The Subrogation Clause
Depending on the terms of your lease agreement, your landlord may require a waiver of subrogation to be signed. Unless you have run into this term while researching insurance requirements before, this is likely not something you have come across. What is the meaning of a waiver of subrogation? If an event occurs that requires you to file an insurance claim, your insurer cannot sue for damages against the party responsible.
Your landlord will have a subrogation clause in your lease because it gives them extra protection from liability. This waiver of subrogation clause or requirement to obtain a waiver of subrogation from your insurance provider prevents a subrogation claim. A subrogation claim is when an insurer seeks to recover costs from the at-fault party, in this case it would have been the landlord.
Example of Waiver of Subrogation
A practical real world example of a situation at which a waiver of subrogation would come in to play is as follows. If a person trips and injures themselves due to a loose tile in your establishment that your landlord had yet to fix and your liability insurance covers the accident, the subrogation waiver the landlord required you to get prevents your insurer from suing your landlord to reclaim the loss that insurance paid. Subrogation allows your insurer to act on your behalf in a court of law; by signing a waiver of subrogation, your insurer no longer would have that right. This waiver can expose you to greater financial liability while insulating your landlord.
State Subrogation Requirements
Insurance requirements will vary by state and by an insurance company’s policy. As a tenant, insurance requirements may vary as well, and you need to verify that if your landlord requires a waiver to be signed, it will not affect your insurance coverage.
What is Your Financial Exposure When Accepting to the Subrogation Clause?
Consider the above scenario with a customer that slipped and injured themself. If you had not waived your insurance company’s subrogation rights, your insurer pays out the claim and then pursues to regain what was paid from the 3rd party, in this case, your landlord, whose negligence caused the accident. Your financial exposure to risk in the event of accidents is minimal. If, however, you had signed a waiver in your lease agreement, your insurer will pay the damages to the injured party but cannot then seek that money from your landlord’s insurer on your behalf. So you may need to pursue the amount paid for damages yourself or accept that the amount you do not receive from litigation with your landlord’s insurer will potentially affect your future insurance rate due to the amount covered in the accident.