The AGS Glossary of Useful Professional Indemnity Insurance Phrases defines subrogation as follows:
“Under the terms of the insurance contract an insurer has the right to recover any applicable loss (in whole or in part) from any third party against whom the insured enjoys rights of recovery. In the context of Professional Indemnity insurance this might refer to a right of action against a sub-consultant whose negligence caused his principal’s insurers to pay a claim to the principal’s client”
It is noted in the same document that an insurance company generally has the right to subrogate (or take legal action against). When a Waiver of Subrogation clause is present in a contract or required by a client/employer, the intention is that subrogation rights of the insurer are waived and the insurer is unable to take legal action and recover damages against the third party responsible for the loss.
A waiver of subrogation rights is included in some standard contract forms, such as the NEC3 and NEC4 Engineering and Construction Contract. An insured party must not enter into an agreement with any third party that will prevent the Insurer recovering any applicable loss. It is therefore important that they either remove any waiver clauses or confirm with their insurers that the waiver will not affect their cover on a contract.