Subrogation Issues in Transportation Contracts

Insurance issues in Transportation Contracts are often overlooked by those who don’t understand their significance. Trucking companies and logistics companies want to obtain business from shippers, but the more savvy trucking companies will attempt to negotiate the insurance provisions carefully. This article will address typical subrogation clauses and the issues that need to be carefully reviewed by all parties entering into a transportation agreement.

Subrogation and Waiver of Subrogation – Subrogation in very simplistic terms is a right of a party to seek recoupment of money they have had to pay that was because of the fault of another party.

Some of the typical scenarios where subrogation will come into play include a dock accident where a driver gets hurt. Many shipper drafted contracts will include a waiver of subrogation requirement, which will require the carrier or the logistics company/broker to waive any rights of subrogation. In this situation, a carrier would most likely pay any claims for injuries to their drivers under workers compensation. Then the carrier or its insurance company would try to recover the amount of their outlay from the party responsible for the damages.

Another scenario would be where a property insurer pays for damaged equipment and seeks subrogation from the at-fault party.

Generally, when an insurance company pays a claim under its policy of insurance, it will retain a right of subrogation to collect from the responsible party the amount that it outlays under the policy. For purposes of subrogation, generally an insurance company’s rights follow the rights of its insured. So – if the insured party (like a carrier or 3PL), waive their rights of subrogation in a transportation agreement, then they are also most likely waiving the rights of their insurance company to pursue a claim against the responsible party. Some insurance policies have provisions in them that can alleviate their duty to pay if their insured waives their subrogation rights. So, this would not be good for either party involved in a transportation agreement.

The moral of this story is that in the negotiation of transportation contracts, there is almost always negotiation regarding a waiver of subrogation clause. The contractual provision usually is found under an insurance section heading or under the indemnity clause. It is important to understand that such a waiver may affect coverage of claims and the costs of premiums. For self insured companies, it may directly affect the bottom line of an account.