Case details
Summary
An insurance policy must be construed as a whole, giving primary weight to the language used while considering its documentary, factual and commercial context. An exclusion is read consistently with the cover provided and the purpose of the policy. A court will not correct contractual wording merely because another formulation appears preferable or commercially more sensible. Rectification by construction requires an obvious mistake and an equally obvious correction, or wording that makes no rational sense.
Where an exclusion covered any loss arising from defined anti-bribery and anti-corruption liability, it applied to otherwise insured warranty losses. A cover spreadsheet identifying warranties as covered did not override the exclusion where the policy expressly stated that covered losses could nevertheless be excluded.
Factual background
The claimant acquired a construction business and obtained buyer-side warranty and indemnity insurance in connection with the acquisition. It alleged breaches of warranties concerning litigation, investigations, legal compliance, and bribery and corruption.
The defendants relied on clause 5.2.15, which excluded loss arising from any ABC Liability. The claimant argued that the definition contained an obvious drafting error and that the first use of “or” should be read as “for”. It also relied on the cover spreadsheet, pre-contractual negotiations, and estoppel by convention.
The court tried preliminary issues concerning the construction of ABC Liability and clause 5.2.15, the relevance of negotiations, the effect of the exclusion on the warranty claims, and estoppel.
Held
The defendants succeeded on the construction issues. The policy excluded loss arising from any ABC Liability, including loss resulting from alleged or actual non-compliance with anti-bribery and anti-corruption laws. The claimant’s alleged warranty breaches were therefore excluded.
The proper approach was the ordinary contractual construction exercise. The policy had to be read as a whole, including the insuring clause, definitions, exclusions and cover spreadsheet. The relevant reader was an ordinary policyholder who had read the policy conscientiously. The wording contemplated both direct loss suffered by the insured and liabilities payable to third parties.
The definition of ABC Liability sensibly identified three categories: liability in respect of the relevant laws, alleged non-compliance, and actual non-compliance. The use of “or” was not absurd, obvious nonsense, or surplusage requiring correction. Alleged non-compliance could have practical meaning because an insurer might pay a disputed liability without admitting that the underlying non-compliance occurred.
The cover spreadsheet identified the obligations for which cover was provided in principle. It did not prevent clause 5 exclusions from applying. The policy expressly stated that loss arising from an obligation marked “Covered” or “Partially Covered” might nevertheless be excluded under clause 5. The policy was therefore neither self-contradictory nor commercially irrational.
The threshold for correcting an alleged drafting mistake was not met. There was no obvious error, garbled language, or irrational outcome that could not possibly have been intended. The court rejected the proposed rewriting of the definition.
The estoppel claim was unnecessary to decide because the construction issue had been resolved. Had it arisen, it would have failed. Estoppel by convention requires a shared or acquiesced assumption of fact or law on which the parties acted. An assumption that ABC risk should be excluded merely begged the question whether the policy had in fact excluded it.
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