Overview

A waiver of subrogation is a contractual promise—usually added to an insurance policy or loan/lease agreement—where the insurer agrees not to ‘step into the shoes’ of the insured and sue a third party to recover money it paid on a claim. In lending and commercial leases, lenders and landlords often negotiate these waivers to allocate risk between parties and reduce post‑claim litigation against borrowers or tenants (Insurance Information Institute).

How waivers operate in lending and leases

  • Typical mechanics: The borrower’s or owner’s insurance policy includes language stating the insurer waives subrogation against a named party (e.g., lender, landlord, contractor). Once the insurer pays a covered loss, it cannot bring a subrogation claim against that named party.
  • Common settings: commercial property loans, construction contracts, and leases where multiple parties’ conduct might contribute to a loss.
  • Practical effect for borrowers: fewer chances of being sued by an insurer after a loss, though the borrower may still face contractual indemnities or lender claims if they breached an agreement.

Who is affected and how to read the tradeoffs

  • Borrowers/tenants: gain protection from insurer suits tied to covered claims but should confirm the waiver doesn’t conflict with other contractual duties (for example, indemnities or repair obligations).
  • Lenders/landlords: may accept a waiver to limit dispute friction, but often require higher policy limits, additional insured status, or endorsements to preserve recovery routes.
  • Insurers: may charge higher premiums or add endorsements to limit exposure; some carriers will decline to waive subrogation without specific underwriting approval.

Pros and cons (concise)

Pros

  • Reduces borrower exposure to insurer recovery actions after covered claims.
  • Can simplify claim resolution and reduce litigation between landlord/tenant or borrower/lender.

Cons

  • Lenders may impose stricter insurance requirements or higher pricing to offset lost subrogation rights.
  • A waiver does not remove non‑insurance liabilities: indemnities, gross negligence carve‑outs, or regulatory fines may still apply.

Real‑world example

A small commercial tenant has a commercial property policy with a waiver of subrogation in favor of the landlord. After a covered water loss, the insurer pays the tenant’s claim but cannot pursue the landlord for contribution even if the landlord’s maintenance work played a role. The tenant avoids insurer‑driven litigation, but if the lease required the tenant to maintain certain controls, the landlord could still pursue contract remedies.

Negotiation and due‑diligence checklist

  • Confirm the waiver’s scope: is it mutual, limited to named parties, or blanket? Limited waivers (naming the landlord or lender) are preferable to blanket waivers.
  • Request endorsements: additional insured status and primary/non‑contributory wording can protect lenders without fully eliminating recovery options.
  • Watch carve‑outs: many policies exclude waivers for fraud, willful misconduct, or environmental damage—verify these explicitly.
  • Ask for insurer confirmation: get a written endorsement from the carrier approving the waiver; some carriers require extra premium or will refuse without underwriting sign‑off.

Common mistakes and misconceptions

  • Thinking a waiver removes all liability: it only limits an insurer’s subrogation rights; contractual indemnities, civil suits by third parties, or regulatory penalties can still apply.
  • Overlooking policy language: vague waiver wording or conflicting endorsements can create gaps—always read the policy and endorsements together.
  • Not coordinating with lenders: borrowers sometimes accept waivers without confirming lender approval, which can trigger covenant breaches.

Practical tips from practice

In my practice I advise borrowers to: negotiate a named‑party waiver instead of a blanket waiver; obtain an insurer endorsement that expressly names the protected party; and coordinate with lenders so the insurance satisfies loan covenants without giving lenders unintended claims. If a lender resists a waiver, ask for alternatives such as higher limits, excess coverage, or a carefully drafted indemnity that limits lender recovery to specific circumstances.

Related glossary resources

Regulatory and authoritative guidance

Next steps and when to get help

Borrowers should review policy endorsements with their broker, then have legal counsel check contract language against loan covenants. Lenders and insurers should document any agreed waivers in writing and record the insurer’s endorsement in loan files.

Disclaimer

This article is educational only and not legal or financial advice. For contract drafting or claim‑specific questions, consult a licensed attorney or insurance broker familiar with your state’s law.