Waiver of Subrogation

Empty Boilerplate or Valuable Content?

One of the most common questions I get from my lease clients as to the form and substance of the standard commercial lease is the meaning and intent of what is known as the “Waiver of Subrogation” clause. Perhaps some of the other questions that my client may think are: 1) Is the provision really that important, and 2) Does my attorney really know what it means himself, or is it just one of those standard “boilerplate” provisions used to increase the size of the document and the size of his fee?

The reason that the Waiver of Subrogation provision is necessary in most cases of premises damage is quite simply that having such a provision is fair to all parties involved. In many instances both a Tenant and Landlord will have insurance on the leased property and premises, and in many or most instances there may be an overlap of coverage between the two policies. In other commercial lease situations, the Landlord may obtain the insurance, and pass the cost on to the Tenant, and Tenant may not have other overlapping coverage. In any event, in many commercial lease situations (and arguably in every commercial lease situation even if not specifically stated), the Tenant will actually be the party who has paid the premium of property and casualty insurance even if that policy is actually in the name of the Landlord; either directly by virtue of a pass-through of the premium, or indirectly as an increase to the rental rate. In the situation where both parties to a lease have obtained insurance, both of the policies (of both Landlord and Tenant) will normally allow the insurance company to be subrogated to any interest of the inured in the event that the insurance company is stuck paying a claim. In other words, if the insurance company is required to pay a claim, it naturally desires to step into the shoes of the insured party, and take action against the party responsible for the damage if its insured otherwise has the right to do so.

Practically speaking, if a Tenant has been negligent in some way and damage occurs on the premises, or if damage otherwise occurs and Tenant is responsible regardless of fault, the Tenant will normally have the responsibility of payment of the expense to repair or maintain the premises, assuming there were no insurance to pay for the damage sustained. If insurance in the name of the Landlord has been obtained, and that policy pays the claim, without a waiver of subrogation provision the insurance company may have the right to claim reimbursement from the Tenant, or Tenant’s insurer (in the event that Tenant has overlapping coverage). If Landlord has the right to subrogate, in the event where Tenant’s has overlapping coverage, Tenant can expect its future insurance premium to increase. In the event that no overlapping coverage exists, Tenant is likely to find itself paying for damage as a reimbursement to the insurer, even though Tenant has already paid for coverage though payment of the premium.

It is beyond the purpose of this short blog article to get into all of the various case interpretations of instances under which a tenant whose lease lacks a Waiver of Subrogation clause might make the case that it should not be subject to subrogation based on some legal theory (such as the parties intentions, or term end obligations). Suffice it to say that there are such theories out there. Instead of reliance upon a legal theory to create intention of agreement, the lease can instead contain a clear and unambiguous Waiver of Subrogation provision. Inclusion is a valid way to keep an insurance company from proceeding against a Tenant for reimbursement after a claim has been paid by the insurer pursuant to the terms of an insurance policy that Tenant has actually or effectively paid for.


Tom Grella