Sail GP: A lesson on subrogation

Written by Tim Weymouth - Associate Director, ACII, AloL

As part of my personal commitment to being a part of Howden’s ‘Summer of Sport’, I’ve been following the GB Sail GP Team. And this weekend was a rather dramatic one for them. Following a crash with Team US’s vessel, Team GB’s yacht was damaged. When it comes to who has right of way on the high seas and under sailing race conditions, but I understand that team USA was deemed to be at fault. 

Within Sail GP rules, Team GB had the rights over Team US’s yacht, meaning that they could have taken over their rival’s yacht to participate in the race should their yacht now not be race- worthy. The issue was that the Team US yacht suffered even worse damage than our one! 

This is where it gets both complicated and controversial. As Team GB still had rights over the US vessel, they essentially cannibalised the US hull, cutting out a  section to replace that which was damaged on their boat – which then allowed them to continue in the racing over the final day of the event. And while the above is a lot to take on board (excuse the pun) I’ve massively understated what the Team GB shore team was able to achieve to get their boat back on the water. But, circling back to all things insurance, it does give a great example of subrogation and how contracts and rules are vital when trying to stay afloat. 

So subrogation as a term – essentially this is the right for an injured party to recover their loss from the “at fault” party. In this case, Team US were at fault so Team GB recovered their losses from the US yacht… but this applies in everyday business as well. think about if your company supplies components for a larger machine and your product or part causes the machine to fail and catch fire. It could well be the case that your customer’s insurance company looks to subrogate the costs of the claim for the damage to the machine and wider factory from your company!

In the Sail GP example, it was the rules of the competition which allowed the subrogation to take place. Within the corporate world it’s the contracts between a client and supplier which govern the ability for one to subrogate from the other. Therefore, it’s important that companies have strong contractual management in place, and, where appropriate take legal advice. Some companies will insist that there’s a “waiver of subrogation/mutual hold harmless” in place against them which would prevent your insurers from recovering claims costs from the potentially “at fault” company  –  meaning that the increased costs sit on your claims experience and increase your premiums. For a clearer picture,, sometimes waivers of subrogation/mutual hold harmless can be deemed acceptable, but these are in specific cases; for example, construction or Offshore/Oil & Gas contracts (LOGIC etc).

Furthermore, if you’re unable to present clear evidence  of contract management to your insurance company, they may look to apply more restrictive terms. And if you breach them, then your insurance cover might not respond to the claim at all.

So how can Howden help? Firstly, we would highlight any policy terms which could be relevant to contract management. Secondly, we will provide a contract review service which may include reviewing the contracts you currently have in place. We can then suggest amendments to reduce your exposure and also template contracts for you to use with your customers/suppliers. If this is not something your current broker offers and you’re keen to explore this, please feel free to contact our specialist team via the buttons below as we’d be delighted to discuss how we can help make the most complicated of contractual issues plain sailing.