Skip to main content

Waiver of subrogation clause- Impact, advantages and disadvantages

 

Insurance policies have a number of clauses, exclusions and conditions. Any person before signing an insurance policy must understand the clauses contained in the insurance policy. One such important clause is the subrogation clause in the insurance policy.

Subrogation in an insurance policy is the clause that allows the insurance company to take up a legal pursuit against the third party that has caused the damage to the insured party for which the claim has been made. For instance, if you have taken a car insurance and your car gets damaged in an accident, the subrogation clause gives your insurance company the right to pursue legal action for recovering the cost of damages from the third party that has caused the accident. The insurer can take legal action after paying you the cost of the damages and recover the money from the third party.

The subrogation clause applies to fire, marine and non-life policies such as motor insurance, health insurance etc.  One important aspect of this clause is the waiver of subrogation. This has an impact on the price of the policy and the claims process. Read on to know more about waiver of subrogation clause in insurance policies.

Meaning of waiver of subrogation in insurance policies

Waiver of subrogation clause in insurance policies indicates the choice of the policy holder to deny the insurance company the right to undertake legal action against the third party responsible for any loss covered under the policy. In other words, the insurance company cannot recover the costs for any loss from the third-party responsible for the loss.

However, if you as a policyholder opt for waiver of subrogation, the premium on the policy will be higher.

Uses of waiver of subrogation clause in insurance policies

The waiver of subrogation clause finds use in insurance policies involving construction contracts. This clause helps to protect contractors, subcontractors and owners of properties from claims or legal action by insurance companies who are connected to the project thereby eliminating cross liabilities.

The waiver of subrogation clause is a popular option in lease agreements between owners and tenants. The clause helps avoid disputes over damage of property that is covered by insurance policies. It helps to avoid disputes between the landlord and tenants.

The waiver of subrogation clause is an important aspect of vendor agreements where businesses hire vendors for services such as transportation, cleaning or maintenance. The waiver of subrogation clause shields the business from damages due to legal action in case of accidents or damages incurred by the vendor.

Benefits of waiver of subrogation

Some of the benefits of taking insurance policies with the waiver of subrogation clause were covered above. The other benefits of the clause are:

Helps to maintain good relations: The waiver of subrogation clause helps in maintaining good relationships between parties entering into a contract because it avoids the incidence of insurance company of one party from seeking compensation from the insurer of the other party or directly from the opposite party.

Avoids disputes: Parties in a contract that opt for waiver of subrogation can reduce conflicts and consequently any law suits.

Saves on legal expenses: The waiver of subrogation clause helps individuals or businesses save on costs connected to lawsuits because there are no defence costs or reimbursements to be paid.

Drawbacks of waiver of subrogation clause

Additional premium costs: As we mentioned earlier opting for the waiver of subrogation will require paying a higher premium to insurance companies. But the advantage of avoiding legal disputes can justify the extra amount of premium for businesses.

Reduced recovery options: Individuals or businesses opting for a waiver of subrogation are giving up their right to seek compensation from the insurance company of the other party. This puts a limit on the compensation they can claim in case of accidents or damages.

Possibility of limitations in coverage: There may be limitations in the use of the waiver of subrogation clause in certain insurance policies. So, it is better to read the insurance policy carefully or consult with an insurance provider or an insurance broker to understand these limitations and ensure compliance.

The waiver of subrogation clause in insurance policies helps businesses maintain a smooth relationship with their partners. This is more evident if there is a mutual waiver of subrogation. What this means is that you can avoid lengthy legal processes or lawsuits or time-consuming negotiation processes to settle a claim.

 companies bring down their risk exposure because they have an opportunity to recover part of the claim amount. As a policyholder you will stand to benefit because it will bring your premium cost down.

Before you purchase an insurance policy that has a waiver of subrogation feature you should be aware of the advantages or disadvantages of the feature. It is best to approach an insurance broker to get a clear understanding and take the right decision.

We at Zen Insurance Brokers assist in choosing an insurance policy with clauses suited to your requirements. Choose your insurance policy wisely. Get in touch with us for any assistance.

Disclaimer:

Zen Insurance Brokers is an IRDA registered broker which facilitates quick and adequate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products.

Comments

Post a Comment

Popular posts from this blog

Prior and Pending Litigation in Professional Indemnity Policy

  The prior and pending litigation exclusion in liability policies is a clause designed to exclude coverage for claims related to legal disputes or circumstances already known, pending, or in progress before the policy's effective date. It’s an important exclusion because it limits the insurer’s liability for events that occurred before the policy began. Here are more details about this exclusion. Purpose of the Prior and Pending Litigation Exclusion Insurers include this exclusion to avoid covering claims or disputes that were known or existed before the policy started. It ensures that the underlying policy , Directors & Officers (DnO), Professional Indemnity (PI) policy, etc., only covers new claims that arise from professional errors, omissions, or negligence occurring during the policy period and not pre-existing or ongoing legal matters. What the Exclusion Covers Prior Litigation : Any lawsuit, claim, investigation, or l...
Post a Comment
Read more

Mitigation Costs in Professional Liability Policies

  Professional Liability Insurance in India, more commonly referred to as Errors & Omissions (E&O) insurance in the case of businesses, provides the business with insurance coverage against claims of negligence, error, or omission in the services rendered by the business under insurance. In this policy, one of the features includes mitigation cost coverage. Mitigation costs are sums of money that an Insured pays to avoid or lessen the possibility of a claim arising. For example, if a business finds an error in its work that may give rise to a potential liability claim, it may incur expenses to correct such error before it generates a claim. These costs will be incurred in trying to reduce the potential damage or liability and, therefore, may be covered under a professional liability insurance policy. However for mitigation cost section claim to trigger there needs to be a claim payable under the policy. Once the claim is determined to be payable under the policy, the miti...
Post a Comment
Read more

Third Party claims under Motor Insurance

                                  There are two sections within a comprehensive motor policy -o wn damage section and third-party section (3 rd Part Section). Own Damage section is voluntary insurance based on the Insured Declared Value (IDV) opted by the insured while 3 rd Party section is compulsory under the provisions of the Motor Vehicles Act 1988 (MV Act).   While own damage section takes care of damage to the motor vehicle due to accidents, Act of God perils, etc., the third-party section covers third party property damages and bodily injuries.             Details of third-party cover in motor insurance : Third party cover : Third-party insurance, is called as ‘Act Only’ insurance as it is a statutory requirement for all vehicle owners as per the Motor Vehicle Act. This policy covers accident, loss of life and damage to the...
Post a Comment
Read more