TL;DR: (Too long, didn’t read)
A waiver of subrogation is the clause that stops an insurer recovering from you after it has paid someone else’s claim. Without one, being included on the main contractor’s policy answers only half the question. You may be insured under that policy and still receive a letter of demand from the same insurer months later, because “am I covered” and “can this insurer recover from me” are two separate questions decided by two different parts of the wording. It is one of the main reasons subcontracts still require your own cover even when you are named.
Consider a scenario. Fourteen months after you left site, a letter arrives from an attorney acting for an insurer. It concerns the fire. The insurer settled the employer’s claim, it says, and it is now recovering from the party whose negligence caused it, which is your firm.
You were on that policy. You have the certificate. And yet here is the letter.
This is subrogation, and a waiver of subrogation is the clause that would have stopped it. It is easy to miss, and in practice it often is.
Related reading: subcontractor insurance, what the cover looks like and who carries what.
What subrogation actually is
When an insurer pays a claim, it can step into the shoes of the party it paid and pursue whoever caused the loss. The insured is made whole, and the insurer chases recovery. Every insurer does it, and it is normal practice rather than bad faith, because it puts the cost of a loss with the party who caused it.
The problem is not that subrogation exists. The problem is that subcontractors assume being on the schedule switches it off.
Two questions, not one
Being included on a Contractors All Risk policy answers one question. There are two.
Question one: am I insured under this policy? Answered by the schedule. Your firm is named, or described as part of a class, or it is not.
Question two: can this insurer recover from me if I cause a loss? Answered somewhere else entirely, and often not answered at all.
A site agent saying “you’re covered” is answering question one, usually sincerely. Question two is the one that produces the letter.
Where being a co-insured does help
Insurance practice in South Africa generally proceeds on the basis that an insurer does not subrogate against its own insured in respect of the same loss and the same insured interest. Recovering from your own policyholder what you have just paid them defeats the purpose of the cover. So being a genuine co-insured for the works, for that loss, can give real protection, which is exactly why putting your name on the CAR policy matters more than it sounds.
Where it stops helping is in the detail:
- You were described as a class, not named. “And subcontractors” may or may not extend the same protection to your firm as a named insured would.
- You are insured for a narrower interest. A policy may cover you for the works while the liability section names only the main contractor.
- The loss falls outside your covered interest. Damage to a neighbour’s building is not damage to the works.
- Cover had already expired. Remedial work in the defects period is frequently on the wrong side of that line.
Which is why the express clause matters more than the general principle.
Three clauses people mix up
These do different jobs, and having one does not give you the others.
Joint names. Both the employer and the main contractor, sometimes with subcontractors, are insured under one policy. It says who is insured. It does not say for what interest, and it does not by itself deal with recovery between them.
Cross liability, sometimes called a principals clause. These clauses typically operate as though each insured held a separate policy, so one insured party can claim against another. Useful, and often confused with a waiver.
Waiver of subrogation. The insurer gives up its right of recovery against specified parties. This is the one that answers question two, and it is the one most easily overlooked.
A schedule can carry joint names and a cross liability clause and still leave the insurer free to come after you.
Why your subcontract demands your own cover anyway
This is the piece that suddenly makes sense once you see the recovery risk.
Main contractors and their advisors know an insurer may look for recovery from a negligent subcontractor. Requiring you to hold your own liability cover means that when the letter arrives, there is a policy behind you rather than a small company’s balance sheet. That clause is not paperwork for its own sake, it is the main contractor making sure the recovery risk has somewhere to land.
Related reading: strict liabilities, who is responsible and what is not covered by a Contractors All Risk policy.
What confirmation that answers both questions looks like
“You’re covered” is not evidence of anything. Confirmation that answers both questions names:
- Whether your firm is named or described as part of a class
- Which sections you are insured under, works and liability being different things
- Whether there is an express waiver of subrogation, and which parties it names
- Whether there is a cross liability clause
- The policy period, including any maintenance or defects extension
- The excess, and who carries it under the subcontract
A main contractor with the cover properly arranged can put that in an email.
Want someone to read the schedule for the recovery risk?
CivilSure reads construction policy schedules for a living, and the recovery position is one of the first things we look for. CivilSure is an insurance broker. Send us what the main contractor gave you, together with the subcontract, and we will take you through what the wording actually says, where the gaps are, and what to ask the main contractor for.
Common questions
What is a waiver of subrogation?
It is a clause in which the insurer gives up its right to recover from specified parties after paying a claim. In construction it typically names the employer, the main contractor and, where it has been negotiated, subcontractors.
Can an insurer claim against me if I am named on the main contractor's policy?
It depends on the wording. Market practice generally proceeds on the basis that an insurer does not subrogate against its own insured for the same loss and the same insured interest, but whether that protects a subcontractor turns on whether the firm is named or merely described as a class, which sections it is insured under, and whether an express waiver exists.
Is a cross liability clause the same as a waiver of subrogation?
No. A cross liability clause typically lets one insured party claim against another as though they held separate policies. A waiver of subrogation stops the insurer recovering from the parties it names. A policy can have one without the other.
Does being in joint names protect a subcontractor from recovery?
Joint names establishes who is insured. It does not by itself settle recovery between the insured parties, which is what the waiver deals with.
Why does my subcontract require my own liability cover if I am on the project policy?
Partly because the project policy covers the works rather than your plant, workmanship or employees, and partly because a recovery claim may still be made against a negligent subcontractor. Your own cover is what stands behind you if that happens.
Does a waiver of subrogation cost extra?
It is a wording matter negotiated when cover is arranged rather than a standard add-on with a set price, and insurers treat it as part of the overall risk being underwritten, so it may be reflected in the premium rather than priced separately.
Sources
- CivilSure, subcontractor insurance, on insurers commonly retaining rights of subrogation
- CivilSure, CAR policy, should you put your name on it?
Policy wordings differ between insurers and between projects. Whether a specific policy permits recovery against a specific subcontractor is determined by that schedule and wording. This article is general information on how construction policies are commonly structured, and not legal advice on any specific policy or contract.
