Key insurance policies in sport and the role of the lawyerJoshua Charalambous, Steven Aitken
Insuring against the risks involved in sports has arguably never been more important. The amount of money now at stake, the scale and sophistication of tournaments, and the global geo-political landscape have all helped elevate risk levels.
Take event organisation. All eyes were on the French authorities for the recent European Football Championships. Terrorism deterrence and response was a key issue before the tournament in light of recent terror attacks in Paris and Brussels. The U.S. went so far as to issue a formal travel warning to it citizens.1 Stakeholders will have had to review their insurance cover and wider risk management strategies (especially in light of the fact that terrorism is an often excluded risk). In the end, it was not terrorism but hooliganism that caught the headlines. This in itself could have had significant insurance repercussions for those who suffered loss, depending on whether or not specific insurance policies 1) existed, and 2) provided cover for loss suffered as a result of riots, civil unrest, vandalism, or hooliganism.
Then there are the risks facing teams and individual athletes. There were numerous reports of athletes such as Jessica Ennis-Hill, Andy Murray and Rory McIlroy consulting experts about the risks of the Zika virus in Brazil for Rio 2016.2 Rory McIlroy decided that it was a risk that he was unwilling to take.3 What would have happened if the Olympics had been postponed, or if something happened resulted in the cancellation of part or the entire event? That risk needed to be appropriately managed.
Risk managers, clubs, athletes, governing bodies and event organisers (amongst others) should all be seriously considering risk management day-to-day, and it ought to be an integral part of any individual or team’s commercial toolbox. This article explores some of the most common sports-related insurance policies that are available today and the legal issues involved in their effective deployment.
Event cancellation/ event interruption insurance
Events-related policies could cover you for a number of losses sustained as a result of cancellation or interruption, but usually include lost advertising or broadcasting revenue; lost ticket sales; reimbursement of tickets; costs of rescheduling a postponed or interrupted event; and renting or leasing a new venue. Events policies can also indemnify policyholders for damages claims by third parties. Typically claims result from personal injury/ property damage at the insured events.
Some risks might be excluded from a generic policy so it is crucial, if you are involved in placing insurance within your business, that you sit down with your broker and discuss the various causes of cancellation that might be pertinent. In addition, where umbrella event insurance policies are in place, it is always worth taking the time to periodically review the full schedule of events covered to ensure that a new event falls within the scope of the policy.
A prime example involves the Old Trafford bomb scare causing Manchester United to postpone its final Premier League match of the 2015/2016 season.4 Old Trafford was evacuated before kick-off due to the discovery of a suspect package. Old Trafford has a capacity of over 75,000 and had a fantastic atmosphere in the sunshine before kick-off. Brands had spent millions of pounds on TV, shirt, in-stadium and collateral advertising to ensure they were in the spotlight at the Theatre of Dreams.
Some estimate that the loss flowing from the incident was £3m although it is unclear how that estimate was reached and it could easily be higher.5 The club will have incurred costs in evacuating the stadium; paying any contractual mechanisms for the postponement/ abandonment of a game; and reimbursing those ticketholders who could not make the re-arranged game. With hindsight comes a more focused picture of the risk associated with hosting each Premier League match, of which there are 380 across the country each season.
General liability insurance
General liability insurance often covers employer's liability and public liability. UK companies are bound by law to have an employer’s liability policy in place which indemnifies policyholders for claims made against them due to death or bodily injury. Public liability insurance usually provides cover for compensation claims for injuries to third parties or damage to property. It is important because sporting events and sportspeople often interact with members of the public. Some general liability policies in the sporting context will exclude participant-to-participant claims.
Employer's liability reimburses compensation paid by employers who are liable for an accident to an employee arising out of the general course of employment. It should be noted that in a sporting context, this often extends to volunteers. This is a vital consideration for any organisers of events where volunteers play a key role. A recent estimate for the number of volunteers at the Rio Olympics was 50,000.6 Although 'employees' will include non-sporting staff who might suffer an injury whilst at work, the quantum would likely be higher if the same incident involved athletes and/or higher earning members of staff.
Any accident at a sporting event in the UK could result in an investigation by the regulatory authorities (the Local Authority or the Health and Safety Executive). The authorities will investigate circumstances or actual incidents which have caused or could cause injury. In the worst cases, this can result in a prosecution for the directors, which explains why we sometimes see these claims notified through D&O policies (see below). Most general liability policies will provide cover in respect of defence costs where there is a prosecution, but it is important to check the precise ambit of such cover, and whether it is subject to any sub limits. Note that it will not cover fines incurred, as a matter of public policy.
A particularly interesting example of where general liability insurance might kick in is the recent indication by the family of Jules Bianchi that they intend to bring legal action against Marussia, the FIA, and the Formula One Group. It is reported that the family claims errors made in the planning, timing, organisation and conduct of the race caused the accident which resulted in Bianchi dying of head injuries after his car crashed into a mobile crane at the Japanese Grand Prix in 2014.7
Directors and officers (D&O) liability insurance
D&O insurance offers cover for company managers and directors to protect them from claims which may arise from decisions or actions that they took during the course of their employment with the policyholder and which were within the scope of their regular duties.
It is important to remember that the insurers will pay the relevant D&Os for any costs incurred in defending a claim and/or compensation that they are ordered to pay and will pay the policyholder company in the event that it has paid off a claim in order to protect the D&Os.
Put simply, D&Os make mistakes and are often personally legally liable for them. If you are reading this and are a D&O of your organisation, it is worth retrieving a copy of your D&O policy to remind yourself of what you are covered for. Most often, D&O policies cover decisions made in relation to employment or HR, shareholder actions, reporting errors, misrepresentations in prospectuses, or failure to comply with regulations or laws.
Often frauds, intentional non-compliance with regulations, and illegal remuneration or personal profit are not covered by the policy. However, D&O liability insurance is extremely topical in light of the recent allegations of corruption across the sporting industry (think FIFA).
Insurance will often respond and cover D&Os until any allegations are proven (either by admission or by a binding decision such as by the court or regulatory body). As a result, insurers will often pay out and cover defence costs incurred by the D&Os and have to seek to recover them after the D&O is found guilty of an offence. Note that the policy will not cover fines, as such cover would be contrary to public policy.
The nature and extent of individual entitlement/ expectation of cover ought to be formally documented in a contract of employment and/or applicable code of conduct. If you are a director/ officer of your organisation then it is best to find out what cover, if any, is in place.
Career ending insurance
Sometimes, despite talent, athletes are prevented from fulfilling their potential due to career-ending injuries. Specific policies are available to cover athletes for loss of current and future potential earnings following an injury although they are often found within personal accident policies. Often the policy will provide sportspeople with a lump sum (tax-free) and can also include potential earnings from commercial sponsorships/ endorsements.
Fabrice Muamba memorably collapsed whilst playing for Bolton versus Tottenham Hotspur in 2012. Muamba was reportedly on c. £35,000 per week and was only 23 when his career was ended. Muamba did have insurance although the details are confidential. We do not know whether Muamba had a policy that paid a lump sum for lost potential earnings, but the potential total figure could have been huge. By way of illustration, if Muamba had stayed on £35,000 per week (it would likely have increased) for another ten years, he would have earned at least £18.2m before tax.
Another notable example involves Steve Thompson (the retired England Rugby World Cup winning hooker). Thompson suffered what he thought was a career ending injury after damagin his neck playing for Northampton Saints. Thompson famously returned to the sport later that year after surgery and being passed fit to play. Thompson had received a significant pay-out from his insurers which he had to pay back before he could return to the sport. The policies should explicitly state that the athlete will not be able to compete professionally in the sport after they have made a claim. Thompson retired in 2011 after a recurrence of the original injury, and the details of a second insurance pay-out (if any) are unknown.
Failure to broadcast
Despite the plethora of technology available to us, the possibility of the failure of equipment resulting in interrupted or failed broadcasts remains a risk. With the exponential explosion of revenue associated with sports broadcasting, the loss that might be sustained for refunding advertisers and other marketing/ sponsorship companies could be significant. Sometimes, failure to broadcast is available as an extension of event cancellation/ interruption policies.
Prize indemnity/ contract bonus
Sean Cottrell has authored this piece on 'insuring against the concept of success' in which he interviewed Saul Paine of Hedgehog Risk Solutions. It explores the background and benefits of bonus insurance schemes. Professional sporting contracts often have mechanisms in place for high achievements. A very topical example is Leicester City's triumph in the Premier League this year. The club is reportedly set to receive c. £93m in prize money for winning the league. Together with Champions League revenue and a likely increase in sponsorship, the success will make nice reading for the champions' balance books. That said, will they have expected Jamie Vardy to be called up to the England squad last season triggering a bonus clause in his contract? What about a bonus for Claudio Ranieri for masterminding the success, or the team bonus for winning the competition? Reputedly, a bonus was included in Ranieri's contract with the club conceding the clause in a commercial negotiation given its low risk eventuality!8
After the Portsmouth FA Cup debacle of 2010, where the club did not field certain players as it could not afford to trigger bonus payments, many more clubs are obtaining insurance against paying out contractual bonuses, although one would imagine that Leicester City's premium may increase after this year!
Aside from these commonly seen policies, there are many other types of policy that may affect sporting entities including property damage, cyber liability and construction risks. No matter what the policy covers, however, those involved will need to be familiar with the terminology. Here are a few key concepts:
- Is the policy “occurrence based” or a “claims made” policy? It is extremely important under a third party policy to understand if it is “claims made” or “occurrence based”. Occurrence based means that if an injury/ damage is sustained in 2012, and a claim is made in 2016, you must notify the claim against the policy that was in place in 2012. Claims made means that you must look carefully at the insurance policy in place when the claim was made. If in doubt, you should liaise with your broker. As soon as you become aware of a circumstance which might lead to a loss which is covered by insurance, let your broker know and discuss which policy (if there is more than one) you should notify it to.
- Is it a first party/ third party policy? First party insurance protects the policyholder against loss or damage against its own property (such as property damage caused by fire, or career-ending injury insurance). Third party insurance covers the policyholder for any liability owed to another person.
- What does the retention mean? A retention based policy means that the insured must pay-out a specified amount before the insurance company is obliged to indemnify. It acts as an excess so if the retention is £100,000, the policyholder must pay the first £100,000 incurred loss before insurers are obliged to step-in. It is important to be aware of whether or not your policy has a significant retention as it can affect your strategy.
Key legal issues
The keys to managing insured risks are to: 1) understand the risk itself and implement risk management strategies; 2) understand the insurance policy and what is covered; and 3) understand the duties of the parties involved (ie the insured, the broker and the insurer).
There are a broad range of legal issues that arise in the context of insurance but, most commonly, legal issues arise in relation to coverage. Once circumstances arise (or a claim is made), notification should be made by the Insured to the Insurers (often this is via the broker but it is important to check the policy for the notification requirements). Insurers will then review the factual matrix and check whether it falls to be covered by the policy.
The most common cause of coverage declinature is that the facts do not fall within the scope of the risk that Insurers agreed to indemnify. This might be because the facts lend themselves to be covered by a different type of policy or simply because the risks were not fully considered before agreeing the policy.
Another key issue relates to notification of circumstances. Many policies require, as a condition precedent to indemnification, notification within a certain specified time frame. The time often (although not always) starts running from when the Insured has knowledge of circumstances that could give rise to a claim (even if a claim has not yet been made).
Once cover is confirmed, the Insured and Insurers will work together to appoint solicitors to act for them both. In some policies, the Insured is able to select its preferred solicitors and Insurers will reimburse reasonably incurred costs. In other policies, Insurers reserve the right to use their panel of solicitors. This often depends on the type of policy and the amount of premium paid. It is useful to use solicitors that are experienced in acting for Insurers and Insureds together, to ensure that all parties are swimming in the same direction.
The laws governing insurance policies are complicated and in the process of change through the Insurance Act 2015. The new legislation came into force on 12 August 2016 and will represent the biggest change to insurance contract law in over 100 years (note that it does not affect this article). The changes ought to be communicated to insureds by the brokers, and the details will not be explored here, but those who are interested in watching a brief overview can click here.
This piece is intended to give readers an overview of the types of risks and policies rather than an in-depth review of insurance law. That said, if you have any questions on the legal backdrop and its change, you should seek legal advice.
- Undertake periodic reviews of potential risks and ensure that the insurance policies you have in place, cover what you need them to cover.
- Whenever a circumstance arises that could give rise to a claim against you, speak to the broker and see if you have taken out insurance that covers you. If the answer is yes, discuss with the broker whether you need to notify the circumstance to insurers (usually via the broker).
- It is important to note that you may need insurers' consent to incur any costs that you would want to be reimbursed. Policies are different so it is best to check the wording.
- You may also need insurers' consent before you deal with any claim or allegations (even if you are denying liability).
- If in doubt, always seek advice from the broker and/or insurance lawyers.
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About the Author
Josh is part of the IP/Tech team at RPC and sits within RPC's wider Sports group. Josh has worked on contentious and non-contentious matters involving a number of high profile sports clients including: internationally renowned football clubs, the UK's largest sport retailer, high profile athletes and leading sponsors. Josh has also spent 4 months at a leading insurer listed on NASDAQ and has advised on coverage, defence and policy wordings.
Steven Aitken has been an insurance lawyer for almost 20 years and specialises in all issues arising from complex, catastrophic and fatal injury claims including policy coverage advice. He has a particular interest in sports-related matters and has dealt with numerous claims in this context.
Steven is a regular industry speaker. He also deals with health and safety and environmental regulatory cases.