Abstract

Article

Disclosure of Documents

If the Rules provide in effect that, unless there are exceptional circumstances necessitating it, the Court will not make an order for disclosure of documents until the parties to have served their evidence disclosure; and that there will be no order for disclosure unless it is necessary for the resolution of the real issues in dispute in the proceedings, in this context, “exceptional” means out of the ordinary: Leighton International v Hodges; Thiess v Reinforced Earth [2012] NSWSC 458, including cases where the documents reveal information solely within the knowledge of the party from whom disclosure is sought and that information is necessary for the party seeking disclosure to file its evidence: Naiman Clarke Pty Limited atf Naiman Clarke Trust v Marianna Tuccia [2012] NSWSC 314. That is the position where a primary insurer seeks reimbursement from an excess insurer in respect of the former’s advance of costs before the latter took over the defence of the claim.  If the respondent claims that after proper searches it is unable to locate a copy of the policy, then evidence to that effect should be given by an appropriate officer of the respondent. HDI-Global SE v Zurich Australian Insurance Limited [2020] NSWSC 1384

Documents said to be relevant to the correct construction of the policy because they form part of the surrounding circumstances against which the words of the policy are to be interpreted aree not subject to disclosure if they are unlikely to shed any light on the surrounding circumstances as they existed at the time the policy was issued because the subsequent conduct of the parties is not itself relevant surrounding circumstances: Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 at [35]; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407.

COVID -19 and Business Interruption insurance

 

The effectof COVID -19 on Business Interruption insurance has recently been considered in England in The Financial Conduct Authority v Arch Insurance (UK) Ltd and others  [2020] EWHC 2448 (Comm)  andTKC London Limited v Allianz Insurance PLC [2020] EWHC 2710 (Comm).  Needless to say, the result in a particular case will depend on its particular language and contextual and circumstantial background.  However, some relevant discussion of matters of general application appears in the judgments.  The following are some which emergein the later case,which had th benefit of the discussion in the earlier.

Causation

Depending always on he policy's language, the trigger of the exclusion may not apply the 'but for' test. 

Reliance on own Wrong

 

An insurer cannot rely upon its own wrong in refusing to accept liability. Alghussein Establishment v Eton College [1988] 1 WLR 587    

Pre-existing Loss

A policy of Property insurance does not cover matters which exist at the date when the policy attaches. The insured must show that some loss or damage has occurred during the policy period. If a latent defect has existed at the commencement of the period and its existenceis not discovered until that time, there has been no loss under the policy. The property remains in the same condition. So the insured must prove some change in its physical state. Promet Engineering (Singapore) Pte Ltd v Sturge (The "Nukila") [1997] 2 Lloyd’s Rep 146. of course, further progress of exsting damage amountto loss to the extent of the prgress.

Damage

 

In English law, depending on its context 'damage' usually refers to a changed physical state: Promet Engineering (Singapore) Pte Ltd v Sturge, The Nukila [1997] 2 Lloyd's Rep 146 at 151 but it may include economic loss even in the absence of such physical damage. Goulandris Bros Ltd v B Goldman & Sons Ltd [1957] 3 All ER 100 at 115, [1958] 1 QB 74 at 105.

Where a product is supplied for incorporation into a building and it is so incorporated without damage of any kind and in a condition such that it and the other components of the building function effectively, subject only to the possibility of some future failure or malfunction, that is not in any ordinary sense an occurrence or event which gives rise to physical damage in those other components or to the building as a whole. At best, it creates the possibility of some fracture or malfunction occurring in the future. Damage usually requires some altered state which is harmful in a commercial context, such as a poisoning or contamination of property as a result of the introduction or intermixture of the product supplied, but not to its installation in or juxtaposition with the property when it does no physical harm and the harmful effect of any later defect or deterioration is contained within it. Pilkington UK Ltd v CGU Insurance plc [2004] EWCA Civ 23, [2005] 1 All ER (Comm) 283.

 

Loss

“Loss'' is a word whose meaning varies widely with the context in which it is used. Tektrol Ltd v International Ins Co of Hanover Ltd  [2005] EWCA Civ 845, [2005] 2 Lloyd’s Rep 701 at [27]. In property damage policies it usually connotes a physical element rather than economic loss, but it may take colour from its context, for example, if it includes "destruction" and "damage", or gives the Insurer the option to "reinstate or replace". These indicate that mere temporary loss of use is not "Damage". The insured must show that it has been physically deprived of the property because it is plainly irrecoverable its recovery is uncertain.    

If a policy covers "loss of and/or damage or misfortune to" property, there must be proof of  either loss of the property or part of it, or damage or misfortune to it. if irrecoveerability is relied on, it must be proved. Moore v Evans [1918] AC 185 (HL),

"Loss" may have a very different meaning when applied to perishable goods, or to goods warehoused at a heavy rent, from what should be attributed to it when applied to such goods as pearls and jewellery when detained under questionable circumstances, when the natural meaning of the word is being deprived of them, but not every kind of deprivation, such as mere temporary deprivation. Conversely, complete deprivation amounting to a certainty that the goods could never be recovered is not necessary.

 

Losses are of many kinds and happen under diverse circumstances. Uncertainty as to recovery of the thing is the main consideration. It may be mislaid and yet not lost, but if it has been mislaid and is missing or has disappeared for a reasonable time and a diligent but fruitless search has been made so that its recovery is at least uncertain and unlikely, it may properly be said to be lost. Holmes v Payne[1930] 2 KB 301. In some areas of insurance law it nay require physical damage. Outokumpu Stainless Ltd v Axa Global Risks (UK) Ltd 17  [2007] EWHC 255 (Comm) [2008] 1 Lloyd’s Rep IR 147 at [22]-[26]; Kraal v The Earthquake Commission [2015] NZCA 13, [2015] Lloyd’s Rep IR 378 at [71]. It is almost impossible to lay down any accurate test which will fit all circumstances. Webster v General Accident Fire & Life Corp [1953] 1 QB 520.

"Loss" has a broader meaning than "damage". When in its dictionary definition it is used as a noun it is not usually, but can be, associated with "to", but is often coupled with "of", when it connotes deprivation of a thing. But  physical" loss "to" the property requires more. Kraal v The Earthquake Commission [2015] NZCA 13, [2015] Lloyd’s Rep IR 378 at [71].

In the cases there are two contrasting approaches to the interpretation of "physical damage": the narrow view limiting it to corporeal, tangible damage, and a broader one that encompasses impairment of use or function also.  In the factual context of MDS Inc. v. Factory Mutual Insurance Company2020 ONSC 1924 the broad definition of resulting physical damage was appropriate in accordance with the purpose of All-Risks Property insurance, for to interpret it in the narrower sense would deprive the Insured of a significant aspect of the coverage, leading to an unfair result contrary to the commercial purpose of broad All-Risks coverage.

In a similar claim under All Risk policies in Studio 417 Inc v The Cincinnati Insurance Company Case No. 20-cv-03127-SRB, where the policies defined a Covered Cause of Loss as accidental [direct] physical loss or accidental [direct] physical damage, the result and reasoning wassomewhat the same. As the policies did not define a direct physical loss  the Court felt obliged to rely on its plain and ordinary meaning. Applying dictionary definitions, it held that there was a direct physical loss by a physical substance that lives on and is active on inert physical surfaces, is emitted into the air, and was allegedly attached to and deprived the insureds of their property by making it unsafe and unusable, resulting in direct physical loss to the premises and property. Further, even absent a physical alteration, a physical loss may occur when the property is uninhabitable or unusable for its intended purpose. The reasoning is questionable, since there is case law that physical tangible alteration is required to show a physical loss, and there had been recent decisions which found that COVID-19 does not cause direct physical loss. Social Life Magazine, Inc. v. Sentinel Ins. Co Ltd Note 42    1:20-cv-03311-VEC (S.D.N.Y. 2020).

 

It was argued that, while loss of use for a temporary period does not amount to "total loss", particularly in the technical sense in which that expression is used in Marine insurance), it does amount to "loss" for the purposes of a non-Marine policy. Stringer v The English and Scottish Marine Insurance Co Ltd   (1869) LR 4 QB 676; (1870) LR 5 QB 599  , Moore v Evans[1917] 1 KB 458 (CA); [1918] AC 185 (HL)     and Scott v The Copenhagen Reinsurance Company (UK) Ltd [2003] EWCA Civ 688 

 

Contract interpretation

If particular facts are relied on by a party as being relevant to the interpretation of a document, those facts must be pleaded so that they can be specifically responded to, and can be determined by evidence. Further, the court can know with certainty what each party relies on for the "background knowledge which would reasonably have been available to them at the time of the contract. At an early stage, the court may give a party that has failed to comply an opportunity to amend.

The general principles of contractual interpretation applicable to a Policy have been considered in Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173, and in The Financial Conduct Authority v Arch Insurance (UK) Ltd and others^[2]  [2020] EWHC 2448 (Comm).

A standard form is designed for use in a wide variety of different circumstances. It is not context-specific. Its value would be much diminished if it could not be relied upon as having the same meaning on all occasions,and the relevance of the factual background of a particular case is limited. There is a danger that it may be employed in circumstances for which it was not designed, but unless the context it to be the case, the interpretation ought not to be affected by the factual background. AIB Group (UK) Ltd v Martin [2001] UKHL 63, [2002] 1 WLR 94.  The language is paramount. The instrument must be construed as a whole according to its commercial intention which may be inferred from the face of the instrument and from the nature of the transaction. In re Sigma Finance Corpn [2010] 1 All ER 571 at [37]; BNY Mellon Corporate Trustee Services Ltd v LBG Capital No 1 plc [2016] UKSC 29, [2016] Bus LR 725, SC(E))

 

Prior Interpretation

The parties are taken to have contracted against a background which includes the prior decisions upon the construction of similar contracts. If a contract has been drafted professionally, the draftsman is taken to be aware of decisions on earlier editions of the relevant clause as part of the context or background circumstances. If the draftsman adopts language which has been judicially construed it is likely that, other things being equal, he intends that it should have the same meaning.  Toomey v Eagle Star Insurance Company Limited [1994] 1 Lloyd's Rep 516; Sunport Shipping Ltd v Tryg-Baltica International (UK) Ltd[2003] EWCA Civ 12; [2003] 1 Lloyd's Rep 138. Then, precedent provides some legal certainty or helpful guidance as to the principles to be applied and in identifying competing considerations. But when a standard form policy is sold by a major insurer to small business customers, who are unlikely to have access to such knowledge, they usually rely on the lamguage of the policy in its ordinary business meaning, and the terms of each policy must be considered individually in their commercial context and in the context of the policy as a whole.

All Risks

Particularly if the Introduction is expressly stated to form part of the policy,its language, the breadth of the insuring promise, and the "All Risks" titles of relevant Sections of the Policy are part of the context within which it should be read. Context may indicate that its terms should, where possible, have a generous construction as to the extent of coverage, but that alone cannot support a strained or unnatural construction.

Statutory Interpretation

There is a difference between the interpretation of an insurance policy and statutory interpretation. Fenton v Thorley [1903] AC 443 (HL)

Particular Expressions

"Accident" takes its colour from its context. It does not apply to the natural process of the decay or deterioration of unsold stock.

The decay of perishable food and other stock in the ordinary course of events is.caused by or consisted of "inherent vice", "gradual deterioration" and/or "change in temperature, colour, flavour, texture or finish".

"In consequence", may be words of or equivalent to proximate causation. Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 (HL)The word, "by", connotes causation  and a consequence is not the cause.

If a word is not capitalised, it is not confined to the meaning given by the definition of the capitalised expression of the word. For example, the word "event" simply means an occurrence or happening.

Application to srike out a claim or for summary judgment

In an applicant to srike out a claim or for summary judgment, the burden of proving that the respondent has no reasonable grounds for bringing its claim, that it has no real prospect of succeeding on it, and that there is no other compelling reason why the case should be disposed of at a trial is on the applicant.

The relevant principles are explained in JD Wetherspoon Plc v Van de Berg & Co Ltd [2007] EWHC 1044 (Ch), and EasyAir Ltd (trading as Openair) v. Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15]; AC Ward & Son v Catlin (Five) Ltd [2009] EWCA Civ 1098, [2010] Lloyd's Rep IR 301 at [24], per Etherton LJ, and in Global Asset Capital Inc and another v Aabar Block SARL [2017] EWCA Civ 37, [2017] 4 WLR 163 at [27]; TFL Management Services Ltd v. Lloyds TSB Bank plc [2013] EWCA Civ 1415, [2014] 1 WLR 2006 at [26]-[27]; ICI Chemicals & Polymers Ltd v TTE Training Ltd 53    [2007] EWCA Civ 725 at [14] . Some are as follows:

i) The claimant must have a realistic as opposed to a fanciful prospect of success.

ii) A realistic claim carries some degree of conviction and is more than merely arguable.

iii) YThe court must not conduct a mini-trial.

 iv) This does not mean that it must take at face value and without analysis everything that a claimant says. It may be clear that there is no real substance in them, particularly if contradicted by contemporaneous documents.

v) However, it must take into account not only the evidence before it, but also the evidence that can reasonably be expected to be available at trial, but it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction.

vi) Although at trial a case may turn out not to be really complicated, it does not follow that it should be decided without a fuller investigation into the facts than is possible or permissible on summary judgment. If there are reasonable grounds that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application.

vii) The court should be especially cautious of striking out a claim in an area of developing jurisprudence, for then decisions on novel points of law should be decided on real rather than assumed facts.

vii) It is not uncommon for an application to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should decide it.

There is no tension between these concluding paragraphs.

If the policy under construction is a standard form policy wording in widespread use, the issue of whether it provides cover in circumstances of novel but frequent occurrence may well be unsuitable for determination without a full consideration of the underlying facts and full exploration of the issues at trial. AC Ward & Son v Catlin (Five) Ltd [2009] EWCA Civ 1098, [2010] Lloyd's Rep IR 301. however, other considerations such as urgency may prevail.