Category Archives: Insurance Terms

Business Insurance, Insurance Terms

What is a “Waiver of Subrogation”?

Subrogation means, in a legal sense, one party has the right to “step into the shoes” of another party for the purposes of bringing a claim for damages. Not all types of claims may be subrogated. The most common type that can be subrogated is property damage claims.

Example: Joe is an electrician insured by BIG Insurance Company. He is hired by Amusement Park World to replace light bulbs in the parking lot for the park’s opening in the Spring. Amusement Park World requires Joe to sign a Waiver of Subrogation stating that BIG Insurance Company will not be able to recover (from Amusement Park World) any money paid for damages to Joe’s truck if he hits any of the huge potholes in Amusement Park World’s parking lot (a claim for which they would normally be liable).

A waiver of subrogation clause is placed in a contract to minimize lawsuits and claims among the parties. The result is that the risk of loss is agreed among the parties to lie solely with the insurance company. The risk, once assigned to the insurers (insurance companies) by the parties, is determined to stop there, without allowing the insurer to seek redress (legal cation) from any party who may be “at fault” for the loss/claim. In order to add a Waiver of Subrogation to your insurance policy, you will either need to state the number of parties with whom you have such agreements, or you may purchase a blanket waiver of subrogation that will apply to all entities with whom you have a contract with a waiver of subrogation clause.

Insurers have also begun to refer to the “Waiver of Subrogation” as a “Waiver of Transfer of Rights,” or in its full form, a “Waiver of Transfer of Rights of Recovery Against Others To Us.”

Business Insurance, Insurance Terms, Workers Compensation

What does workers compensation cover, and do I have to declare payments made to 1099 subcontractors?

As you probably know, the state requires any employer with more than 2 employees to have workers compensation (work comp) insurance. If you have less than 3 employees you may still decide to purchase work comp coverage. Other states may be different.
Workers compensation covers one of two things, either:
– Medical expenses and lost wages for on-the-job injury or illness or disease contracted as a result of employment; or
– If an employee elects not to get coverage under the first part, then workers compensation covers “employers liability” because your employees have the right to sue for on-the-job injury or illness or disease contracted as a result of employment

Important to note with regards to the first part (medical expenses) of workers compensation is that personal health insurance companies have the right to decline coverage for on the job injuries/illness/disease. In the state, sole proprietors and 10+ percent owners of LLCs and Corporations have the right to “affirmative election” of their right to refuse to be covered by their own workers compensation coverage. In some special classifications of work, the state is no longer allowing owners to exclude themselves, or requires a letter from the state specifically allowing an owner to exclude themself.

The state mandated minimum limit is $100,000 per employees per year (policy period). If you’re thinking about workers comp coverage, then you should also know that Workers compensation is annually auditable from your insurance company. That means they will send you documents requesting bookkeeper verification of your payroll and contractor expenses in order to correct your coverage “basis,” and to retroactively bill or credit you accordingly. You are required to respond with certified, accurate figures in a timely manner to these audits as a provision of your insurance coverage.

Auditing of W-2 employee payroll is pretty clear – payroll fully counts, with the sole exception of 10+% owners having the right to opt out from work comp coverage.

For contractors, there are options:
– Companies that you hire as contractors (who themselves have more than 2 employees) are responsible for their own work comp – so not your problem, though it is wise of you to retain a certificate of coverage for their work comp in your files.
– Sole proprietors (individual people) or single-entity LLCs whom you hire (usually as 1099 individuals) must have one of the following:

– They may provide you with an election to decline coverage form (PDF for Sole Proprietors;   PDF for LLC 10+ percent owners ), which must be notarized and you keep on file. The forms linked in this section are samples in 2010 from the state of New Mexico (look at the bottom of the page on that link for the Special Election forms) – contact the workers compensation administration (look on their website!) in your state for up to date forms.
– They may have their own work comp coverage already. If so, then they need to give you a certificate proving it
– If neither of the above two items apply, then YOUR annual work comp audit will require you to report those contractors AND to pay full value workers compensation on them. In some cases, like if they want to be covered for on the job injury by you, then this may be exactly what and how you want to cover them.

So, if a person who is a contractor working for you, both:
a) Does not have work comp coverage; AND
b) Is an individual and does not want work comp coverage

Then you need to keep the affirmative election for a Sole Proprietor to decline coverage, notarized, on file for them.
The work comp insurance company has the right to verify that you have these forms on file.