What is the purpose of a "waiver of subrogation" clause?

A "waiver of subrogation" clause serves the specific purpose of preventing the insurer from pursuing recovery of claim costs from a third party that may have been responsible for a loss after paying a claim to the insured. By including this clause in the insurance policy, the parties essentially agree that once the insurer has compensated the insured for a loss, it will not attempt to recoup that amount from any responsible parties. This aligns with the goal of fostering cooperation between the insured and the insurer, as well as maintaining smooth relations between parties involved in contractual agreements.

This clause is particularly relevant in contracts where two parties have an ongoing relationship and they wish to avoid potential conflicts arising from subrogation claims. In situations where the waiver is in place, it can protect both parties by ensuring that claims do not lead to further legal disputes or claims between them, thus promoting a collaborative rather than adversarial relationship.

Other options introduce concepts that are unrelated or incorrect in the context of a waiver of subrogation. For example, the idea of allowing insurers to sue third parties or limiting liability in fraud cases does not align with the purpose of a waiver of subrogation, which is strictly about relinquishing the right to pursue claims against third parties after compensation has been paid