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What is Subrogation Clause (Waiver Of)?

Article featured on National Business Aviation Association

The company you use for initial / recurrent pilot training has requested a certificate of insurance with a waiver of subrogation clause in their favor.

faqThe FBO at the airport near your favorite ski resort has asked you to sign a waiver of subrogation as respects their handling of your aircraft. Your first response is “What the %$#$%& is that?  This clause is legalese to most folks but has become quite common for service providers (FBO’s, hangar owners, pilot service companies, etc) to request. 

First, what is subrogation?

A typical subrogation clause in an aviation insurance contract reads  “If we pay a claim under your policy, we will take over your right to recover that amount from any other person or organization. You agree to cooperate with us and not do anything that will interfere with our chances of recovery.” The definition of subrogation given in Black’s Law Dictionary states, “The substitution of one person in the place of another with reference to a lawful claim, demand, or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities”.

It follows then that a waiver of subrogation means your insurance carrier waives their right to recover amounts paid under your policy from the person or organization that caused it.  For example, you contract with an FBO for pilot service.  Prior to the flight, they have you sign an agreement stating you will have your insurance carrier waive their right of subrogation against the FBO as respects their pilot service in your aircraft. Your insurance company agrees to this waiver.  On the first flight the FBO’s pilot forgets to put the gear down and lands the aircraft gear up causing significant damage.  Absent the waiver, your insurance company would have paid to repair the loss and would have then subrogated against the FBO’s insurance for reimbursement (since the loss was due to their pilot’s negligence). 

Shouldn’t the vendor have insurance coverage to protect them if they damage your aircraft?  The answer is yes and typically most vendors do have their own insurance. 

The request for a waiver of subrogation is a technique used in insurance called risk transfer.  They are contractually shifting their responsibility for damage to your aircraft back to you. With the resulting decreased loss experience they enjoy lower overall premium rates, and a more stable insurance program.

Why should you agree to provide a waiver of subrogation? 

In a perfect world you shouldn’t, however some companies will simply not provide the service unless you do.  Most flight training companies (SimCom, FlightSafety, Simuflite, etc.) require this without exception. With others you should try to negotiate the clause out of the contract when able. Your success will depend on the bargaining position of the parties involved. With certain vendors such as lienholders, lessors, or other entities who don’t actually provide services where they would have the opportunity to damage your aircraft, a request for a waiver of subrogation is often benign. Waivers of subrogation predominately apply to physical damage (hull) claims although you may see a request for a waiver of subrogation as respects liability coverage.

The Downsides:

  • First, you could void your policy if you sign this agreement without having your insurance company approve of and endorse your policy accordingly.
  • Second, losses for which your insurance company could have subrogated, may now be fully charged against your policy impacting your loss record / insurability. 
  • Third, there may be a premium charge involved to provide the waiver.  In closing, as with all contracts/agreements it is best practice to have your attorney and insurance broker review them prior to signing.

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