Updated: Jun 21
Before we get to absolute details, here is a quick definition: Waiver of Subrogation in Workers Compensation means the workers’ compensation insurance company giving up its right to sue a third party that caused a workers’ compensation claim.
Table of Contents
1- Workers and Compensation
2- Workers’ Compensation Law
3- Workers’ Compensation Claim
4- Workers’ Compensation Insurance
5- Workers’ Compensation Premium
6- What is Subrogation?
7- Subrogation in legal terms
8- Waiver of Subrogation
10- Example of Waiver of subrogation in workers compensation
11- Blanket Waiver of Subrogation in workers compensation
12- Waiver of Subrogation Form
13- Workers Compensation Subrogation Software
14- FAQS on waiver of subrogation in Workers compensation
Workers and Compensation
A worker is an individual who works on payroll, for an employer. And Workers’ Compensation is the benefits that the said worker will receive for his liabilities.
Now, what liabilities are we talking about here?
Liabilities, in this context, mean the monetary losses and health impairments that the worker has sustained. This mostly includes things like the wages for days when he did not come to work, the fee that he paid for appointments with his attorney and the expenses that he incurred to pay his medical bills.
Workers’ Compensation Law
Every workplace has its own set of safety rules. And the reason they exist in the first place is so that nobody gets injured. But we are not living in a utopian world and humans will always make mistakes and somebody will get injured. Mildly or severely. In an unsafe work environment, people can get injured even if it is not their fault.
Before the time when the Workers’ Compensation system did not exist, if a workman got injured at his workplace, then things would get complicated for him and his employer. Apart from the pain of his injury, he would also have to bear the loss of time, money and in some cases, his ability to earn.
As for the employer, he would also be in a very vulnerable position as he is now exposed to litigation and can have a lawsuit from his employee coming his way. The settlement amount of the lawsuit in which the employee and the employer are tied-up can be manyfold higher than the actual amount of money that the employee will lose during his sufferings.
If the employee loses the settlement then he would have lost even more money in the court proceedings and to his attorney and he would still be miserable. If he wins, then the employer will have to pay a ridiculously large amount of money. This puts both of them in hot waters.
Fortunately, ever since the Workers’ Compensation law came into play, both the employee and the employer can get away with a relative win if ever a workman is involved in an accident at the workplace.
Workers’ Compensation Claim
A Workers’ Compensation Claim protects both the employee and his employer.
If a workman ever gets injured while carrying out his employment duties, then he can file for a Workers’ Compensation Claim. The workers’ compensation will compensate for their losses. Workers’ Compensation covers everything from the cost of medical treatments to death benefits.
If you are an employer, then you are in a legally safe place in more ways than one. Your employer can not sue you under the Workers’ Compensation Law. Also, it will become mandatory for you to buy a Workers’ Compensation License, not doing which is equivalent to committing a felony if you have a business, with employees on the payroll.
But exceptions can always arise, and there can be a case where an employee can get around the Workers’ Compensation Claim and still file a lawsuit against his employer if he thinks that his employer deliberately hurt him.
Workers’ Compensation Insurance
Workers’ Compensation Insurance works just like any other insurance policy. If someone wants to claim insurance money, then he needs to buy insurance first. Simple as that.
Workers’ Compensation Insurance is the insurance that needs to be purchased so that an employer can pay for the Workers’ Compensation claims. Most employers try to get away with it because they need to keep paying for the insurance, even if there is no injury.
The legal obligation to buy a Workers’ Compensation Insurance has been administered by the state government and the reserves for the Workers’ Compensation Claims are funded by various insurance companies and employers.
One thing to note is the different types of frauds and abuse that occur with the workers’ compensation claims. This insurance, if anything, serves as a legal reminder that says ‘you have been warned’, to anyone who tries to take advantage of the system.
Workers’ Compensation Premium
This is what you pay, or rather, keep paying for having a Workers’ Compensation Insurance. Workers’ Compensation Premium is calculated by considering many factors like the type of business you own, the safety of the workplace, the safety of the location of the workplace, the categories of workers’ and payroll. Payroll is the most important factor in deciding the premium.
All of the above factors aside from the payroll are used to determine the value of Rate. There is a mathematical formula for getting a precise value of premium and the value of Rate is used in that formula.
The product of rate and payroll, upon division by hundred, gives the value of Workers’ Compensation Premium. This value can be moderately to extremely expensive for employers, who need to be very careful in classifying their business in any category.
What is Subrogation?
The word subrogation comes from the Latin word subrogare which is a combination of the words sub and rogare. Sub means in place of another and rogare means to ask. So subrogare in Latin means to choose as a substitute. This word became subrogation as it found its way into the English dictionary and it now means substitution.
Subrogation in legal terms
In legal terms, subrogation means ‘the substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties.’, which is basically substituting the person who claimed the insurance money with the person who caused the liabilities that led to the insurance claim.
Subrogation is a right that insurance carriers and insurance companies have and it is usually summoned by them in cases where the insurance carrier has to pay for the claims filed by their insurance policyholders.
Waiver of Subrogation
Subrogation is when an insurance carrier pays for a claim caused by a third party and they want to recoup that lost amount from the third party’s insurance carrier.
Waiver of Subrogation means when the insurance carriers give up their right to go after the third-party that caused an insurance claim from their (insurance carriers) policyholders. And going after the third-party implies going after their insurance company.
In simpler words, it is a scrimmage between insurance companies to recover lost insurance money from each other.
Waiver of subrogation in workers compensation
Waiver of subrogation in workers compensation is when the insurance company of an employer forfeits their right to sue a third-party that caused liabilities to the said employer’s employee and the employee filed for a Workers’ Compensation Claim and the insurance company had to pay for that claim.
Waiver of Subrogation in workers compensation is itself hard to understand and means something more specific in terms of Workers’ Compensation. So here is a scenario of Workers’ Compensation Waiver of Subrogation to help you understand better.
Example: Waiver of Subrogation in workers compensation
You are a Contractor who oversees the construction of a building in California. By law, you are required to have a Workers’ Compensation Insurance and so you purchase it from an insurance carrier. This insurance includes the clause for Waiver of Subrogation.
You have hired a subcontractor to assist you in the construction process and this sub-contractor also has an insurance policy in his name from an insurance company. One day, one of your construction worker’s feet is run over by one of the sub-contractor’s workers riding a pickup truck.
Upon diagnosis, it is determined that your worker has fractured his foot and the overall cost of medical expenses will be a lump sum of $10,000. By the workers’ compensation law, your insurance company will now pay for these expenses. And they do but now they want to go after the sub-contractor’s insurance company to recover those $10,000.
Here the sub-contractor is the third-party who has caused the liabilities. But because a Waiver of Subrogation is included in your Workers’ Compensation Insurance Policy, your insurance carriers cannot sue the third-party for the lost amount of money because they gave up their right of subrogation.
Blanket Waiver of Subrogation in workers compensation
Normally, a Waiver of Subrogation is for a specific entity (third-party) like a person or an organization which cannot be sued in paying for a claim that they have caused.
Blanket Waiver of Subrogation is slightly different. It is not for any specific third-party but any third-party that causes a claim for which an insurance company pays.
Waiver of Subrogation Form
It is the legal document that serves as a legally binding agreement between two parties that keeps one of them from going after the other party for recovering any damages caused by them.
It can also be a clause in your insurance policy that will keep your insurance company from going after a third-party that causes any claim for which the insurance company pays.
A sample of a Waiver of Subrogation
Workers Compensation Subrogation Software
As much as one would want waivers of subrogation in their favour there is also an equal likeliness that someone would want to subrogate anyone who causes them damages. Many times, potential subrogation opportunities are missed and cause huge losses. It is a challenge to decide when and when not, you sign a waiver of subrogation.
To provide some relief in this matter, subrogation software exists. This software can determine valid subrogation opportunities with the help of text mining and data modelling techniques. The data here refers to documents, forms or notes that have been a part of insurance claims. Request a Demo of KlearClaims: Workers Compensation Claims Management Software with Native AI to witness how precisely our proprietary models detect subrogation opportunities.
FAQS on waiver of subrogation in workers compensation
Q1- What is a Waiver of Subrogation in Workers’ Compensation?
Ans1- Waiver of Subrogation in Workers’ Compensation means the workers’ compensation insurance company giving up its right to sue a third party that caused a workers’ compensation claim.
Q2- What states allow waiver of subrogation in workers compensation?
Ans2- All states except Missouri and Kentucky allow waiver of subrogation in workers compensation.
Q3- How do I get an waiver of subrogation in workers compensation in OHIO?
Ans3- By contacting your insurance company and the Ohio BWC (Bureau of Workers’ Compensation)
Q4- What states prohibit waiver of subrogation on workers compensation?
Ans4- Missouri and Kentucky
Q5- How is Waiver of Subrogation in workers compensation premiums calculated?
Ans5-Waiver of Subrogation keeps an insurance company from recovering its lost money from a third-party that causes a claim, so they increase the Workers’ Compensation Premium to recover some of that money from you.
Someone got injured. So, someone has to pay. Somehow.
All Waivers of Subrogation in workers compensation are put on the employers’ payroll every time his insurers have to pay for a claim caused by a third-party. And these subrogations increase the premium amount.
Waiver % x Premium gives the amount of the increase in premium due to Waiver of Subrogation.
If the premium is $100 at 5% waiver rate then the increase in premium amount will be 100 x 0.05 which is $5.
Q6- How to calculate blanket waiver of subrogation in workers compensation?
Ans6- Same way as a waiver of subrogation – Premium x Waiver Rate
Q7- Why do I need Waiver of subrogation inWorkers Compensation?
Ans7- You need it when your customers or subcontractors demand it to be included in your Workers’ Compensation Policy. It will protect them from any lawsuit from your insurance company who would want to recover the money for the claims that the sub-contractor (third-party) caused.
Q8- What is a blanket waiver of the subrogation in workers compensation?
Ans8- What separates a regular Waiver of Subrogation from a Blanket Waiver of Subrogation is that the former is pre-decided against a specific entity and a blanket is for any third party that causes a claim.
Q9- Why should you avoid providing a "waiver of subrogation" to a contractor for workers compensation?
Ans9- The reason is pretty straightforward. As mentioned earlier, if you make your insurance carrier include a Waiver of Subrogation in the insurance policy then it will eventually lead to an increase in your premium.
The insurance company is not allowed to recoup the insurance claim amount from the third-party so they will put that claim on your premium under the Waiver of Subrogation and during the audit, it will be added to your premium.