Subrogation is the mechanism by which an insurer, having paid a claim, steps into the shoes of the insured to pursue recovery from a third party responsible for the loss. The doctrine is long-standing at common law and appears in statutory form for marine insurance at section 79 of the Marine Insurance Act 1906, which the courts treat as reflecting the wider principle. A waiver of subrogation is a contractual promise that curtails that right — either the insured agreeing not to pursue a particular party, or agreeing that its own insurer will not do so. For a professional carrying professional indemnity (PI) cover, these clauses can quietly reshape the recovery position long before any loss arises.
Three settings account for most of the waivers a UK professional will encounter. The first is construction, where the JCT suite (including the Design and Build 2016 form) requires the works to be insured in joint names of employer and contractor, and where Options A, B and C allocate the insuring obligation. The second is oil, gas and offshore engineering, where knock-for-knock indemnities are standard — each party bears its own losses and waives recourse against the other, regardless of fault. The third is design-and-build and collateral warranty arrangements, where funders or purchasers may seek waivers to protect an ongoing commercial relationship.
The House of Lords addressed the effect of joint-names insurance in Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] UKHL 17. The court held that where a construction contract obliged the employer to take out a joint-names policy covering the works, the parties named as co-insureds could not sue one another in respect of the insured loss. The commercial purpose of the cover was to be the sole avenue for recovery, and a claim by one co-insured against another would be inconsistent with that scheme. Joint-names insurance therefore operates as an implied waiver of subrogation between co-insureds.
Not every waiver is implied by the structure of the insurance. Many are drafted expressly, and their scope is a matter of construction. In Gard Marine and Energy Ltd v China National Chartering Co Ltd [2017] UKSC 35 the Supreme Court considered a charterparty allocation of risk alongside joint-names hull insurance. The majority held that the contractual arrangements meant the owners' sole avenue of recovery for insured losses lay against underwriters, and that subrogated proceedings against the charterers were precluded. Gard Marine confirms that a carefully drafted commercial allocation of insured risk will be given effect, and that waiver language in a charter, construction contract or professional retainer can materially narrow the recovery landscape.
A standard PI wording will contain a condition to the effect that "the Insured shall not, without the Insurer's prior written consent, waive any right of subrogation". Signing a contract that contains a subrogation waiver without first securing the PI insurer's consent may put the insured in breach of that condition and expose them to prejudice arguments at claim stage — the insurer may say that its ability to recover from a third party has been fettered by the insured's own act. The exact consequence depends on the policy: some wordings allow the insurer to reduce indemnity to the extent of the prejudice caused, others treat the breach more strictly. The sensible practice is to identify waiver language before signing, not after.
Waivers of subrogation reach only as far as the insured risks. A joint-names all-risks policy will typically waive rights between co-insureds in respect of the perils covered — fire, storm, escape of water and so on — but not in respect of matters outside its scope, such as pure economic loss caused by defective design where the works themselves are undamaged. Whether a particular claim falls inside or outside the waiver is a question of policy construction, and the answer is often less obvious than it looks.
An architect signs a JCT Design and Build 2016 contract. The employer insures the works under a Joint Names policy on Option A. During construction, a fire causes significant damage. The employer's works insurer pays the reinstatement cost and looks to recover from those responsible. On investigation, the architect's PI insurer identifies that, following Co-op Retail, the joint-names arrangement implies a waiver of subrogation between the co-insureds. The architect remains liable for its own civil liability to the employer for professional negligence, and the PI policy responds to that liability in the ordinary way — but the PI insurer's ability to pursue subrogated recovery against the employer or other co-insureds is materially restricted. The cover works; the recovery avenues do not.
Before signing a contract that touches on insurance or indemnities, a professional should read the insurance and indemnity clauses in full, identify any express or implied waiver of subrogation, and refer the language to their PI broker or insurer for written consent. Keeping a short file note of the consent given (or refused) protects the position at renewal and at claim. Related Apex entries include subrogation in PI insurance, and sector guidance for architects, engineers and design-and-build contractors.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.