Before clients sign contracts, check for waivers of subrogation

As part of business, insureds and their customers sign contracts setting out the terms of their arrangements regarding price, payment terms, delivery schedule and more. But boilerplate legal terms, which often aren’t even read, also contain binding terms and may contain insurance requirements.

Clients often ask me about such requirements, including those requiring the insured to add their customer as additional insured and/or to obtain a waiver of the right of subrogation.

Waiver of subrogation and additional insured status provide extra risk protection to the customer at no cost. Typical insurance requirements in contracts include language similar to: ‘YOU shall cause your commercial general liability insurance referred to above to name CUSTOMER as an additional insured and to be endorsed with a waiver of subrogation in favour of CUSTOMER.’ If clients bring this type of contract to brokers, the brokers should tell the clients the process includes the insurer – which may not necessarily agree to either or both. So, the broker will be obliged to contact the insurer and make such requests, which may take time to answer.

For example, an insurer may be willing to add an additional insured but may send a request to waive a right of subrogation to their legal department to review. This can cause delay, so brokers should advise the insured and the customer that the insurer’s decision may take time.

Customers seek additional insured status to access the insured’s policy in the event of a loss. Without additional insured status, if a loss happens the client (the insured) would be responsible for damages it has caused, and the customer responsible for damages caused by its negligence.

This article was originally published in  Canadian Underwriter. To view the complete article, please visit  Canadian Underwriter online.

This article is not intended to serve as a comprehensive treatment of the topic and is not legal advice. All legal matters are dealt with pursuant to their specific facts and circumstance. Nothing replaces retaining a qualified, competent lawyer.