Why NOT having a Waiver of Subrogation could end your business.

March 16, 2021

Do you understand the waiver of subrogation provision contained in agreements used in the insurance industry, why it is there, and how it helps you manage the risk of your business? 



The first question we need to tackle before going forward with why a waiver of subrogation is so important is to understand what waiver of subrogation even means.


In very simple terms - A waiver of subrogation is the waiver of the right to subrogate. In more elaborate terms it refers to one party stepping into the shoes of a second party and assuming the latter’s rights and responsibilities. It essentially allows one party to take the place of another and act on its behalf and is extremely common in the insurance industry.


The easiest and most common example to explain subrogation is that of car insurance. Let’s say you get into an accident where you are rear-ended, and it’s not your fault. Typically, in such an instance, you will claim against your insurance carrier, and the whole thing will be handled by them…for you.


As a part of the relationship between you and the insurance company, your insurance company will have the right to go after the other party in the accident to recover the cost of the claim they paid out to you. So, when your insurance company goes after the other party that caused the accident, they are assuming your rights and responsibilities to do so.


Using the car insurance example above. If there was a valid waiver of subrogation in place, then the insurance company could NOT have stepped into the shoes of their policyholder to recover the claim they payout (by going after the other party).


In other words, if a waiver of subrogation was in place, then your insurer would be forced to simply pay your claim. They would not be able to go after the other party that caused the accident.


Why do I need a waiver of subrogation, especially in my construction business?


If you are working on a construction site and God forbid an accident occurs, then a waiver of subrogation could be your saving grace. The best way to explain this is through the following example:


Let’s say Jim is a subcontractor working on a construction site. One of Jim’s employees accidentally causes some property damage during the project. Here, the general contractor’s general liability insurance will cover the damage caused by Jim. So, the owner makes a claim against the general contractor’s policy. The general contractor’s insurance company pays the claim, and all things are good again.


If subrogation were allowed, the general contractor’s insurance company could go after the subcontractor (and/or their insurance company) to attempt to recover the money they had to pay out in the owner’s claim. However, if a waiver of subrogation is present, the general contractor’s insurance company will pay the claim and won’t be able to act as if they were the general contractor (and go after the subcontractor).

 

Think about that for a second. If an insurance company comes after a subcontractor for damaging the property, that could be huge! A simple accident could put the subcontractor’s entire business in danger! However, if a simple waiver of subrogation clause is present in the construction contract, that nightmare could be avoided and the subcontractor could safeguard his business from collapsing.


Today, waiver of subrogation clauses are pretty common. That is because, unlike a lot of other risk-shifting provisions, the parties who sign the contract aren't directly affected by a waiver of subrogation clause. The rights being waived are not the individual company's rights — they're the rights of the insurance companies. Because of this, there typically aren't too many negotiations over waiver of subrogation clauses during the contract negotiations.


On the flip side, some insurers won’t allow for a waiver of subrogation to be present for their construction industry clients. If the clause is present but disallowed by the policy, it won’t be effective to waive subrogation rights.


The bottom line is that generally, insurance policies do not restrict coverage if the insured has signed a waiver of subrogation. It increases the insurer’s risk by prohibiting the recovery of money paid to or on behalf of the insured. Therefore, the insurance companies frequently charge an additional fee on top of the premium.

But at the end of the day, the extra fee is worth not dealing with the aggravation that could result in you becoming engaged in the complexities of lawsuits and insurance claims.

You might also like

Contractor Takeover Leads to Tortious Interference with Contract and Conspiracy Claims

October 28, 2021
When a subcontractor is having trouble completing its subcontract work, it is not uncommon for a contractor to assert itself more directly into the completion process to help expedite the work. What’s the harm you might ask? A recent Loudoun County, Virginia case answered that question: It could lead to tortious interference with contract and conspiracy claims by the subcontractor. That case was Evans Construction Services (the subcontractor) versus Ox Builders (the contractor), and it also included a claim by the subcontractor against the contractor’s site superintendent, Lawler, as a co-defendant in the case individually. Evans alleged that Ox and Lawler tortuously interfered with Evan’s subcontracts by dealing directly with the subcontractors and directing the subcontractors’ work, cutting Evans out of the picture. Evans sought to recover its lost profits. Ox and Lawler argued against liability because Evans’ claims sought redress outside of Evans’ subcontracts with Ox and because Evans had no contract with Lawler at all, moving to dismiss Evans’ lawsuit as a matter of law. The court denied that motion, holding that the facts as pled by Evans were legally sufficient if ultimately proven by Evans, to support a claim for breach of legal duties separate from duties arising contractually only; and specifically for wrongful interference with Evans’ subcontracts and Evans’ related conspiracy claim against the defendants. Although the court acknowledged that Evans’ claims were interrelated with the Ox – Evans subcontracts underlying the parties’ relationship, those common facts could support both contractual and non-contractual breach claims in certain circumstances. The court further determined that such circumstances, if ultimately proven, included Evans’ claims that Ox and Lawler violated their independent common law duties to not interfere with Evans’ lower tier subcontracts and not conspire together to injure Evans in its business. The court, therefore, allowed Evans’ claims to proceed to trial on their merits. The defendants apparently did not argue to dismiss the conspiracy claim on the basis Lawler, as an employee of Ox, could not conspire with Ox, his employer (referred to as the intercorporate immunity doctrine), or at least that defense was not discussed in the court’s decision. But, regardless, this decision reflects the necessity for caution “going around” subcontractors when subcontract disputes arise. Author: Neil S. Lowenstein Source: https://vanblacklaw.com/construction/contractor-takeover-leads-to-tortious-interference-with-contract-and-conspiracy-claims/

New Sex Harassment Law: Making for Strange Bedfellows in Construction Industry

October 21, 2021
In the construction industry, where multiple companies working closely together abound and where it is more difficult to monitor employee behavior because many employees are in the field, more incidents of inappropriate behavior occur. Texas and California, two states opposite politically and in law making, have instituted legislation expanding sex harassment protections for employees in the workplace that go even further than federal protections. Indeed, both laws have similarities. Texas and California Similarities In Texas , as of September 1, 2021, under expanded protections against sexual harassment, individuals in management and companies that have even only one employee can be held liable. In the construction industry, this expansion could sweep many subcontractors and tradesmen under the new law. The new law will challenge the definition of who is a manager. In California, under the 2019 law, an employer may be liable for acts of nonemployees concerning any type of harassment (not just sex harassment) against employees and other nonemployees working as interns or volunteers and service contractors. In Texas, the new law increases the time limit to file a sex harassment charge from 180 days to 300 days, making it consistent with federal law. Similarly, in California, an employee has up to 10 years to file a civil action for sexual assault or attempted sexual assault, or within three years after an employee discovers an injury or illness as a result of the assault or attempted assault, whichever is later. In Texas, instead of requiring supervisors to “take prompt remedial measures,” individual liability will hang on whether supervisors “knew or should have known” about the sex harassment in the workplace. The new law also requires “immediate and appropriate corrective action.” Certainly, the standard of “knew or should have known” will be case-specific and fact-intensive, making it difficult to dismiss cases before they reach trial. In California, recent amendments to the Fair Employment and Housing Act have made it easier for employees to prevail in sex harassment actions. They also lowered the employee’s burden and standard of proof.  Implications What does this mean for employers of all sizes? More frequent training, updating sex harassment policies and employee handbooks, expansion of human resources departments to respond more quickly to complaints, and a closer evaluation of what constitutes a managerial position are required. In California, recent legislation requires training for even the smallest of employers (a minimum of five employees). As of January 2020, California imposed minimum time requirements for the length of such training for supervisors and other employees. To be sure, in the multi-employer setting, companies also may need to verify that other companies they work alongside have sex harassment policies, that they conduct periodic training, and that their employee handbooks have been updated to comply with the law. Author: Victor N. Corpuz Source: https://www.jacksonlewis.com/publication/new-sex-harassment-laws-making-strange-bedfellows-construction-industry
OSHA inspection, CONSTRUCTION Management

During an OSHA inspection: Know your rights

October 13, 2021
During an Occupational Safety and Health Administration (OSHA) inspection, the OSHA official, escorted by management, will tour the facility or construction site to observe working conditions, identify violations, and so on.
More Posts

Book a Service Today

Share by: