A waiver of subrogation is a lease provision in which each party gives up the right to have its insurer pursue the other party after a covered loss. It stops the insurer from stepping into the insured's shoes to recover a paid claim. In commercial leases it is usually mutual between landlord and tenant.
How Does a Waiver of Subrogation Work?
A waiver of subrogation works by cutting off the insurer's recovery right before a loss occurs. Subrogation lets an insurer that pays a claim step into the insured's shoes and sue the party that caused the damage, per Capes Sokol and Coolidge Wall. A waiver bars that suit for losses covered by property insurance, so each side's own policy absorbs its damage.
The waiver binds both the parties and their insurers. Under standard ISO Commercial Property Conditions, form CP 00 90, an insured may waive its rights of recovery against others before a loss, per EK Insurance and Gray Reed. There is no separate ISO waiver-of-subrogation endorsement for property coverage, so the waiver is handled in the lease wording itself, not by an insurance rider.
Element | Typical drafting |
Mutual scope | Both landlord and tenant waive against each other |
Covered losses | Damage insured under a special form property policy |
Insurer notice | Each party notifies its carrier and confirms the waiver is permitted |
Carve-outs | Liability claims and uninsured losses often excluded |
The quotable point for an operator: a waiver of subrogation moves a covered loss onto the injured party's own policy and shuts the door on a later reimbursement fight between landlord and tenant.
Why a Waiver of Subrogation Matters
A waiver of subrogation matters because it decides who ultimately pays for insured damage and whether the landlord and tenant end up in litigation over it. Without a waiver, a tenant's insurer can pay a fire claim and then sue the landlord for causing it, and the landlord's insurer can do the reverse. The waiver replaces that fight with reliance on each party's own coverage.
The clause changes risk allocation in a real way. Per ICSC commentary on lease risk allocation, a well-drafted mutual waiver routes loss first to the responsible party's insurer and prevents cross-claims that raise both parties' premiums and legal costs. An operator abstracting a lease must confirm the waiver is mutual, tied to the required insurance, and matched by an insurer that has agreed to it, or the protection may not hold.
Example
A tenant leases warehouse space and carries a special form property policy on its inventory. A fire caused by a landlord maintenance failure destroys $500,000 of inventory. The lease contains a mutual waiver of subrogation. The table traces the outcome with and without the waiver.
Step | Without waiver | With waiver |
Loss to tenant inventory | $500,000 | $500,000 |
Tenant insurer pays claim | $500,000 | $500,000 |
Insurer sues landlord | Yes, seeks $500,000 | Barred |
Landlord defense and exposure | Up to $500,000 plus legal cost | $0 |
Net cross-litigation | Full dispute | None |
With the mutual waiver, the tenant's insurer pays the $500,000 and cannot recover it from the landlord, so the landlord avoids a $500,000 exposure and the litigation cost that comes with it. Without the waiver, the same covered loss becomes a lawsuit between two insurers, driving up cost for both sides even though the property was fully insured.
Variations and Edge Cases
A waiver of subrogation is not automatic protection: its reach depends on scope, mutuality, and whether the carrier agreed to it. A waiver that covers property but not liability, or one the insurer never consented to, can fail exactly when it is needed. The table covers variants an operator should confirm.
Variant | Treatment |
Mutual waiver | Both parties waive against each other, the standard commercial structure |
One-way waiver | Only one party waives, leaving the other exposed to a subrogation suit |
Property only | Waiver limited to property losses, not third-party liability claims |
Insurer consent | Waiver valid only if the policy permits it, per ISO CP 00 90 conditions |
Gross negligence carve-out | Some leases preserve recovery for willful or grossly negligent conduct |
The common mistake is assuming the waiver reaches uninsured losses. A waiver of subrogation applies to what the policy covers, so a deductible, an excluded peril, or a loss above policy limits can still be recovered from the other party.
Waiver of Subrogation vs Indemnification Clause
A waiver of subrogation is often confused with an indemnification clause, and leases usually contain both. A waiver of subrogation blocks an insurer from recovering a paid claim from the other lease party. An indemnification clause makes one party reimburse the other for defined losses and claims, whether or not insurance responds.
The two point in opposite directions. A waiver limits liability by keeping insured losses on the injured party's own policy. An indemnity shifts liability by moving defined losses onto the indemnitor. Read together, they decide which losses stay with each party's insurer and which are pushed across to the other side, so an operator must reconcile them rather than read either alone.
Frequently Asked Questions
What does a waiver of subrogation do in a commercial lease?A waiver of subrogation stops an insurer that pays a covered claim from suing the other lease party to recover that payment. In a mutual waiver, both landlord and tenant give up this recovery right, so each covered loss stays on the injured party's own property insurance instead of becoming a lawsuit between the two sides.
Is a waiver of subrogation added to the insurance policy or the lease?A waiver of subrogation is typically established in the lease wording, not by an insurance endorsement. There is no standard ISO waiver-of-subrogation endorsement for commercial property coverage. Instead, ISO Commercial Property Conditions form CP 00 90 lets the insured waive its rights of recovery before a loss, and the lease documents that agreement.
Does a waiver of subrogation cover uninsured losses?A waiver of subrogation generally applies only to losses covered by insurance. Deductibles, excluded perils, and amounts above policy limits usually fall outside the waiver, so the injured party may still pursue the responsible party for those uninsured portions. Operators should confirm the exact scope written into the lease.
Related Terms
Indemnification Clause
Triple Net Lease
Estoppel Certificate
SNDA
Common Area Maintenance