What does a waiver of subrogation entail?

A waiver of subrogation is fundamentally an agreement whereby one party relinquishes its right to seek recovery from another party after a loss has occurred. In many insurance policies and contractual agreements, this provision is utilized to prevent the insurer from pursuing a third party for reimbursement of claims paid to the insured. The purpose of a waiver of subrogation is to promote a cooperative relationship between parties in a contract and to mitigate the risk of lawsuits among them following a loss.

For example, if a contractor is working on a project and has a waiver of subrogation in their contract with a property owner, the contractor’s insurance company cannot seek reimbursement from the property owner if the contractor incurs a loss that the insurance covers. This provision is often key in construction contracts, where parties prefer to avoid conflicts that could arise from subrogation claims after incidents.

Understanding this concept helps in grasping the intricate relationships between insurers, insureds, and third parties in risk management. In this context, the other options do not accurately reflect the definition or purpose of a waiver of subrogation, highlighting its unique role in contractual and insurance scenarios.