Kuwait Airways Corporation and Another v. Kuwait Insurance Company S.A.K and Others

An insurance contract must be construed from its language read in the context of the incorporated policy. Clear wording prevails over an argument that the resulting commercial exposure is improbable.

In a war-risks policy, “seizure” ordinarily includes forcible dispossession by lawful authority or overpowering force. It may therefore overlap with war or invasion. Where one proximate cause is an insured peril, recovery is available unless another proximate cause is an excluded peril. Merely omitting a peril from an extension of cover does not make it an excluded peril.

Sue and labour expenses are ordinarily supplementary to the indemnity. An express proviso may nevertheless aggregate those expenses with the insured loss and subject the total to the policy limit.

Following Iraq’s invasion of Kuwait, Iraqi forces took aircraft, spare parts and equipment belonging to Kuwait Airways Corporation. The airline claimed under aviation war-risks insurance placed with Kuwait Insurance Company S.A.K. and other insurers. The insurers had paid US$300 million but disputed further liability.

Rix J, whose decision was reported at [1996] 1 Lloyd's Rep. 664, determined preliminary issues concerning the policy limits, the insured perils affecting the spares, and sue and labour expenses. The Court of Appeal, in [1997] 2 Lloyd's Rep. 687, reached the same overall result but differed on several issues.

The principal questions before the House were whether the US$300 million ground limit included spares; whether the taking was a “seizure” as well as a consequence of war or invasion; whether the omission of paragraph (a) risks from the spares extension prevented recovery under another covered peril; and whether sue and labour expenses fell within the policy limits.

1. The airline’s appeal on the spares disputes was allowed, and its appeal concerning sue and labour expenses was dismissed. The Court of Appeal’s order was varied and the dismissal of the action against the first four defendants was set aside. Lord Hobhouse delivered the leading speech. Lord Lloyd, Lord Clyde and Lord Hutton agreed. Lord Browne-Wilkinson agreed except on the construction of “seizure” in question 3.

2. Per Lord Hobhouse, the US$300 million ground limit applied only to aircraft. The renewal quotation had to be read with the expiring cover which it incorporated. In that cover, the ground limit appeared in the aircraft schedule, while the spares extension imposed separate limits. The quotation preserved those figures and did not make a major reduction in cover. The applicable spares limit was US$150 million for any one location.

3. Per Lord Hobhouse, for the majority, the ordinary insurance meaning of “seizure” included forcible dispossession by lawful authority or overpowering force. It embraced belligerent and non-belligerent takings. The words surrounding “seizure” in paragraph (e), including requisition, appropriation and references to military and de facto governments, did not restrict it to peaceable governmental action. The Iraqi Government’s taking therefore fell within paragraph (e) as well as paragraph (a).

   Lord Browne-Wilkinson dissented on this issue. In his view the paragraphs described mutually exclusive classes of peril. Paragraph (a) covered belligerent risks, while paragraph (e) addressed governmental control of property outside that class. He would have held that the loss fell only within paragraph (a).

4. Per Lord Hobhouse, where several insured perils exist, it is enough that one insured peril proximately caused the loss. Conversely, recovery fails where an excluded peril was a proximate cause. Paragraph (a) was omitted from the spares extension for property on the ground, but it was not expressed as an exclusion. Paragraphs (b) to (f), including seizure under paragraph (e), remained covered. The courts could not rewrite that plain language because the resulting war-risks exposure was said to be commercially improbable.

5. Per Lord Hobhouse, sue and labour authority and liability are ordinarily supplementary to the primary indemnity. Reasonably incurred expenses may usually be recovered despite failure to avert a total loss or payment for that loss. Here, however, the express proviso required those expenses to be included in computing the insured losses. The relevant limit therefore applied to the aggregate of the primary loss and sue and labour expenses. As the limits were exhausted, no further reimbursement was available.

1. House of Lords: The airline’s appeal was allowed on the spares disputes and dismissed on the sue and labour issue. The order below was varied, and the order dismissing the action against the first four defendants was set aside.

2. Court of Appeal: In [1997] 2 Lloyd's Rep. 687, the court altered some of Rix J’s answers but reached effectively the same overall result. It unanimously held that the taking was a seizure, but divided on whether paragraph (a) prevented recovery for spares under another peril.

3. Commercial Court: Rix J decided preliminary issues in [1996] 1 Lloyd's Rep. 664. His overall conclusion favoured the insurers and treated their US$300 million payment as adequate.