Direct Travel Insurance v McGewn

Insurance-policy wording must be construed objectively in the context of the policy document and its commercial purpose before resort is made to the contra proferentem principle. An apparent ambiguity created by considering isolated words may disappear when the document is read as a whole.

An all-or-nothing lump-sum benefit for permanent disability under a personal-accident section covers catastrophic or calamitous consequences. A clause covering disability which prevents an insured from undertaking all usual activities requires a broad range of serious lost non-working activities, considered together. It is not met merely because the insured can no longer pursue one activity.

The respondent was injured in a road traffic accident while on holiday in Turkey. Her travel policy provided a £50,000 lump sum for permanent physical disability preventing a person not in paid work from undertaking all usual activities.

Judge Darlow in the Bristol County Court held that the clause was ambiguous and, applying contra proferentem, concluded that the respondent qualified because she could no longer ride horses. The insurer appealed. The central issue was whether inability to pursue one former activity satisfied the policy condition.

Appeal allowed unanimously. Auld LJ, with whom Mummery and Keene LJJ agreed, held that the judge had adopted the wrong approach to construction.

1. A court should not begin by treating disputed words in isolation as ambiguous and then immediately apply contra proferentem. It must first construe the words objectively in their documentary context and, where appropriate, by reference to the commercial purpose. Premature recourse to the rule may create an ambiguity which does not exist. This approach accorded with ICS Ltd v West Bromwich BS [1998] 1 WLR 896 and R v PIAOB [2002] Lloyd’s Rep IR 41.
2. Section 6 was materially different from the other travel-policy sections. It provided an all-or-nothing £50,000 payment for death or grave permanent physical loss. Read as a whole, it was intended to cover catastrophic or calamitous consequences, not a discrete loss of one activity.
3. The alternative limbs of section 6(3) had to provide broadly the same level of disability cover. In that context, disability preventing an insured from undertaking all usual activities meant loss of significant social, sporting, domestic or personal activities which, taken together, caused an intrusion on the insured’s way of life comparable with inability to pursue their normal or similar occupation.
4. Whether that imprecise threshold is met is highly fact-sensitive. The court must consider evidence of the full range and significance of the lost activities. Inability to ride horses alone could not establish entitlement.

The County Court judgment and costs order were quashed. The case was remitted to the Bristol County Court for rehearing under the correct construction, with the respondent ordered to pay the insurer’s costs of the appeal and initial trial on the standard basis.

• Court of Appeal (Civil Division): In [2003] EWCA Civ 1606, the court allowed the insurer’s appeal, quashed the County Court judgment and remitted the case for rehearing.
• Bristol County Court: Judge Darlow held that the respondent was entitled to the £50,000 contractual payment on the basis that inability to pursue horse riding satisfied section 6(3) of the policy.