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What is a Waiver of Subrogation for Work Comp? Are there Risks?

Brian McClone, CPCU

Businesses are often asked by their customers, general contractors and/or vendors to add a waiver of subrogation to their workers compensation policy. The provisions of this waiver can be confusing, and it can be difficult to know whether you should agree to such a stipulation.

Should you sign a waiver of subrogation? 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 any associated costs.

What is a Waiver of Subrogation?

If you sign a waiver of subrogation clause, you are agreeing to waive (give up) your work comp insurance carrier’s right to seek damages from another party. Why might this be important? Say your employee is working on a construction job site and is injured as a result of the negligence of your customer or a contractor from another company.

While your workers compensation coverage may pay for bills associated with that injury, your insurance company will likely want to pursue damages from the negligent party to recover its payment. However, if you agreed to add this waiver, you are essentially informing your insurance carrier that it is fully responsible for covering the costs for that injury and that the carrier can’t take any legal action.

What Are the Risks of a Waiver of Subrogation?

The cost to add this waiver is typically around $50, and is paid to your workers’ compensation insurance company. At first glance, that amount may not seem like a large sum of money; however, the real costs associated with adding a waiver of subrogation could be substantially larger than the initial fee.

Since your insurance carrier cannot recoup the expenses that were paid out for an employee’s injury that resulted from an outside party’s negligence, the full amount of such a claim will go into your Experience Modification calculation (E-Mod). As a result, there’s a high likelihood you’ll experience an increase in your work comp 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 any 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, once your E-Mod increases, it could put you in an unfavorable position with your insurance carrier. 

A Proactive Approach to Work Comp Brings Savings

What Should You Do When Asked to Add a Waiver of Subrogation?

We recommend that you first try to see if the individual requesting this waiver will agree to remove this requirement from their terms and conditions. Some companies are very firm on this request, while others will agree to be flexible.

If there’s no way around removing the waiver, your best course of action is to evaluate the probability of your employees being injured while on the job and to consider whether your employees may be placed in scenarios where an injury could occur offsite due to the negligence of another party.

You need to take into account all of these factors and weigh them equally. Once you’ve done so, you can make an informed business decision on whether it makes sense to move forward with the waiver of subrogation.

If you’re still unsure if you should 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. For more ideas on how to keep your work comp premiums in check, view our success story  which shows how one company’s proactive approach resulted in saving thousands each year.