Introduction – Waiver of Subrogation in EPC Contracts
Definition – Waiver of Subrogation in EPC Contracts
A waiver of subrogation is a contractual clause that prohibits the waiving party from exercising any right of recovery or claim against the party concerning whom the waiver of subrogation has been provided.
Black’s law dictionary defines ‘subrogation’ as the substitution of one person in the place of another concerning a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other about the debt or claim, and its rights, remedies, or securities.
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Relevance in Waiver of Subrogation EPC Contracts
Waiver of subrogation finds relevance in EPC contracts, more specifically concerning the different types of insurance(s) a contractor is required to obtain. Given the waiver of subrogation is provided by the contractor, the insurer cannot step into the shoes of the contractor and seek recovery. This waiver helps reduce the probability of legal actions and lawsuits that may be initiated by the insurer during the currency of the Contract.
Another instance involves large construction or infrastructure projects involving multiple parties, including contractors, subcontractors, and consultants, and the often large damages in these types of projects. The clause serves to protect commercial relationships and ensure that disagreements between insurers and these entities are resolved outside of court. This is particularly important for projects in which collaboration and continuity are essential to achieving timely completion. In the absence of such a waiver, insurers may pursue loss recovery from parties on the same project, placing financial strains and potential work stoppages within projects.
Legal Enforceability in India
Generally speaking, from a legal standpoint, the enforceability of a waiver of the subrogation clause will depend on how it has been worded and the various laws that apply. In India, such waiver of claims is commonly protected under the Indian Contract Act, of 1872 if specifically agreed to under a contract and not against public policy. However, courts will look more closely at these clauses when they seem to unduly limit a party’s ability to pursue a legal remedy or impose unreasonable restrictions on a party’s rights. Hence, these clauses must be drafted judiciously, lest they be sufficient, proportional, and within the four corners of the Indian insurance and contract laws.
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