Skip Ribbon Commands
Skip to main content
None

Even Monkeys Cannot Explain Why Companies Insist on Workers’ Compensation Waivers of Subrogation Endorsements

Author: Gary L. Wickert, JD

Most state workers' compensation laws, or cases construing them, allow the employer and its carrier to waive its right to subrogate against a third party that caused or contributed to an employee's injury. The purpose of a subrogation waiver is not well understood and is a subject of some confusion in the marketplace. Most frequently, contracting parties agree to contractually require the inclusion of a waiver of subrogation endorsement in a workers' compensation policy simply because the requirement is contained in the form contract, and has been for many years. On other occasions, the requirement is included in the belief that such a waiver will provide some protection or immunity from lawsuits filed by employees of other subcontractors.

Unfortunately, an effective waiver of subrogation does not prevent a subcontractor's employee from suing the contractor. It only prevents the subcontractor's workers' compensation carrier from initiating a third-party subrogation action, seeking reimbursement out of a third-party recovery obtained by the employee, and/or taking advantage of a future credit. This deprives the small subcontractor of a subrogation recovery and the positive effect such a recovery would have on its risk modifier and future workers' compensation premiums.

In addition, the subcontractor pays an additional premium to have the endorsement appended to the insurance policy. This premium is often 5% to 10% of the manual premium developed with the project/contract for which the waiver is provided, or more. Frequently, the only ones who benefit from a waiver is the employee and the personal injury attorney he or she has hired, who are then allowed to receive a double recovery if the worker's compensation lien does not have to be repaid to the employer or its compensation insurer. The contractor against whom subrogation is waived doesn't benefit since the employee can still sue for personal injuries. For all the harm the misunderstood waiver causes, employers and/or workers' compensation carriers continue to pay unlimited medical expenses and/or indemnity benefits for the life of the employee, rather than receiving a statutory future credit which would positively affect the employer's experience modifier. It increases the cost of doing business in every state in which waivers are allowed.

Why waivers of subrogation are requested is a question that results in blank stares and shoulder shrugs. Risk managers want them because they were in the previous contract their company entered into. Subcontractors further down the food chain request them because somebody else required it as a condition to being awarded the contract. Owners and general contractors insist on them because they feel they are buying protection at some level, perhaps believing it will prevent the employees of subcontractors from suing them for injuries received on the project. Nobody knows why they are required—it's just the way things have always been done. As is true for so many aspects of human nature, when asked why something is done, one of the more surprising things to hear from educated, highly competent people is, “We've always done it that way." They simply cannot explain the rationale—they only know that it would be worrisome at some unknown level to deviate from that norm. This phenomenon is reminiscent of a 1967 learned response experiment by researcher G.R. Stephenson involving rhesus monkeys.

Five monkeys are placed in a large cage…

To read the remainder of attorney Gary's Wickert's blog explaining how monkeys and the ridiculousness of work comp waivers of subrogation are related, click here. 

Last Updated: September 13, 2019

image 
​127 South Peyton Street
Alexandria VA 22314
​phone: 800.221.7917
fax: 703.683.7556
email: info@iiaba.net

Follow Us!

Empowering Trusted Choice®
Independent Insurance Agents.​