On Waiver, Subrogation and Indemnity

Perhaps the main thing waiver, subrogation, and indemnity have in common is how frequently misunderstood they are. I often get a glazed-over “huh?” when I float one of them out before someone who rarely swims with sharks.

First things first; a “waiver” is not a friendly Walmart greeter. Instead, at law, a waiver is simply the voluntary giving up of a known right. If I am detained by law enforcement and, after being advised of my right to remain silent, I determine instead to blabber, I have waived my fifth amendment right against self-incrimination.

Waiver may occur as well in a civil or business setting. Say, for example, I enter into a contract. Generally, if a contract sours, I have the right to pursue my remedies in court. But by private agreement with the other contracting party, I hold to his suggestion that, if we get upset with one another over the contract, instead of going court, we submit our dispute to binding arbitration. In doing so, I have waived my right to trial and have committed myself, instead, to arbitrate the matter.

Let me emphasize though, in order for a waiver to be held against me, it must be both voluntary and knowing. Employing an example, if a contract is presented to me in Swahili, presuming I don’t speak or read Swahili and I’m stupid enough to sign it anyway, if in doing so I give up some right, I may reasonably later protest that whatever I gave up, I did not give up knowingly. Similarly, if I waive my Miranda rights (that is, the right to remain silent) at the business end of a cocked pistol, my waiver would not be voluntarily given.

The word “subrogation” has an intimidating heft to it. It has a mouthfeel like something dastardly awaits. But wait; it’s not so bad. In fact, it’s sort of innocuous. Subrogation simply means to stand in someone else’s shoes. See, that wasn’t so bad, was it? More specifically, it means the substitution of one person in place of another with reference to a lawful claim, demand, or right. The person who is substituted succeeds to the rights of the substitute in relation to the debt or claim. If you have a right of subrogation to whatever I may win in a particular lawsuit, then if I win, what’s mine is yours.

Often insurance companies hold a contractual right of subrogation. While they may initially pay out a claim on your behalf, if you sue and win (or they sue in your name and win), they may take back what they paid. Say, for example, you are injured in an auto accident and, per usual, it’s the other guy’s fault. While your insurance company may pay to put your Humpty Dumpty-self back together again, when you go to sue the bad guy and his insurance company ultimately coughs up the dough, your insurance company will have its hand out to get back what it has advanced on your behalf. Subrogation is an equitable principle, one meant to do “what’s fair.” If, in our above example, your insurance company doled out cash on your behalf and the other guy really was at fault, the fair thing to do would be to pay your insurance company back rather than you winning the lottery and getting paid twice, once by your insurance company and a second time by his.

“Indemnity” means I’m looking out for you. If you get in trouble because of me, I’m your guy. If I’ve agreed indemnity to you, it means that I’ve agreed to redress whatever mayhem I may have caused you.

Let’s say, for example, I agree to an indemnity provision in a lease agreement. I am the tenant and you are the landlord. I run a high-class hair salon. You are worried about my potentially irresponsible self and how my actions ultimately may affect you. To address what might otherwise be sleepless nights for yourself, you have me agree that if I lop off someone’s ear during the term of my tenancy and that someone sues us both, I will indemnify you and hold you harmless for whatever losses you might sustain, most times including your attorney fees and costs of litigation. What I’ve agreed to do is to provide you with security; to provide you with a guarantee against any loss you may suffer owing to my acts.

Another way to think of indemnity is in the insurance world. When you enter, say, into a policy of homeowner’s insurance, what you are really agreeing to is that, in exchange for paying your rates, the insurance will indemnify you against certain, express losses. Insurance companies indemnify their policyholders against damage caused by such things as fire, theft, and flooding, which are specified by the terms of the contract between the company and the insured. Even if it is not “my bad,” the insurer agreed to bear the loss on your behalf.

So what, in addition to sowing confusion, do these three terms have in common? Well, all three are common contract terms and the second two have to do with who will bear the losses if things go bad.

In simple terms, waiver means to voluntarily and knowingly release a right; subrogation means to stand in another’s shoes; and to indemnify means to stand up for another.

Pretty simple really. It’s those damn lawyers that make it seem complex.

Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices Of Counsel in the Vail Valley with the Law Firm of Stevens, Littman, Biddison, Tharp & Weinberg, LLC. His practice areas include: business & commercial transactions, real estate & development, family law, custody, & divorce and civil litigation.

Mr. Robbins may be reached at 970/926.4461 or at his e-mail address: Robbins@SLBLaw.com.


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