Last time, I tried to lay out my understanding about “What is a Waiver of Subrogation Waiver Anyway?” When I concluded that rant, I promised to explain why I think it is easy to have such a Waiver of Subrogation provision in a property insurance policy and that it is “free” and you don’t even have to ask for it. If I am right about that, then the release of claims provisions and the Waiver of Subrogation provision should be relegated to the status of “boilerplate” or nearly so.
The very, very common form of property insurance policy form is the one promulgated by the Insurance Services Organization, Inc. (ISO), a company owned by its member insurance companies. Its standard policy has several “parts,” one of which is its “Conditions” part. That part is known as CP 00 90 MM YY, where “MM” is the month and “YY” is the year that particular version was published. This is a key part of the entire policy and by looking at the Endorsements page of a property insurance policy, you’ll see it listed as CP 00 90 MM YY (or, by way of example, translated to the 7/88 version, CP 00 90 07 88).
Why is this important? — because it says:
“I. TRANSFER OF RIGHTS OF RECOVERY AGAINST OTHERS TO US. If any person or organization to or for whom we make payment under this Coverage Part has
rights to recover damages from another, those rights are transferred to us to the extent of our payment. That person or organization must do everything necessary to secure our rights and must do nothing after loss to impair them. But you may waive your rights against another party in writing:
1. Prior to a loss to your Covered Property or Covered Income.
2. After a loss to your Covered Property or Covered Income only if, at time of loss, that party is one of the following:
a. Someone insured by this insurance;
b. A business firm:
(1) Owned or controlled by you; or
(2) That owns or controls you; or
c. Your tenant.
This will not restrict your insurance.”
[From version CP 00 90 07 88.]
This means that the standard property insurance policy allows the insured to waive claims against anyone if done so in writing before the loss and even to waive claims against a tenant after a loss. So, when a party agrees, in a contract such as a Lease, to obtain a Waiver of Subrogation in its property insurance policy, it almost certainly already has one in its policy. It was pre-printed, standard, and free. Insurance companies set their premiums as if they won’t be able to recover what they pay to their insureds on the assumption that contracts (like leases) will have a waiver of claims.
That’s the market. Waivers of subrogation are free and in the policy. Insurance companies are collecting premiums on the assumption that Landlords and Tenants have waived claims against each other on account of property damage.
What about the unusual party that self-insures for property losses? Well, isn’t the other party supposed to be in the same position as if insurance were being carried?
Why do I say, “unusual? – because most entities who are “self-insuring” do so with respect to liability insurance. And, by the way, those are the parties that certainly want to enjoy a waiver of claims in their favor. While we are on the topic, does everyone realize that liability insurance policies come with strict limitations on what the carrier will pay if the insured accidently burns down a leased building? Those who do will easily understand why a party would want a waiver of such claims in their favor.
Have I misspoken? Are there any insurance gurus out there who want to correct anything I’ve written? Add to it?