Chapter 10. Construction of the Contract of Insurance

• Pages: 190-200

CHAPTER 10

CONSTRUCTION OF THE

CONTRACTOFINSURANCE

10.1 INTRODUCTION

The construction of the contract of insurance is a question of law. Traditionally, the process

simply involved the ‘elucidation and application of a number of rules of construction.’

1 However

in the United Kingdom there has since been a signifi cant restatement of the approach to the

construction of the insurance contract and the principles of construction. The abandonment of

the traditional approach has been brought about by a trio of House of Lords cases in the form of

Prenn v Symmonds , 2 Reardon Smith Line Ltd v Hansen-Tangen, Hansen-Tangen v Sanko Steamship Co . 3 and

Investors Compensation Scheme Ltd v West Bromwich Building Society . 4 The result is that the contract of

insurance is now to be construed as a commercial document, free from ‘old intellectual baggage of

focusing purely on linguistic considerations divorced the contract from its matrix of facts.’ Theo-

retically, this shift in approach is important from the standpoint that historically the court’s role was

restricted by virtue of the laissez-faire philosophy– premised on the viewpoint that parties to the

contract of insurance are free to make their own bargain. In this regard, the court’s role was viewed

as simply to enforce that bargain or, put another way: ‘The court cannot either rewrite con tracts

or impose on parties to them what the court may think would have been a reasonable contract.’

5

In the Commonwealth Caribbean, there is little to no evidence to a rm the abandon-

ment of statutory aids and traditional canons of interpretation to the question of construction.

But Caribbean jurisprudence does indicate that while the accepted canons of inter pretation

continue to be a useful guide, the question of covered and excepted risks can only be truly

understood by paying particular attention to the terms embodied in the contract of insurance.

Thus the question becomes what is the scope of that contract as dictated by those terms, that

is as an internal exercise rather than a simple external one of applying traditional canons of

construction. It is also important to observe the question of construction pervades insurance

law and applies to the nature and scope of the insurance as defi ned by its terms and not purely

to the issue of whether recovery is possible.

6

10.2 STATUTE

Regional insurance legislation provides no guidance on the manner in which insurance con-

tracts are to be construed. This also goes for the Marine Insurance Act requiring the courts to

look to the common law for guidance. This having been said, in the Commonwealth Caribbean

considerable consumer legislation has recently been enacted modifying contractual terms and

the manner in which the contract must set out those terms, in plain and simple language. There

is uncertainty whether this legislation applies to insurance contracts. Although insurance falls

1 J. Birds, Modern Insurance Law , 6th edn (Sweet & Maxwell: 2014), p. 213.

2 [1971] 3 All ER 237.

3 [1976] 3 All ER 570.

4 [1998] 1 All ER 98.

5 Per Mance LJ in Sinochem Inter national Oil (London) Co. Ltd v Mobil Sales & Supply Corp . [2000] Lloyd’s Rep 339.

6 In Millers v Sun Alliance (Bahamas) Ltd et al . (unreported decision, Supreme Court of the Bahamas No. 329 of

1994) the words ‘declined or cancelled’ applies.