August 25, 2017

Waiver of Subrogation

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As a construction contractor, you need to be mindful of the need to include a waiver of subrogation provision in all of your construction contracts. First, let me define what is meant by the word “subrogation.” Subrogation is defined in Black’s Law Dictionary as the “substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies or securities.” 

A waiver of subrogation is needed in a construction contract when the owner of the project is responsible for carrying the property insurance for the construction project. Under this concept of subrogation, an insurance company has the right to bring a lawsuit against your construction company if your work causes property damage, and the insurer is obligated to pay the owner for those property damages. Under subrogation, the insurer then can file a lawsuit against your construction company for those monies that the insurer paid on behalf of its insured, the owner.

If you include a waiver of subrogation in your construction contract as it relates to this property insurance, the insurer will not have the right to bring a subrogation action against your company even if the insurer pays insurance proceeds to the owner as a result of negligence on the part of one of your employees.

The inclusion of a waiver of subrogation provision is especially important when your construction company is doing a small piece of work on either a much larger project or on a very large building. One of the risks involved in this type of project is that your construction activities could cause the total destruction of the building that you are doing work in. 

Without a waiver of subrogation, the insurance company could bring a lawsuit against your company for this loss for the full amount of damages incurred by the insurer. This could potentially be many millions of dollars if you are performing work on a large project or in a very large facility.

Please contact a construction attorney if you have any questions regarding waiver of subrogation.