When you purchase a General Liability policy, the insurance company often reserves the right to
“Subrogate” in the event of a covered claim. In other words, if the insurance company believes another
party can legally be held accountable for the loss, they reserve the right to try and recover from the
other party or their insurance.
For example: Gerry Contractor hires Patty Painter to perform some exterior painting on a remodel
contract for Harry Homeowner. Unfortunately, while Patty is spraying paint on the home’s exterior, she
accidentally gets paint on Harry’s Lamborghini, which is parked in the driveway. Normally Harry is
extremely cautious and always parks in the garage, but on this day his spot was taken because Gerry’s
truck was parked in the garage while unloading materials into the home for some interior work.
Patty files a claim on her insurance, but if the claim is covered, her insurance company has the right to
try and seek some, or all of the loss amount from Gerry’s insurance if they believe he contributed to the
loss. After all, his car was parked in Harry’s spot and as the general contractor, he could have instructed
Patty to wait until they could safely park Harry’s car back in the garage before painting (it may sound
farfetched, but many lawyers have made crazier arguments than this, and won).
If, however, Patty had a Waiver of Subrogation endorsement on her policy in favor of Gerry, her
insurance company would no longer be able to pursue reimbursement. That’s why as a general
contractor, it is so important to require subcontractors to include a Waiver of Subrogation on their
insurance.
Some waivers are on a ‘blanket’ basis, meaning they apply in all circumstances. Other versions require
each party to be scheduled individually in order for the waiver to apply, so it is important to make sure
the waiver is applicable in each case before beginning the work. A Waiver of Subrogation can also be
found on Worker’s Compensation, Commercial Auto, and other forms of liability insurance.
