Insurables — Australian business risk, sourced and dated

Waiver of subrogation

What it means

Subrogation is an insurer’s right to step into the shoes of the insured after paying a claim and recover from whoever caused the loss. A waiver of subrogation is the insurer agreeing not to exercise that right against a named party.

Contracts ask for waivers so that the parties working together on a project cannot end up suing each other through their insurers over the same loss. Without a waiver, an insurer that pays a principal’s claim may then pursue the contractor whose work caused the damage.

Also called: waiver of subrogation, subrogation waiver

Where you meet it

  • Contract works and construction policies, where multiple parties have an interest in the same works.
  • Lease agreements, where a landlord and tenant each insure part of the same building.
  • Principal-supplied insurance arrangements, where one policy covers everyone on a project.

Worked example

A builder damages a section of an existing structure while working on an extension. The owner claims on its own property policy, which pays.

Without a waiver, the owner’s insurer can pursue the builder for the cost. With a waiver in favour of the builder, it cannot. The economic effect is that the loss stays with the owner’s insurer instead of moving down the contractual chain.

What goes wrong with it

  • A waiver has to be agreed by the insurer, not just written into the contract between the parties. A contract promising a waiver the policy does not grant creates a contractual breach, not cover.
  • Waivers are given in favour of named parties. A general promise not to recover from "any contractor" is unusual and worth confirming in the wording.
  • Giving away recovery rights can affect how the insurer prices or approaches the risk, so it belongs in the placement conversation — it is never safe to assume.
  • A waiver and a cross liability clause solve different problems, and contracts sometimes ask for one while describing the other. Read what the clause is trying to achieve, then check which mechanism the policy actually provides.
  • Waivers agreed after a loss has happened are worth nothing to the party asking for one. The time to arrange it is at placement or at the start of the contract, not once a claim is on foot.

Covers this clause appears in

  • Public liability insurance — Cover for legal liability to third parties for personal injury or property damage arising from business activities.
  • Contract works insurance — Cover for the works under construction, materials and sometimes existing structures for the duration of a contract.

Related clauses

Guides that use this

Sources

On any specific policy, the wording and the schedule govern — they are the primary source for what a clause means there. The references below are general guidance to check against, cited at the publisher level.