The relatively standard insurance policy condition that the insurer retains the right to subrogate is particularly significant for alliancing projects.
Clearly, in connection with alliance Participants the rights of subrogation (as noted, the right of the insurer to step into the insured's shoes and sue another party or insurer) is in tension with the concept and terms for no suit - no litigation. Accordingly, in endeavouring to support the no suit concept, waivers of the right of subrogation need to be obtained from the various insurers and endorsed on the relevant insurance policies, where possible.
However, principals should be aware that the right to subrogate will not always be waived by an insurer. For example, the right to subrogate may not be waived for individual (as opposed to project-specific) professional indemnity insurance policies, motor vehicle insurance policies and workers' compensation insurance policies. During the course of negotiating insurance provisions for a project, parties should consider and consult with relevant advisers about various relevant policies and available terms and issues from time-to-time, so that they understand the circumstances when insurers will or will not waive rights to subrogate and the impacts and options for project insurance arrangements. Sometimes principals' extensions can be negotiated.
Some issues that may be relevant to consider include:
a. whether parties can be named as additional insureds on any existing insurance policies that might provide cover (with or without amendment), and the relative cost;
b. whether the particular insurance policies provide that the interests of any insured will not be invalidated by any action or inaction of any other insured;
c. the procedure for cancelling the insurance policy or altering the terms and conditions;
d. the credit worthiness and financial backing of the particular insurance providers, including considering Standard & Poors and other ratings reports or information available regarding insurers; and
e. whether the particular insurance policies contain a 'double insurance clause'. This is a clause in an insurance policy stating that, if a particular risk is covered under another insurance policy held by an insured, then the insurance policy does not have to respond. However, it should be noted that in Australia, the Insurance Contracts Act 1984 (Cth) prohibits the use of these clauses in relation to insurance policies covered by that Act. While the Act covers basically all insurance policies, it does not cover marine insurance policies.