In two UK cases the court confirmed that, when there is an underlying contract between parties who may become liable to each other but who take out insurance as part of their deal, the agreement is likely to be construed as being an agreement to insure for the joint benefit of both parties. It follows that the insurers will have no rights of subrogation against the liable party.

In the first case a consultancy arrangement between a financial consultant and a company relating to the management of a trust included an indemnity by the consultant. The company contractually agreed to put professional insurance in place covering the consultancy services. The court implied a term into the indemnity contract to the effect that it was intended to provide supplemental protection only once the claim against the insurance company had been exhausted. The court also implied a term into the insurance policy that the insurers would not seek to be subrogated to the company’s rights against the consultant, because they had taken a premium to cover the risk of both parties (Rathbone Brothers Plc v Novae Corporate Underwriting Limited EWCA).

The other matter involved chartering of a ship with the owners to insure the ship in the joint names of the owner and charterer ‘as their interest may appear’. The ship went aground in an unsafe port allegedly in breach of the charter. The court reminded us that one of the main reasons why parties take out insurance is that they need to be covered for the consequences of their own negligence. The parties intended there to be an insurance funded result in the event of a loss or damage to the vessel. That would preclude the insurer’s having any right of subrogation (Gard Marine & Energy Limited v China National Chartering Co Limited (Rev 1) EWCA).

When insurers knowingly insure a risk in joint names or insure the liability of the contracting parties and take a premium they will usually not be entitled to exercise a right of subrogation against any of the parties who are insured under the policy nor for any losses arising from conduct that is insured under the policy.