Posted By: Brian McClone, CPCU - Strategic Risk Advisor
Today many businesses are being asked by their customers, general contractors, and/or vendors to add a waiver of subrogation to their workers compensation policy.
What does this mean and should you do this?
Before you can answer this question, you need to have a full understanding of the agreement you are about to make and how it could affect your workers compensation risk and the costs that are associated.
By agreeing to add this waiver, you are essentially informing your workers compensation insurance carrier that if any of your employees experience injuries on the job, your workers compensation policy will cover the cost for their injury. However, your insurance carrier is restricted or waived from taking any legal action to pursue the negligent party in the case that one is present.
What is the risk in doing this?
The cost to add this waiver is only $50. At first glance $50 may not seem like a large sum of money; however, the real costs associated with adding a waiver of subrogation can potentially be substantially larger than the initial $50 fee.
Since your insurance carrier cannot recoup the expenses that were paid out for the employee’s injury, the full amount of this claim will go into your Experience Modification calculation (E-Mod). As a result, this will essentially increase your workers compensation costs for the three years that this claim is in your E-Mod.
Another factor to keep in mind is that this claim can eliminate or lower your potential dividend you may have available with your insurance company. The costs associated with these two factors could be substantial and result in an on-going financial burden.
Furthermore, now that your E-Mod has increased this can put you in an unfavorable position with your insurance carrier.
What should you do when asked to add a waiver of subrogation?
We would recommend that you first try to see if the individual requesting this waiver will agree to remove this request from their terms and conditions. Some companies are very firm on this request, but others will agree to be flexible.
If you find that there is no way around removing the waiver of subrogation request, your best course of action is to evaluate the probability of your employees encountering injuries on the job. It’s important to consider whether or not your employee(s) are often put in scenarios where an injury may likely occur offsite due to the negligence of another party. You have to take into account all of these factors and weigh them equally. Once all of these factors have been taken into account you can make an informed business decision on whether or not it makes sense to move forward with the waiver of subrogation.
If you’re still unsure about whether or not to sign a waiver of subrogation or how it could potentially affect you and your organization we recommend reaching out to one of our risk advisors to help you determine the best solution. Contact us today to learn more.