What is a Waiver of Subrogation, and What Does It Do?
Gallagher Healthcare :: Industry InsightsBy Dean Gereau | 8/12/2014
Requests for waiver(s) of subrogation are commonly seen in health-care staffing contracts and generally are implemented by the contractor without a great deal of thought. Here we will briefly examine what a Waiver of Subrogation does and this mechanism’s impact on medical staffing liability programs.
A Waiver of Subrogation clause can be found in the “Insurance Requirements section” of a staffing agreement or any other type of contract for the third-party deliverance of health-care services. This request will often read as “A Waiver of Subrogation will be granted in favor of [General Contractor] concerning the General and Professional Liability lines of coverage.” This requirement is met by requesting that your agent have the relevant policies endorsed to grant this condition either on a blanket basis to all contracts requiring a Waiver or to the specific contract(s) in question. As soon as the insurance company confirms to your agent that this condition has been endorsed onto the policy, a certificate will be issued containing verbiage that evidences your policy’s compliance with the contractually required Waiver of Subrogation.
What does this mean? The International Risk Management Institute, Inc. (IRMI) defines “subrogation” as “The assignment to an insurer by terms of the policy or by law, after payment of a loss, of the rights of the insured to recover the amount of the loss from one legally liable for it.” Essentially, this is describing the default position of third-party contractual liability when contemplating losses caused by the contractor and paid by the contracted entity.
Consider the following hypothetical example from a health-care setting:
Physician Group ABC contracts with Locum Tenens Agency XYZ to provide locums coverage at one of ABC’s client facilities. The contract does not contain a Waiver of Subrogation in favor of ABC. In the servicing of this contract, a locums physician, Dr. Smith, from XYZ is onsite, and a patient alleges that substandard care was provided by the facility and Dr. Smith. XYZ’s malpractice insurance policy then pays the claim, but then subrogates the malpractice carrier of ABC after a determination that the physician extenders working for ABC were the primary cause for the loss, and as such, recovers the amount of damages paid out.
Alternatively, if the contract did contain a Waiver of Subrogation, after the carrier for XYZ paid out for the claim, the carrier would be blocked from recovering monies from the carrier for ABC because it has waived those rights. In this instance, the claims experience for ABC would remain untouched despite that its provider had been determined to be the primary cause of loss, whereas XYZ’s claims history would suffer.
Therefore, the waiving of you carrier’s rights to subrogate can have a material impact upon your agency’s loss experience, policy renewal premiums and, ultimately, your ability to secure coverage. These concerns must be balanced by the need to comply with your clients’ contractual requirements and by your ability to successfully pursue new contracts. A qualified and knowledgeable malpractice insurance agent will be able to assist your agency as you evaluate your client contracts.