Marine Insurance: The Law in Transition

Rhidian Thomas, Rhidian Thomas

• Publisher: Informa Law from Routledge
• Year: 2020
• ISBN:
  9781000341423
• Edition: 1
• Topic: Law
• Subtopic: Maritime Law
• Index: Law

The book examines and analyses in depth the specific issues which are currently occupying the marine insurance markets and the law. The London market is currently re-examining its practices and international competitiveness; and the English case law is growing significantly. The issues identified in the book are the "fundamental issues" on which marine insurance law is based, and which are in the process of being re-examined and developed further to respond to the needs of modern insurance practice. They are of wider interest to insurance law in general and the evolution of English law is analysed against the backdrop of legal developments in Europe and Scandinavia.

CHAPTER 1

Trends in the interpretation of marine insurance contracts

PROFESSOR MALCOLM CLARKE*

1.1 The approach taken in this paper to the interpretation of marine insurance contracts premises, first, that marine insurance law should not be seen in isolation like the Dead Sea. On the one hand, the spread of intermodal cargo transport has reduced the significance of the low water mark: geographical boundaries mean less than before. On the other hand, the counsel who argue and the judges who rule in marine cases also work ashore with contract law and insurance contract law at large; this experience informs and affects their thinking. Intellectually, they do not see a marine compartment entirely isolated from cognate departments. The second premise is that a trend to something must be away from something else, so this paper starts from base, the base of rules of interpretation received.¹

RULES OF INTERPRETATION RECEIVED²

1.2 Commercial insurance contracts (of all kinds) are interpreted like any other commercial contract.³ The courts’ overriding objective is said to be to find the intention of the parties.⁴ To this end, English courts apply rules which, in summary, are as follows.

(a) Words are to be understood in their ordinary sense

1.3 Words are to be construed as they would be understood by ordinary people: the so-called “golden” rule of interpretation,⁵ whereby words are to be given their “plain” meaning.⁶ Whether or not the inhabitants of the world of marine insurance can be described as “ordinary”, Arnould has pointed out,⁷ that this rule is not very helpful with something so technical.

1.4 In practice, but I doubt that this is a new trend, our judges are slow to offer definitions unless they have to. In one case,⁸ for example, the question was whether a floating crane was a ship or vessel. Scrutton LJ, not a judge slow to commit himself to firm and categorical statements, said that he was inclined to “take the position of the gentleman who dealt with the elephant by saying he could not define an elephant, but he knew what it was when he saw one”, and that likewise he agreed with the judge in the lower court that one “cannot define ‘ship or vessel’ but he knows this thing is not a ship or vessel”.⁹

1.5 This is a year in which we celebrate the anniversary of the first dictionary in 1755, the work of Dr Johnson, hardly an ordinary man. Nonetheless, the courts, slow to tender their own definitions, are relatively quick to resort to the definitions of others in dictionaries. An associated practice is to admit evidence of any technical sense in which words are used in a particular trade or market.¹⁰ In one recent case a judge prominent in the Commercial Court referred to four different dictionaries.¹¹ Even so, I see no new trend here.

(b) Context

1.6 The meaning of words may well be “a matter of dictionaries and grammars” but the meaning which a document “would convey to a reasonable man is not the same thing as the meaning of its words”.¹² Words are to be understood not in isolation but in context.¹³ Within the immediate (and traditional) context of the contract itself the court has the aid of certain canons of interpretation, which are old but far from rusty; they are still deployed.

1.7 (i) Eiusdem generis. If particular words have a generic character, more general following words are construed as having the same character. For example, “flood” in “storm, tempest or flood” means a sudden flood on a large scale.¹⁴

1.8 (ii) Expressio unius est exclusio alterius. The express mention of one thing may imply the exclusion of another related thing. An important example is that, if policy term A is expressed to be a “condition precedent” but policy term B is not, the inference is that indeed B is not.¹⁵ Aliter, if the contract seems to have been patched together and thus internal consistency cannot be presumed.¹⁶

(c) Particulars before Standard Terms

1.9 In the event of inconsistency in the ordinary meaning of words in different parts of a contract, in accordance with the overriding objective of contract interpretation mentioned at the outset, the court prefers the meaning that best reflects the actual intention of the parties.¹⁷ Thus more attention is paid to non-standard parts of a contract, such as any schedule drawn up by the parties to the contract and to which they gave their actual attention, than to standard printed terms. No change here, on the contrary, the rule was reaffirmed by Lord Bingham in The Starsin.¹⁸

(d) Precedent

1.10 (i) Commercial precedent: A word or phrase, which has acquired a special meaning in a particular commercial context, such as “average”,¹⁹ will be interpreted in that special sense. The practice has been maintained, in particular, as regards somewhat ritual reference to the “Rules for Construction of Policy” in Schedule 1 to the Marine Insurance Act 1906.²⁰

1.11 (ii) Judicial precedent: If words have been used in the policy that have an established sense, one previously defined by the courts, for example “theft”,²¹ the same is true: the words will be construed in that sense. However, here we touch a trend. Today, I suggest, a broader, less local and less rigid interpretation is given to a policy which applies overseas. A recent example is Wooldridge,²² in which Mance LJ observed that the policy before the court was an “English policy” but one that “covers a Brazilian insured against property and perils in Brazil”, and noted that it was “common ground between the parties that concepts employed in it such as ‘robbery’ have to be understood, not in any technical English legal sense, but in the sense in which ‘ordinary commercial men’ would understand them”.²³

(e) Ambiguity

1.12 When, in spite of resort to the rules so far, the meaning of the words is not clear but ambiguous, courts respond in at least two ways.

1.13 (i) Words will be read with reference to any evidence of the purpose of the contract, which is not apparent from the contract itself. A long-established example of the latter is that insurance policies on “accidents”, are presumed to cover loss caused by policyholder negligence.²⁴

1.14 (ii) Words will be construed contra proferentem,²⁵ that is, against the party whose contract it is: usually the party that drafted it or that insisted that a certain standard contract be used as the basis of the parties’ contract.²⁶ Applied to insurance, generally the effect is construction against insurers. However, in the Lloyd’s market the possibility has always been recognised that a term may come from the policyholders and their brokers,²⁷ and be construed against them. In this I see no clear signs of change of trends – yet; but I ask two questions about the future, about trends that are possible.

1.15 Given the nature of the rule, which implies informational imbalance and/or inequality of bargaining power, should not the speed and severity with which courts resort to construction contra proferentem be relative, i.e. in some proportion to the need to protect the proferee in the particular case? A trend like this can be seen in cognate jurisdictions, such as New York, where the rule does not apply between insurers themselves because they “are sophisticated business entities, familiar with the market in which they deal and armed with relatively equivalent bargaining power”.²⁸ In England (and Wales), this is already true of standard contracts generally when a form of words is one drafted by a body on which the interests of both parties were represented.²⁹ In such cases, the courts are slow to use rules of construction against any one party to disturb the allocation of risk suggested by the contract terms.³⁰

1.16 This leads to a similar second question. If a policy term derives from statute, as has been held in Australia, it is not for the court to make allowance for the bargaining strength of the parties to the insurance contract but simply to seek to give effect to the wording, as well as the apparent purpose, of the legislation.³¹ One can easily envisage a similar response in England. If so, can it not be said that the Institute C...