What is the purpose of a "waiver of subrogation" clause?

A "waiver of subrogation" clause serves the critical function of preventing the insurer from seeking reimbursement from third parties after it has paid a claim. This clause is often included in contracts and insurance policies to protect the interests of all parties involved in a claim. By waiving subrogation rights, the insurer agrees not to pursue recovery of the money it has paid out for a loss from a third party that may have been responsible for that loss.

This is beneficial for the policyholder because it ensures that they will not face a lawsuit or claim from their insurer for costs associated with the claim. For instance, if two businesses have a contractual agreement that includes a waiver of subrogation and one suffers a loss due to the other's actions, the insurer cannot go after the second business to recover its costs, promoting a more harmonious business relationship.

In contrast, a waiver of subrogation does not relate to increasing policy limits or enhancing coverage for additional perils, which are distinctly different aspects of an insurance policy. The purpose of such an agreement is more about risk management and maintaining good business relations rather than expanding the financial coverage of the policy.