What is a waiver of subrogation and when should apartment owners use one?

A waiver of subrogation is a contractual provision in which one party gives up their insurer's right to seek reimbursement from another party after a loss. In apartment insurance, waivers of subrogation are commonly encountered in property management agreements, construction and renovation contracts, lease agreements, and service contracts with vendors.

For example, a property management company may request a waiver of subrogation from the apartment owner. If a loss occurs due to the management company's negligence, the owner's insurer would pay the claim but would not be able to recover from the management company. The management company requests this protection as a condition of the agreement.

Before granting a waiver of subrogation, apartment owners should notify their insurer. Most commercial property and liability policies require the insurer's consent before the policyholder waives subrogation rights. The ISO Commercial Property Conditions form (CP 00 90, Section H – Transfer of Rights of Recovery Against Others to Us) specifically states that the insured's rights of recovery must be preserved, but the form also permits waivers of subrogation when agreed to in writing before a loss occurs. Adding a waiver without the insurer's knowledge could void coverage for the related claim. Many insurers will permit waivers of subrogation by endorsement, sometimes for an additional premium.

Waivers of subrogation are a normal part of commercial real estate contracting, but they should be granted thoughtfully. Each waiver removes a potential recovery avenue for your insurer, which can indirectly affect your claims experience and future premiums. AIA Document A201 (General Conditions of the Contract for Construction), widely used in apartment construction and renovation projects, contains standard waiver of subrogation provisions between the owner and contractor that should be coordinated with your insurance program.