Subrogation Waiver Expanded

The subrogation waiver expansion means, “the Insurer hereby waives subrogation rights against any person or organization to the extent that the Named Insured has, prior to a wrongful act or circumstance, entered into a written agreement to waive such rights.”






Introduction

Subrogation is the principle under which an insurance company that has paid a loss under a policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. For instance, on a project where there is a loss covered by the owner’s property insurance, it is common for the property insurer to sue every other party that might have had some responsibility for the cause of loss—and in the process disrupt the orderly progress of the work on the project. This happens unless the property insurer waives its right to take such subrogation action.

What is the change?

The current CNA policy form has an automatic waiver of the insurer’s subrogation rights against the client of the policy if the professional services agreement requires the waiver. While that takes one negotiation item off the table, many clients want the waiver to be much broader to avoid the possibility of troublesome insurance litigation. Because it would be so unusual for a professional liability insurer to pursue a subrogation claim against a third party after it pays a claim on behalf of the policyholder, the waiver is broader so that other parties do not have to worry about a subrogation claim.

Why did we change it?

In practice, subrogation claims against clients or other stakeholders “up the contract chain” are difficult to pursue and rarely productive. The policy covers harm caused by negligently performed professional services so proving a client’s actions caused that act of negligence is difficult. However, there are also subrogation claims against those “down the contract chain”—subconsultants and subcontractors. Usually, they are brought into the claim resolution process whether negotiation or adjudication is used. Once the resolution is final, there is no need for an insurer to use subrogation rights.

How will it benefit my firm?

As you discuss a prospective contract, a demand for a waiver of subrogation rights by the client will not hold up your negotiations and will not require you or your insurance advisor to seek a policy endorsement. You no longer have to explain to a client why the policy would only waive claims against the party who signs the professional services agreement and not the lender, tenant, or other party that might be involved in the ownership, development, or operations of the project.

If you are a prime professional, you might want to analyze whether to limit the liability of subconsultants, or waive their liability for consequential damages. Such limitations reduce your ability to recover from a subconsultant when the subconsultant’s negligence or breach of contract creates a loss for your firm. You are vicariously liable for the wrongful acts of your subconsultants so clients often look for recovery from you and your insurer.

With the new waiver, CNA will not pursue subrogation against a subconsultant to recover part of the claim payment made on behalf of you if the contract with the subconsultant requires a waiver of subrogation rights.


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