Hodges v Aegis Defence Services (BVI) Ltd

Where a contract promises insurance by reference to a summary of minimum cover, the contractual entitlement depends on the proper construction of the whole agreement. If the agreement makes the underlying policy documents prevail, benefits paid under those policies may be aggregated in determining whether the promised minimum has been met. A stated sum for death need not be treated as a lump sum where the contract does not say so and the relevant insurance arrangements provide benefits from more than one source. A contractual limitation producing that result may be reasonable under the Unfair Contract Terms Act 1977.

The claimant appealed from the dismissal of her claim concerning death benefits payable under her late husband’s contract with the defendant. The contract stated that the defendant would insure him and summarised minimum cover of US$200,000 for death. The defendant arranged personal accident and Defense Base Act insurance. The claimant received US$150,000 under the personal accident policy and continuing payments under the Defense Base Act policy, exceeding US$200,000 in total.

The central questions were whether the contract required a further lump-sum payment of US$50,000, and whether any term producing that result was unreasonable under the Unfair Contract Terms Act 1977.

1. Appeal dismissed. The majority, McCombe LJ and Longmore LJ, held that the claimant was not entitled to a further lump sum. Vos LJ dissented and would have allowed the appeal.
2. On the proper construction of the contract, clause 7 was a brief summary of the minimum insurance cover and was for guidance only. Clause 4.1 of the General Terms and Conditions stated that the full details of cover were in the relevant policy documents, which prevailed at all times. The contractual entitlement was therefore determined by the benefits actually conferred by the personal accident and Defense Base Act policies.
3. The contract did not state that the US$200,000 death benefit had to be paid as one lump sum. The defendant was entitled to arrange cover through two policies and two insurers, provided that the promised minimum was met. The claimant had received benefits exceeding US$200,000 and had no further contractual claim.
4. The majority treated the contractual provisions as reasonable under the Unfair Contract Terms Act 1977. McCombe LJ applied the appellate restraint described in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803, and found no wrong principle or plain error in the judge’s conclusion. Longmore LJ considered that the arrangement did not amount to claiming an entitlement to render a substantially different contractual performance under section 3(2)(b)(i).
5. Vos LJ would have construed the death benefit as a US$200,000 lump sum. He considered that clause 4.1 did not displace that meaning, but left the application of section 3(2)(b)(i) to a case where it was material.

• Court of Appeal (Civil Division): Appeal dismissed. The court upheld the order of HH Judge Mitchell dated 24 January 2014.
• Central London Civil Justice Centre: Judgment for the defendant, dismissing the claimant’s action with costs to be assessed if not agreed.