Munich RE Capital Ltd v Ascot Corporate Name Ltd

In construing a commercial insurance or reinsurance contract in unforeseen circumstances, the court must identify the objective meaning of the parties’ language in its documentary, factual and commercial context. Commercial common sense cannot justify departing from clear wording merely because the result is imprudent. Where the contract was made against an objectively understood commercial structure, the court must apply the wording to changed circumstances consistently with the parties’ original purposes.

Under an offshore construction all-risks policy, maintenance cover ordinarily follows completion and handover of the project. A maintenance clause covering defective workmanship, construction, material or design does not, without clear language, create a separate maintenance period for completed components while construction of the overall project continues.

Munich Re, an insurer, sought indemnity from Ascot under a facultative excess of loss reinsurance policy. Munich Re had extended the underlying insurance policy’s Project Period because construction of the Bigfoot offshore platform was delayed, but had not obtained a corresponding extension of the Reinsurance Policy.

Losses occurred during construction and were covered under the underlying policy’s extended Project Period. Munich Re argued that the Reinsurance Policy’s 12-month Maintenance Period nevertheless began when its original, unextended Project Period expired, or alternatively applied to completed components. Ascot argued that maintenance cover was intended to follow completion and handover of the project. The central issue was the construction of the Reinsurance Policy in these changed circumstances.

1. The court refused Munich Re’s declarations. Ascot was not liable to indemnify Munich Re because the underlying claim did not fall within the Reinsurance Policy.

2. The task was to ascertain the objective meaning of the Reinsurance Policy by considering its language, the contract as a whole, its commercial purpose, the circumstances known at inception and commercial common sense. The court applied the principles in Arnold v Britton [2015] UKSC 36 and Wood v Capita Insurance Services Ltd [2017] UKSC 24. Clear contractual language should not be displaced merely because it produces an imprudent result.

3. The case concerned changed factual circumstances which the parties had not objectively contemplated: the underlying policy had been extended, but the reinsurance had not. The court applied the approach in Bromarin AB v IMD Investments [1999] STC 301 and Debenhams Retail plc v Sun Alliance and London Assurance Company Ltd [2005] EWCA Civ 868. The Reinsurance Policy had to be construed in the light of the agreement actually made and its original commercial rationale.

4. The Reinsurance Policy was structured to mirror the underlying policy. Its estimated Project Period was linked to completion and handover of construction. The heading and wording of Clause 21, especially its reference to an acceptance certificate and maintenance obligations, supported cover for a completed project after handover.

5. Clause 21 contained two strands of maintenance cover, but both operated from expiry of the overall Project Period. The deletion of references to maintenance periods specified in individual contracts showed that the parties intended a single maintenance period for the project as a whole, not separate periods for completed components during continuing construction.

6. Accordingly, the Project Period did not expire on 30 September 2014 for the purposes of commencing maintenance cover. Since the project was not complete at that date, there was no completed project to be covered during the Maintenance Period.

First-instance decision. No prior appellate decision was stated in the judgment.