What function does a "waiver of subrogation" serve?

A "waiver of subrogation" is a provision in an insurance policy that prevents the insurer from pursuing reimbursement from a third party for claims they have paid to the insured. This means that if an insurer pays for a loss suffered by the policyholder, they give up their right to seek repayment from another party that may have been responsible for that loss. This can help maintain good relationships between the insured and other parties, such as contractors or business partners, as it eliminates the possibility of one party being pursued for damages by the insurance company after a claim has been settled.

In various situations, especially in commercial contracts, it serves to limit the legal and financial repercussions between parties and fosters a cooperative environment. While policyholders have the opportunity to avoid potential conflict that could arise if their insurer were to seek compensation from a third party, they should also understand that they bear the risk of loss since the insurer is foregoing the right to recover funds from other responsible entities.