It is important to understand the concept of subrogation before turning our attention to agreeing to waive subrogation.
Suppose that fireworks debris injures a spectator situated too close to the display, and your fireworks display contract expressly provides that crowd control is the sole responsibility of the sponsor. The injured party notifies you of a claim and, in turn, you submit the claim under your company’s CGL policy, and your insurance carrier promptly pays all of the medical and property expenses relating to it. Later, your insurance company realizes that the other party at fault, the sponsor (for allowing an unauthorized person to enter the display site), also has insurance that will cover the damages and, consequently, your insurance company seeks reimbursement from the party at fault, the sponsor. In essence, your insurance company is ‘stepping into your shoes’ when asserting its bargained-for right (as part of the contract of insurance between you and your carrier) to seek full recovery from a responsible third party. This process is known as subrogation. Thus, the general rule is that after paying you, the insured, on the claim your insurance company becomes ‘subrogated’ to the rights arising under your policy and can ‘step into your shoes’ to go after and sue any negligent third party such as, in our example, the sponsor.
The concept of waiver of subrogation is frequently associated with services contracts and, ever increasingly, fireworks display companies are being asked by sponsors to agree to waive the display company’s right of subrogation. Oftentimes, the sponsor presents a waiver of subrogation as a take-it-or-leave proposition; and, in the case of municipalities, there is little if any room for negotiation on this point.
As a general rule, a subrogation of waiver is a written agreement between two parties in which one party agrees to waive subrogation rights against another in the event of loss. These waivers are to be used with utmost caution since your insurance policy may bar policy coverage when the waiver is executed after the loss to the extent that the waiver defeats and impairs your insurer’s right to recover. Thus, it is paramount that the insured party agrees to waive subrogation
against another person or organization before a loss occurs, and that the insurance policy include the proper endorsement (e.g., waiver of transfer of rights of recovery against others to us, CG 24-04 05 09).
From a sponsor’s perspective, it only wants to provide a display space, offer entertainment to spectators, and avoid liability exposures associated with fireworks displays. From the perspective of the display company, it may have a business relationship that it does not want to jeopardize by the specter of litigation, and also realizes that the sponsor has little or no control over the choreography, set up and execution of the fireworks display. As a commercial matter, it is likely that the insurance carrier for the display company factors any waiver of subrogation (of the insurance company’s entitlement to act in the shoes of its insured) into the premium it may ultimately offer the display company.
To summarize, the purpose of the waiver of subrogation is to minimize lawsuits and claims among parties to an agreement and, as a matter of process, the waivers are executed in advance of the event, preferably in reciprocal fashion. In our example, a waiver of subrogation signed by the display company and provided to the municipality would effectively preclude the display company’s insurance carrier from seeking recovery from the third party at fault, the municipality, for the money the insurance company paid to the injured spectator.
The language in your various insurance policies relating to indemnity and subrogation requires both a thorough and careful reading in order to obtain a full understanding of the function and limits of your coverage. There are examples where a party executing a waiver unwittingly violates the terms and coverage of the underlying insurance policy, resulting in a complete loss of coverage.
