Construing Insurance Contract Terms (Unit 5) PDF

Unit 5 Ms Kambafwile z Construing the Terms of the Insurance Contract Lecture Slides adapted from Mrs. Lifuti z Construction of Insurance Policies  The term construction of policies refers to the rules that th...

Unit 5 Ms Kambafwile z Construing the Terms of the Insurance Contract Lecture Slides adapted from Mrs. Lifuti z Construction of Insurance Policies  The term construction of policies refers to the rules that the courts would apply in the event of their being called upon to interpret the terms of insurance policies.  The object of all interpretation of the document is to ascertain and give effect to the intention of the parties to the transaction, and the intention of the parties is to be ascertained from the document itself.  The basic rule for interpretation of any contractual document including insurance contracts is to interpret words according to “their natural, ordinary, normal and reasonable meaning.” See’ Wood V General Accident Fire and Life Assurance Co (1948) 82 LI.L. Rep 77 Dino Services v Prudential Assurance Co Ltd 1 ALL ER 422 z Construction of Insurance Policies In Anderson Mazoka & Others v Levy Mwanawasa (2005) ZR 138 stated as follows: “ It is trite law that the primary rule of interpretation is that words should be given their grammatical and natural meaning. It is only if there is ambiguity in the natural meaning of the words and the intention of the legislation cannot be ascertained from the words used by the legislature that recourse can be had to other principles of interpretation.” Samuel Miyanda v Raymond Handahu (1993-1994) ZR 187 It was stated that “ It is not what the legislature meant to say or what their supposed intentions were with which the court would be concerned; the court’s duty is to find out the expressed intention of the legislature. When the language is plain and there is nothing to suggest that any words are used in technical sense or that the context requires a departure from the fundamental rule, there would be no occasion to depart from the ordinary and literal meaning and it would be inadmissible to read into the terms anything else on grounds such as policy, expediency, justice or political exigency, motive of the framers, and the like...” z Construction of Insurance Policies  An insurance policy is interpreted like any other written contract.  This means that terms, words and phrases used in the policy are to be understood in their natural, ordinary and popular sense unless the context shows that different meaning was intended. See; Thompson v Equity Fir Insurance Co AC 592 Held: that the insurer was liable for the loss. The words “stored or kept” in their ordinary meaning implied a significant quantity and brought up the notion of warehousing or keeping in stock for trading. z Interpretation (Contra Proferentem rule)  What does the clause mean – does it cover what happened? – in doing so the courts apply what is called contra proferentem rule.  This simply means that where the words used are ambiguous, they will be interpreted in the way least favourable to the party relying on them.  Since parties seeking to exempt themselves from liability will frequently use unclear and ambiguous language in order to conceal their purpose. Hence the contra proferentem becomes a useful tool. z Interpretation (Contra Proferentem rule)  Contra proferentem – this rule is not really intended to give any special advantage to the insured as such but is meant to deprive the insurer of any undue advantage he/she might gain from his/her position as a maker of the policy. See; Houghton v Trafalgar Insurance Co 1 QB 247 Samuel Fitton V The Accidental Death Insurance Co (1864) 17 CB (NS) 122 English v Western 2 KB 156 z CONT.  It is important to note that the standard application of contra proferentem typically benefits the non-drafting party, particularly in consumer contracts or insurance policies where there is a significant imbalance in bargaining power and legal expertise. The rule is designed to protect the party who had less input and control over the contract terms. The reverse application, where the drafter is favoured, would be unusual and might only occur in specific circumstances where the court has a strong reason to believe that the non-drafting party is acting in bad faith or where other legal principles would justify such a decision. z Technical Meaning  Technical words – the general rule that words are to be given their popular ordinary meaning is subject to certain qualifications.  In the realm of insurance and legal documents, words that have a technical or legal significance are interpreted according to their specialized meaning within the relevant field, rather than their general or colloquial use. For instance, if a term like "riot" is used within an insurance policy, it carries the precise definition it has under criminal law. This is because such terms have established meanings that can affect the extent of coverage or the applicability of an exclusion within the policy. In legal practice, these definitions often derive from statutory language or established case law, and understanding them within that context is crucial for interpreting the rights and obligations of the parties involved in the contract. See; z CONT. London & Lancashire Fire v Boland AC 836 A policy on a baker’s shop against loss by burglary, housebreaking and theft exempted the insurers from loss caused by, or happening through, or in consequence of, inter alia, “riot”. Four armed men entered the shop one day, held up the employees with guns, and stole all the money they could find. There was no actual violence used, and no other disturbance nearby, yet it was held: that the event constituted a riot, and thus the insured could not recover. The reason for the decision was that “riot” is a technical term which in a criminal law context requires only three people executing a disturbance such as might cause alarm to a reasonable person. z Technical Meaning Field v Receiver of Metropolitan Police 2 KB 853 Mattaniah Investment v ZSIC 2009/HPC/789 ZSIC V Northern Breweries Ltd (SCZ 6 of 2000) ZMSC 68 z Parol Evidence Rule  The rule of Parol Evidence Rule safeguards the terms of a contract and proceeds on the assumption that the contract contains all the intentions of the parties and that once this is reduced into writing then extrinsic evidence cannot be brought in to vary a term of the contract.  While the general rule is that no external evidence is allowed to change the written terms, there are exceptions. For example, if the written contract has ambiguous terms or there are special circumstances that need clarification, external evidence can be introduced to explain these ambiguities or circumstances.  The main essence in many insurance policies is intended to make those policies integrated agreements, meaning that the insurance policy is meant to be taken as a complete document. and hence prevent the use of parol evidence in interpreting them.  Integrated agreement—a contract whose provisions make it clear that it contains within itself all the terms of the agreement between the parties. z Parol Evidence Rule Exceptions to the parol rule: Rectification – where a document is intended to record a previous oral agreement but fails to do that accurately, evidence of the oral agreement will be admitted. See; Webster v Cecil (1861) 30 Beav 62 Partially written agreements –where there is written document, but the parties clearly intended it to be qualified by other written or oral statements, the parol evidence rule is displaced. See; Couchman v Hill Legal principle – where there is a written document, but the parties clearly intend it to be qualified by an oral statement, the parol evidence does not apply z Construction of Insurance Policies  The Insurance policy is a legal contract between the Insurer and the Policyholder. As is required for any contract there is a proposal and an acceptance.  All the facts stated in the Proposal form becomes binding on both the parties and failure to appreciate its contents can lead to adverse consequences in the event of claim settlement.  In practice, virtually all proposal forms used by insurers contain a declaration to the effect that the information contained in the proposal form has been incorporated in the policy and will form the basis of the contract. z Construction of Insurance Policies  Whole policy – in interpreting the terms of a policy the whole policy must be read in order to ascertain the real intention of the parties.  Where the proposal form is expressly incorporated in the policy it must be read with the policy as part of the contract of insurance. z The Nature of Cover and Loss  It is not every loss that will bring about the insurer’s liability to settle the claim.  The loss must be covered by the policy. Cover in this context refers to the insurer’s promise and obligation to pay or make good the loss in certain circumstances.  These circumstances may be referred to as the event insured against and are always defined by the insurance contract.  Insurance business is not gambling business. Insurance contract cover events which are uncertain either as to their occurrence or as to the time of occurrence. z The Nature of Cover and Loss  An insured will therefore not recover for certain losses such as those arising in the ordinary course of affairs. See; British and Foreign Marine Insurance v Grant AC 41  Ordinary wear and tear is generally excluded. See; Taylor v Dumbar (1869) LR 4 CP 206 Noten v Harding 2 Lloyd’s Rep 283 z Public Policy  The general rule of the courts is to declare contracts with a tendency to lead to crime, immorality or other effects prejudicial to the public as void on grounds of public policy. See; Richardson v Mellish (1824) 2 Bing 229 Geinsmar v Sun Alliance and London Insurance 2 Lloyds Rep 62 Held; the insured could not recover in respect of the jewellery, as to allow recovery in those circumstances would enable the insured to benefit from his deliberate criminal act, even though the profit was sought indirectly under the policy of insurance. Bresford v Royal Insurance AC 586 Gray v Barr 2 QB 554