As a general matter, after payment of a loss is issued to an insured, the insurer is entitled to pursue any right of action the insured may have against a third party whose negligence or wrongful act caused the loss. The insurer is able to do this through subrogation.
Insurers can be subrogated only to those rights possessed by the insured. In other words, the insurer "steps into the shoes" of its insured in seeking recovery of its payment for a loss. Therefore, any defenses available against the insured would also apply to the insurer in the subrogation action.
A common defense to a subrogation action is an express "waiver of subrogation" provision contained in a contract between the insured and the allegedly negligent third party. In a waiver of subrogation provision, the parties to a contract agree to waive any rights of recovery against each other to the extent the loss at issue is covered by insurance. The purpose behind waivers of this type is to avoid the hassle of litigation and allocate the risk of loss related to the contract to the insurance carrier. This provision is most commonly used in construction contracts.
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