ABSTRACT
As an insurance policy is a type of contract, principles which are invoked when construing contracts also apply when courts seek to interpret insurance terms. The purpose of such construction is to seek to establish what the parties must have intended. The courts have developed various principles or ‘‘rules’’, but exceptions to those principles regularly occur. Some principles of construction have been more popular in certain periods and with certain judges. Some judges favour interpreting terms fairly narrowly, paying close attention to the words employed. Other judges, particularly in recent times, are prepared to place more weight on the factual matrix or surrounding circumstances and the purpose behind the policy. This is particularly apparent in cases where some judges regard particular terms as harsh on the insured or particularly onerous, for example, clauses which on the face of them might appear to be continuing warranties, or where the wording seeks to restrict unduly the circumstances when insurers might be liable, for example, in particular exclusion clauses. Set out below are certain general principles that apply in interpreting the terms of insurance policies:
1. Presumption-ordinary meaning
There is a presumption in favour of giving words their ordinary and natural meaning. The meaning of a word in a policy is that which an ordinary person of normal intelligence would place upon it. This is stated by judges time and time again, although there are some notable exceptions where judges have not necessarily construed ordinary words in the way that the man in the street might do. An illustration of this is Charter Re Co. Ltd v. Fagan [1996] 2 Lloyd’s Rep. 113, where Lord Mustill stated, at p. 116, that the primary meaning is that in ordinary speech, and construed sum ‘‘actually paid’’ by the reinsured as sum ‘‘liable to be paid’’ by the reinsured. As we shall see that did make sense in the context of that reinsurance contract, but scarcely amounted to how the ordinary person would have interpreted those words if he or she had been asked.
