As for any and all contracts that need to be signed for professional services, everyone involved should understand the consequences of each clause. While this may sound like basic common sense, there are some people or companies that skip this step, taking for granted its straightforwardness.
Your clients should be made aware of the waiver of subrogation provision contained in most form agreements. Those insured should not only be able to turn to you to understand why it is there, but they should know how it helps them manage the risk of their business.
What is Subrogation?
When one party involved in an agreement steps into the shoes of another party for the purposes of bringing a claim for damages, this is called subrogation. Most common types of claims have to do with property damage and not all types of claims may be subrogated.
If a client’s business undergoes property damage and they are completely free of fault, their insurer will pay to have the damage repaired. When this happens the insurer then becomes subrogated to their rights for the property damage. Essentially, insurance companies step in and make a claim against the party at fault.
In the event of a lawsuit, an insurance company may bring a claim in a client’s name against the other party, as if it’s fully representing the insured. A waiver of subrogation clause is put in a professional services contract to reduce lawsuits and claims among the parties. The cost of the insurance coverage is contractually allocated among the parties and is agreed among the parties to lie with the insurers.
The subrogation clause usually provides that the owner and professional, in the professional services setting, waive all rights against each other and against others for damages covered by any property insurance. When construction is taking place, for instance, this kind of clause is highly effective.
Why It’s Important for Clients
Subrogation is important because any funds recovered through the subrogation process go straight to the insurance company’s funding. Subrogation presents the benefit of company performance and companies that achieved superior operating results subrogated claims more than twice the rate of average companies. These companies also recovered substantially higher percentages of lost payments through subrogation. Altogether, this lowers the cost of premiums.
From property damage to legal representation, subrogation is a layer of bonus protection for clients in most industries. Insurance agents should be made aware of just how beneficial this is to the bottom line.