Insurance as Collateral (Part III)

Unquestionably, a requirement in today’s world - insurance - can be so complex that it often leaves us with many questions. This is the third of several insurance blogs to address various vital components of your community’s health. Please scroll down to read the previous two insurance-related posts for more details. 

Another common phrase in the insurance industry is “waiver of subrogation.”  To reduce confusion, some in the insurance industry may say “Transfer of rights of recovery against others to us.”  Clear as mud?  

“Subrogation” is when you give to the insurance company your right to collect for damages from someone else.  Why is this important?  If a contractor working for the Association assigns this right to his insurance carrier, that carrier can then look to the Association to reimburse any claim costs incurred defending the contractor on your project, when some of the blame for the problem may possibly have fallen on the Association.  So to prevent this, in your contract with a vendor, you will want to have this power waived - or a “waiver of subrogation”.

You should ask for a waiver in workers compensation and property insurance policies.  In the case of liability insurance, you normally do not obtain a waiver.   Courts have concluded that it is against public policy to allow an insurance company to subrogate against its own insured, including anyone added as an “additional insured.”  As long as the Association is diligent in securing and confirming its “additional insured” status (by insisting on receiving a copy of the additional insured endorsement), the waiver of subrogation is not a necessity.

Regarding workers compensation:  The standard WC policy does not allow the insured to waive subrogation.  Most insurers will agree to waive subrogation if requested, but often charge the contractor an additional premium for this. 

When requesting a waiver, be aware that some insurance policies void the coverage if the insured agrees to waive the insurer’s subrogation rights without receiving prior approval from the insurance company.  You should have the policies carefully reviewed when dealing with waivers of subrogation.