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Any insurance experts on here? (FAO Gladstone)


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If an insurance company exercises subrogation rights, do they gain the rights of the party they are insuring at law or under contract?

If Party A indemnifies Party B against all damage to Party A's property howsoever caused, if Party B damages Party A's property then Party A's insurers will pay up. Can Party A's insurers then chase Party B for compensation or does the indemnity provision stand up under subrogation?

Many thanks. :up:

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Guest Gladstone

A good indemnity clause would state that all rights of subrogation are to be waived by the indemnifying party's insurance company.

Insurance law isn't my strong point (as in I know next to fuck all about insurance law...).

In your example, if there is no provision stating that subrogation rights are to be waived, then you probably land in the same position as if it was expressly stated but Party A forgot to tell their insurance company. The insurance company would pay out to Party A, then they would go after Party B for the money, Party B would have to pay out, but would then wave their indemnity at Party A who would fit the bill. Otherwise an indemnity is completely useless. Presumably Party A has held Party B harmless against all claims, damages, liabilities etc etc. meaning that a claim by the insurance company against Party B for causing the damage would be indemnified by Party A, meaning Party A has royally fucked up by not telling their insurance company to waive the subrogation right under that policy against Party B because they are effectively uninsured against any damage caused by Party B.

Of course - I could be missing a point here - there may be something implied at law that if there is an indemnity, the insurance company cannot exercise their right of subrogation against Party B at all, but I think that would most likely invalidate the insurance policy under those circumstances because if the insurance company would need to be informed of that indemnity in advance of signing it.

But, in short, if Party A has fully indemnified and held harmless Party B against any damage to Party A's property, however caused, then Party B will not have to pay for damage it causes to Party B's property.

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Thanks.

We're finding that a lot of Operators are refusing a mutual waiver of subrogation but insisting that we make sure our insurers waive theirs. We were just discussing the practical way in which this would be applied. In this situation, could it be implied that because our insurers expressly waive their rights that we are entitling our Client's insurers to exercise theirs?

But basically, you're saying above that regardless, providing the indemnity wording is robust ("all claims" wording, including those from third parties), then that should suitably cover claims under subrogation by an insurer of a contracting partner?

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Guest Gladstone

That would be my understanding, yes. But as I'm not an insurance law expert, it may be worth getting an opinion from an insurance lawyer at a law firm. Obviously that costs money though.

In your example (in your last post) - i.e. if your insurers waive their rights and the other party's doesn't - I'm really not sure whether that implies that you're accepting their insurance company could exercise subrogation rights against you.

You have to look at the intention of the clause. My interpretation would be that if you are expressly indemnifying a party against any claims etc for damage to your property, then the intention surely has to be that that party isn't going to have to cough up to your insurance company. That defeats the purpose of knock for knock indemnities in the North Sea and we would all fall back into double-insuring again. The point of knock for knock indemnities is that Party A insures Party A's property and people, and Party B insures Party B's property and people and that's where it stops. Obviously there are sometimes carve-outs for Wilful Misconduct, but that's as far as it should ever go.

The Operators you are dealing with are being unreasonable if they expect your insurers to waive subrogation rights, but not theirs. Most service providers don't have the financial backing to live with that sort of risk, nor could they afford to pay the insurance premiums to cover the risk of an operator's platform. If, for example, a service provider fucked up and destroyed a BP platform, BP would have an indemnity in place and would cover that loss under self-insurance. If that was through an actual insurance company, and the insurance company could go after the service provider (who could be a very small local company) under rights of subrogation, they would get next to no money (in comparison to the actual cost of rebuilding the platform) out of the service provider before the service provider goes bust. So, all that would be achieved would be a small independent company has gone bust - that's the reason for indemnities like this in the North Sea in the first place - to prevent situations like that happening (as well as preventing double-insuring, to keep the costs down).

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That would be my understanding, yes. But as I'm not an insurance law expert, it may be worth getting an opinion from an insurance lawyer at a law firm. Obviously that costs money though.

We have insurance people in the company who should be able to help, but they're US based - waiting on a reply (I'll keep you updated if anything crazy comes out of it!).

In your example (in your last post) - i.e. if your insurers waive their rights and the other party's doesn't - I'm really not sure whether that implies that you're accepting their insurance company could exercise subrogation rights against you.

That was my take, only as an example of where it would be possible for someone to construct an argument in that respect.

You have to look at the intention of the clause. My interpretation would be that if you are expressly indemnifying a party against any claims etc for damage to your property, then the intention surely has to be that that party isn't going to have to cough up to your insurance company. That defeats the purpose of knock for knock indemnities in the North Sea and we would all fall back into double-insuring again. The point of knock for knock indemnities is that Party A insures Party A's property and people, and Party B insures Party B's property and people and that's where it stops. Obviously there are sometimes carve-outs for Wilful Misconduct, but that's as far as it should ever go.

I totally agree with that interpretation. We were concerned just that we were perhaps missing something on the insurance side - some companies (that people in my dept have worked for) have been totally strict about ensuring they get a waiver in their contracts (to the point of walking away if they don't), others more relaxed. This is on the understanding that the indemnity regime is sound and the wording robust.

The Operators you are dealing with are being unreasonable if they expect your insurers to waive subrogation rights, but not theirs.

I agree, however if everything said above is correct, does it even matter? Why express it in the contract, and then why have a problem with waiving their own if it doesn't actually make any material difference?

It's also worth noting that the LOGIC terms provide only for Insurance by Contractor and make no reference to a mutual waiver of subrogation (only that Contractor's insurers are to waive theirs). Although that said, it does not specify anywhere in LOGIC, or many (if any?) other contracts the insurance requirements of the Company. So perhaps that is why?

The IMHH provides for all signatories' insurers to waive subrogation rights.

Most service providers don't have the financial backing to live with that sort of risk, nor could they afford to pay the insurance premiums to cover the risk of an operator's platform. If, for example, a service provider fucked up and destroyed a BP platform, BP would have an indemnity in place and would cover that loss under self-insurance. If that was through an actual insurance company, and the insurance company could go after the service provider (who could be a very small local company) under rights of subrogation, they would get next to no money (in comparison to the actual cost of rebuilding the platform) out of the service provider before the service provider goes bust. So, all that would be achieved would be a small independent company has gone bust - that's the reason for indemnities like this in the North Sea in the first place - to prevent situations like that happening (as well as preventing double-insuring, to keep the costs down).

Perhaps looks like we're making a mountain out of something that isn't all that important. There doesn't seem to be any journal articles or similar on the topic, which is interesting. Appreciate your input though, very useful!

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Guest Gladstone

Just to respond as to why you would put it in the contract in the first place is to avoid a world of pain where the insurance companies start going after someone for payment when the subrogation rights haven't been waived. It's also a good reminder for contracting parties to tell their insurance companies. If I was Party B in your above example and the contract specifically said that Party A had to get the right of subrogation waived, I would be waving that contract in the face of the insurance company trying to claim against me and hopefully it would make them go away and get the money back from Party A because Party A had invalidated their insurance policy by entering the contract with that indemnity. Rather than passing money from insurance company to Party A, then Party B to insurance company, then Party A to Party B, it would just be a case of Party A having screwed up and getting nothing from the insurance company.

End result is the same, but you get there quicker.

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