Construction of Policy - Generally - Policy to be Read as a Whole - Contra Proferentem - Drafting Defects - Aggregation of Claims -
Abstract
Construction of Policy, General Principles - Policy to be Read asa Whole - Contra Proferentem - Drafting Defects - Technical Terms
Aggregation of Claims
Article
The following principles of construction, with supporting authorities, were applied in Lawcover Insurance Pty Ltd v Muriniti [2017] NSWSC 1557.
General
In construing a written contract a court’s primary duty of is to endeavour to discover the parties’ intention from the words of their contract instrument. The whole of it is to be considered, and the words of every clause must if possible all be construed so as to render them harmonious. If they are unambiguous, they must be given effect, despite any capricious or unreasonable result, or a suspicion that the parties intended something different. If its language is open to two constructions, that with capricious, unreasonable, inconvenient or unjust consequences will be avoided, though the construction adopted is not the most obvious or the most grammatically accurate. The court may avoid a strictly literal meaning in favour of an alternative construction which is open and more reasonable and more in accord with the probable intention of the parties: McCowan v. Baine (1891) AC 401. But the court cannot remake or amend a contract for the purpose of avoiding a result which it considers to be inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 per Gibbs J at 109; Australian Casualty Co. Ltd v Federico (1986) 160 CLR 513 at 520-521; Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 per McColl JA, at [69]; CSR Limited v Adecco (Australia) Pty Limited [2017] NSWCA 121 at [155] per McColl JA. It is necessary to have regard to context and purpose, but questions of judgment as to impermissible rewriting and orthodox preference between two constructions both of which are open will inevitably arise.
When interpreting a written contract, the court is concerned to identify the mutual intention of the parties by reference to what a reasonable person, using the language in the contract and with all the background knowledge available to them, would have understood it to be: Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101. It does so by focusing on the ordinary or natural meaning of the relevant words objectively considered in their documentary, factual and commercial context in the light of the overall purpose of the clause and the contract and commercial common sense, but without evidence of any party's subjective intention: Arnold v Britton [2015] AC1619 at 1627-1628; Wheeldon Bros Waste v Millenium Insce Co [2018] EWHC 834 (TCC).
“Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure": McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
The meaning of a commercial contract is to be determined by what a reasonable businessperson would have understood its terms to mean, requiring consideration of the language, the surrounding circumstances known to the parties and the contract’s commercial purpose. Commercial purpose is revealed in to the transaction’s genesis, background and context and the market in which the parties operated: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657. Unless a contrary intention is indicated, a court may give a commercial contract a businesslike interpretation on the assumption that the parties intended to produce a commercial result and avoid commercial nonsense or commercial inconvenience: Lawcover Insurance Pty Ltd v Muriniti [2017] NSWSC 1557.
As the terms are to be understood objectively by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract, evidence of their statements and actions reflecting their actual intentions and expectations is inadmissible: Electricity Generation Corporation v Woodside Energy Ltd (supra); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104. Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 at [73]; Jemena Gas Networks (NSW) Ltd v AGL Energy Limited [2017] NSWCA 266.
These rules apply to an insurance policy, which should be given a businesslike interpretation: McCann v Switzerland Insurance Australia Ltd (supra); Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, and if anything the trend is to adopt a liberal interpretation in favour of the assured, so far as the ordinary and natural meaning of the insurer’s words permit: Mount Albert City Council v. New Zealand Municipalities Co-operative Insurance Co. Ltd. (1983) NZLR 190, at p 193. The principles relevant particularly to insurance contracts are conveniently summarised in Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561 at [127]-[129].
The principle that if two meanings are open, predicating ambiguity, the meaning that will avoid irrational and unjust consequences will be adopted: Public Transport Comm of NSW v J Murray-More (NSW) (1975) 132 CLR 336 at 350, because it is unlikely that the parties so intended: Distillers Co Bio-chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 11 was applied, in construing an exclusion in an insurance policy in Carlingford Australia General Insurnace Ltd v EZ Industries Ltd [1988] VR 349 at 352-353.
This may be compared with the leading English analysis of Lord Neuberger of Abbotsbury PSC in Arnold v. Britton [2015] AC 1619:
When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to 'what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean', … And it does so by focussing on the meaning of the relevant words, … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.
The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.
As a commercial contract, a policy of insurance should be given a businesslike construction, with attention to its language, the commercial circumstances and the intended objects: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2002) 203 CLR 579 [22]; CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103 [43]. Its terms mean what a reasonable business person would have understood them to mean, having regard to the above factors: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35]; McMurray -v- AIG Insurance Australia Ltd [2018] WASC 144.
Policy to be Read as a Whole
Contra Proferentem
It is as well to be reminded of the limits of the contra proferentem doctrine. If there is no ambiguity in the way that a Policy defines its cover, and if an exclusion clause reflects what The Law Society as the regulator of the solicitors' profession authorises as a limitation of professional indemnity cover, there is no case for the doctrine: Impact Funding Solutions Ltd v. Barrington Services Ltd [2017] AC 73 at [6]. In a case of real doubt, the policy ought to be construed most strongly against the insurer if it frames the policy and inserts the exceptions. But this principle ought to be applied only for the purpose of removing a doubt, not for the purpose of creating one, or magnifying an ambiguity, when the circumstances of the case raise no real difficulty: in Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453 per Lindley LJ at 456.
Ambiguity
Ambiguity must be inherent in the words used, and cannot be established by suggesting alternative wording that could have been used: WFI Insurance Ltd -v- Manitowoq Platinum Pty Ltd [2018] WASCA 89.
Absence of Technical Terms in ‘Plain English’ Policy
Legal terminology, such as description of a condition as a 'condition precedent to indemnity', is not to be expected in a policy written in 'plain English' and in conversational form: WFI Insurance Ltd -v- Manitowoq Platinum Pty Ltd [2018] WASCA 89.
Drafting Defects
The Court construes a contract as it is and not as it might have been drafted. In almost any dispute over terms a party can argue that a contentious term could have been better expressed to achieve the effect that the other party advances: Spire Healthcare Limited v Royal & Sun Alliance Insurance Plc [2018] EWCA Civ 317.
Aggregation of Claims
Because an aggregation clause may operate in favour of either the assured or the insurer, a Court does not have a predisposition either to confine or broaden its effect. In AIG Europe Ltd v. Woodman and others [2017] 1 WLR 1168. Its purpose is to enable two or more separate losses covered by the policy to be treated as a single loss for deductible or other purposes when they are linked by a unifying factor of some kind: Lloyds TSB General Insurance Holdings Ltd and ors v. Lloyds Bank Group Insurance Co Ltd [2003] UKHL 48. The traditional and well-known way in which to formulate an extremely wide aggregation clause is to use words such as 'any claim or claims arising out of all occurrences … consequent on or attributable to one source or original cause' or 'arising from one originating cause or series of events or occurrences attributable to one originating cause (or related causes)': AIG v. The Law Society [2016] Lloyd's Rep IR 289. ‘The total amount payable in respect of all damages costs and expenses arising out of all claims … consequent on or attributable to one source or original cause' and 'shall not exceed the Limit of Indemnity stated in the Schedule' are words of aggregation. The 'unifying factor' is identified and it links the claims. Even if the limit of indemnity is not expressly referred to in the insuring promise, the aggregating provisos, read with the rest of the policy, may create a coherent scheme for the total amounts payable in respect of specifie categories of claim. Though it may be neater and more elegant if linked claims were defined to constitute one single claim by an appropriate definition of 'Claim', in frequently used, modified and revised policies, neatness and elegance are often lost: Spire Healthcare Limited v Royal & Sun Alliance Insurance Plc [2018] EWCA Civ 317.