The pitfalls that face a sportsperson or a sports organisation in arranging and claiming under insurance cover

If something goes wrong in professional sports and there is an insurance policy, it should not be assumed that the policy represents money in the bank. Things can go wrong under the policy, just as much as things can go wrong in sports. There are legal risks with respect to any claim under an insurance policy, whether the policy insures professional sports or anything else. Those risks must be managed and they can be managed in a large part by two important steps: clarifying and understanding the scope of the insurance cover and ensuring the risk is presented fairly to the insurer.

Both of these steps, however, will be affected by the Insurance Act 2015 (“2015 Act”),¹ when it enters into force on 12th August 2016. This Act will introduce radical changes to these areas of the law. In particular, by sections 3-6, the scope of the insured’s duty on presenting the risk is very likely to be greatly expanded, thus increasing the burden on the insured. On the other hand, the ability of the insurer to rely on terms of the policy in defence of an insurance claim will be somewhat, not completely, diminished by two statutory provisions (sections 10-11) which will deprive the insurer of a remedy where the loss occurs after any breach of warranty is remedied and where non-compliance with certain terms (whose compliance is designed to reduce the risk of loss) could not have increased the risk of the loss which actually occurred in the circumstances which occurred. It is possible to contract out of most of the provisions of the 2015 Act, but this requires clear and unambiguous language and the insurer must take sufficient steps to draw the insured’s (or its agent’s) attention to the provision (sections 16-18).

In the context of the 2015 Act, this article will discuss the pitfalls that face a sportsperson or sporting organisation in arranging and claiming under insurance cover that is intended to minimise the impact of risks confronting professional sports as a business.

Sport as an insurable business

Professional sports have developed into a very sophisticated business. Saying the words “professional sports” carries with it the booming sound of risk. Whatever the sport, the athlete or player has aimed at performing at high levels in challenging environments. Spectators watch these players overcome and succumb to risk and, with that, comes the inevitable flow of commerce, which also carries risk. Risks arise in a variety of ways: there are risks of injury and death, there are risks of property damage, there are risks of legal liabilities to third parties, and there are risks of financial loss.

For centuries, insurance has been taken out to meet these risks. If used properly, an insurance policy can operate to transfer the risk of losses otherwise borne by players and sporting organisations to insurers. By an insurance policy, the insurer promises to pay the player or organisation (“the insured”) money in the event that the risk of injury, death, damage or loss materialises. The principles of insurance law are well established and have been worked out in a large array of cases dealing with many types of commercial transaction. However, certain of these principles will be fundamentally changed when the 2015 Act comes into force on 12th August 2016.

Insurance comes in a variety of forms. There is contingency insurance that pays a specified sum of money in the event that something bad occurs. That sum of money may bear no relation to the loss actually suffered by the insured. If a player dies and the insurer agrees to pay £1 million, that is an example of a contingency insurance. No one would suggest that the player’s life is worth only £1 million. Another form of insurance is indemnity insurance, by which the insurer pays money to compensate the insured for a loss. In other words, the insurance indemnity is aimed at putting the insured in the same position as if the loss did not occur. For example, if as a result of an injury the player loses income for a year, an indemnity policy will pay a sum of money representing that loss of income, no more, no less. There are three principal types of indemnity insurance: insurance against property damage or loss, insurance against legal liabilities to third parties, and insurance against financial loss (e.g. the loss of profits or income or the incurring of expenditure).