What is a Waiver of Subrogation for Work Comp? Are there Risks?

Waivers of subrogation often show up in contracts like background noise—standard, expected, and easy to skim past. But in 2025, with rising claim costs and tighter margins, these clauses deserve a second look.

Common in construction and subcontractor agreements, waivers of subrogation can carry real financial and legal consequences if misunderstood. While they may seem like a small line item, they can quietly shift risk in ways that ripple through your workers’ compensation program.

This guide breaks down what a waiver of subrogation actually does, how it affects your business, and what to consider before signing on.

What is a Waiver of Subrogation?

Subrogation is the legal right of an insurance company to pursue a third party that caused or contributed to a loss, in order to recover the amount paid in a claim. A waiver of subrogation gives up that right—usually by agreement in a contract.

Example: If one of your employees is injured on a job site due to another contractor’s negligence, your insurer would typically exercise its legal right to seek reimbursement from that party. A waiver removes that option, which means your business and your insurer may absorb the full cost of the claim—even if another party was at fault.

What Are the Risks of a Waiver of Subrogation?

Businesses are often asked by their customers, general contractors, and/or vendors to add a waiver of subrogation to their workers' compensation policy. The provisions of this waiver can be confusing, and it may be difficult to know whether agreeing to such a stipulation is in the best interest of your business.

Should you sign a waiver of subrogation? Before answering this question, it's essential to have a full understanding of the agreement you’re about to make and how it could impact your workers’ compensation risk, costs, and overall financial stability.

Two Types of Waivers

A waiver of subrogation (WOS) endorsement confirms that the insurer will not seek recovery from a third party if the insured has contractually waived its right to subrogation. This means both the insured and the insurer give up the ability to pursue reimbursement—even when another party may be at fault.

• Specific Waivers: Apply to a named party or contract and are typically negotiated case by case. These allow for greater control over when and to whom the waiver applies. In subcontractor agreements, this often includes a promise that neither the subcontractor nor their insurer will seek recovery if insurance responds to a claim.
  
  
• Blanket Waivers: Apply automatically to all parties with whom the insured has a written contract requiring a waiver of subrogation. While administratively efficient, they introduce broader exposure and reduce the opportunity to assess risk on a case-by-case basis.

In many agreements, a WOS endorsement is used alongside an additional insured endorsement—a “belt and suspenders” approach that ensures the additional insured is protected from potential subrogation claims even after a loss is paid.

What Are the Risks of a Waiver of Subrogation?

The direct cost to add a waiver is often around $50 per endorsement. While this may seem minimal, waiving subrogation rights could expose your business to significant indirect financial risks:

1. Impact on Experience Modification Rate (E-Mod): Since the insurance carrier cannot recoup the expenses from the responsible third party, the entire claim cost is added to your company’s E-Mod calculation. This could increase your workers' comp premium for up to three years, significantly raising costs.
   Example: Let’s say a claim without a waiver could have led to the insurer recovering $50,000 from the negligent party. With the waiver, that full cost is included in your E-Mod, potentially increasing your premiums for several years.
2. Reduced Potential for Dividends: Many workers' compensation policies offer dividends to companies with low claims costs. Adding a waiver of subrogation increases the likelihood of higher claims costs, which can reduce or eliminate any potential dividends, leading to further financial impact.
3. Administrative and Contractual Risks: Adding a waiver could also mean additional administrative burden or make it harder to secure favorable rates with other insurers, especially if your E-Mod significantly increases. High-risk E-Mod ratings could also limit your eligibility for certain contracts that require low-modification ratings.

The Financial Impact on Employers

Waiving subrogation may seem like a cooperative gesture, but it can cost you more than you realize:

• Experience Modification Rate (E-Mod): Without subrogation, claims stay on your record and can raise your future premiums.
  
  
• Dividend Reductions: Some insurers reduce or eliminate dividends when unrecoverable claims stack up.
  
  
• Uncompensated Losses: If someone else was clearly at fault, and you’ve waived recovery rights, your company eats the loss.

When Should You Agree to a Waiver?

Waivers aren’t inherently bad—but they shouldn’t be automatic. Consider:

• Are employees exposed to third-party risk on this job?
• Is the contract size worth the insurance trade-offs?
• Is this a one-off situation or a trend across your vendor relationships?

When used frequently or on high-risk jobs, waivers should spark a deeper conversation, not just a checked box.

What You Can Do

• Consult Your Risk Advisor
  • A waiver might look like boilerplate, but its implications rarely are. It’s worth slowing down and modeling the risk.
• Evaluate the Trade-Offs
  • Look at indemnification language, hold harmless clauses, and limitations of liability—what protections are already built in?
• Understand Carrier and State Nuances
  • Some carriers don’t allow waivers. Some states place limits. Make sure you’re not signing something your policy doesn’t support.
• Favor Specific Over Blanket Waivers
  • Specific waivers give you more control and limit your exposure.
• Stay Current on Trends
  • Inflation and shifting case law will likely influence subrogation outcomes in the years ahead. Use data and scenario modeling to understand the worst-case risk.

What’s Changed in 2025?

The definition hasn’t changed—but the stakes have.

• Rising claim costs tied to inflation, complex medical care, and legal fees.
  
  
• Increased pressure from upstream partners to include waivers as a default requirement.
  
  
• A tighter labor market, pushing contractors into riskier work to stay competitive.

In addition, state regulations and insurer guidelines continue to evolve. Check with your state’s workers’ comp board and review carrier-specific positions before agreeing to any waiver language. It’s also worth keeping an eye on guidance from the U.S. Department of Labor and relevant industry groups.

Need Assistance?

If you’re still unsure whether to sign a waiver of subrogation or need help assessing the potential impacts on your business, our risk advisors can guide you. Contact us today to determine the best solution for your company.