should an issue arise. It also prevents certain parties from being held liable for damages or losses that they did not cause.
Similarly, when a waiver of subrogation is present in a construction contract, it prevents the parties from suing one another, which again, helps avoid lengthy delays. Since construction projects often take time, a delay due to a lawsuit or legal claim could be disastrous.
Should I add a waiver of subrogation to my contract?
If you are debating whether to add a waiver of subrogation to your contract, whether it’s an insurance contract or another type of contract, we recommend speaking with an insurance broker or attorney. These types of clauses are complex, so unless you have a legal background, it might be a smart idea to seek advice from a professional.
Plus, waivers of subrogation are not standard. They vary between contracts, which means their benefits and risks can also vary. In the case of an insurance contract, an attorney or insurance broker can help you understand the risks and potential costs of adding this type of waiver to your contract so that you can make the best possible decision for your situation. It is also worth noting that adding a subrogation clause to your insurance contract is not always an option since not all insurance companies allow these types of endorsements.
How does the waiver of subrogation process work with an insurance company?
After a loss occurs, the insurance company will pay out the claim to the policyholder for any covered losses. If the insurer determines through the claims process that a third party was to blame for the loss, then the insurance company would typically subrogate the claim, i.e. try to recoup damages from the third party that caused the loss.
However, when a waiver of subrogation is present in the insurance contract, the insurance company is prohibited from pursuing the third party for compensation. Thus, once the insurance company issues the claim payout to the insured party, the claim is closed, and that is the end of it.
Do all insurance companies offer a waiver of subrogation insurance coverage?
No. Not all insurance companies allow customers to add a waiver of subrogation endorsement to their policies. While some do allow these types of endorsements, not all policyholders will be eligible. An insurance agent will review each situation and make a call on a case-by-case basis, depending on the level of risk associated with the policyholder.
Will my premium go up by adding a waiver of subrogation to my insurance contract?
Yes. Just as adding any type of additional coverage to your insurance policy will cause your rates to go up, so will adding a waiver of subrogation endorsement to your policy if you qualify for one. For instance, when you add extra car insurance coverage to your plan, like collision coverage, comprehensive coverage, loss of use coverage, a waiver of depreciation, all perils coverage, roadside assistance coverage, accident forgiveness coverage, or a waiver of subrogation, your rates will increase because your coverage is being increased.
Similarly, if you raise your coverage limits for any type of coverage on your car insurance plan, whether it’s mandatory coverage like third-party liability coverage or optional coverage like collision coverage, your rates will also go up. It’s the same if you lower your deductibles as well. In any of these scenarios, you are increasing the insurance company’s financial responsibilities toward you, and as such, you will need to pay more money for your policy.
That said, adding extra coverage, such as a waiver of subrogation, to your insurance contract is not the only factor that will influence your rates. Rather, a long list of factors will be considered when an insurance company is calculating your premium. For car insurance, the following factors will likely be considered:
- Where you live
- Age
- Gender
- Vehicle type
- How you use your vehicle
- Driving record
- Driving experience
- Past claims
- Prior insurance coverage
- Number of kilometres you drive
- Types of coverage on your policy
- Your deductibles
- Your credit score
Please note that insurance brokers like BrokerLink do not set insurance premiums; insurance companies do. That said, you can still obtain an accurate and reliable insurance quote from a BrokerLink insurance advisor. All you need to do is contact us, request your free quote, and answer a few questions about yourself, your car, and your driving habits, and a licensed broker will get back to you with a free quote in a matter of minutes.
This is the best way to find out how much car insurance will cost you, especially if you want to know how much it will cost you to add a waiver of subrogation to your contract. Plus, when you get a quote from BrokerLink, you can also receive information on which insurance companies near you offer the best coverage at the most affordable rate.
Can an insurance company cancel my policy if I have a waiver of subrogation?
Yes. An insurance company can still cancel your policy, even if it contains a waiver of subrogation. There are many reasons that insurance providers cancel policies, for example, if you fail to make payments or frequently make delayed payments, if you lie or provide misleading information to your insurance company, or if you file too many claims. All of these can lead to the cancellation of your policy.
A waiver of subrogation in an auto insurance policy
Waivers of subrogation might be found in car insurance policies. Whether it’s your first car insurance policy or your tenth, you can likely choose to add this type of endorsement to your plan. How a waiver of subrogation works in a car insurance policy is like this: Let’s say that you get into a car accident. With most types of car accidents, the injured party will receive compensation via the at-fault party’s insurance company for their losses. This is usually through the at-fault party’s third-party liability coverage, which is a type of mandatory car insurance in Canada.
However, in some cases, the at-fault driver might attempt to settle the claim without involving the insurance companies. One of the most common ways of doing this is to draw up and extend a waiver of subrogation to the injured party.
If the injured party agrees to accept the waiver of subrogation and signs it, they and their insurance company forfeit the right to pursue the at-fault driver for any damages beyond what is in the settlement agreement. Please note that by signing a waiver of subrogation, the injured party and their insurance company are prohibited from going after the at-fault driver at the time of the agreement or any time after.
Since waivers of subrogation are legally binding contracts, it is not advised that they be signed without review by an attorney. In addition, before signing this type of contract, you should make sure that you know the tax implications. For example, car insurance settlements are usually not taxable, but it’s best to have a tax professional, such as a tax lawyer, confirm this for you.
Other add-ons and endorsements for car insurance policies
As you probably already know, a waiver of subrogation isn’t the only type of additional coverage that can be added to a car insurance policy. Below are a few other types of coverage that are frequently added to auto insurance plans for the extra protection they provide:
Collision coverage
Collision car coverage can pay for damages to your car if you are involved in a collision. This type of coverage can be claimed even if you were at fault for the accident and even if the accident was with something other than a car, such as a grounded object or animal.
Comprehensive coverage
Comprehensive car coverage is also known as parked car coverage, and it protects cars against damage and losses unrelated to collisions. For example, you would file a comprehensive coverage claim if your car is stolen. Other risks that comprehensive coverage can protect against include fire, vandalism, explosions and riots, falling and flying objects, and weather-related events.
Accident forgiveness coverage
One more type of optional car insurance coverage popular among drivers is accident forgiveness. Accident forgiveness is additional coverage that can be added to your car insurance policy as an endorsement to protect your driving record and to help prevent your insurance premium from increasing if you have an at-fault accident claim. Note: coverage and eligibility vary by province.
Waiver of depreciation
A limited waiver of depreciation is an endorsement that you can add to your car insurance policy that will help you pay for a new car if yours is totalled. With a waiver of depreciation, you will receive a larger payout from your insurance company as they waive the depreciation of your brand-new vehicle in the event of a total loss to be able to put you back in the same position as you were immediately prior to the loss.
Loss of use coverage
Loss of use coverage can pay for you to rent a car or take alternative modes of transportation if your car is temporarily unusable. For example, if you get into an accident and your car needs to be repaired by a mechanic, you will need to take other modes of transit while it’s in the auto body shop. With loss-of-use coverage, your insurance company will reimburse you for rental car fees, the cost of taxis, the cost of taking public transportation, and more.
Get in touch with BrokerLink today
Here at BrokerLink, we are experts in all things insurance. This means that we can explain any aspect of your insurance policy, and that includes the subrogation clause. We can also offer insight into whether a waiver of subrogation makes sense for your needs.
Further, if you have questions about other complex insurance terms, like loss payee vs. additional insured or reinsurance and double insurance, reach out to us today. One of our experienced and licensed insurance advisors would be pleased to assist you.
In addition, as an insurance broker, we can help you find the best possible policy for your needs. We will reach out to insurance companies on your behalf, obtain quotes, and compare them so that you can find the highest quality, most affordable policy out there without having to make more calls than necessary. Get in touch with BrokerLink today to get started and request your free insurance quote!
[phone]
