Carbis Bay Hotel Limited & Anor v American International Group Limited

In construing a commercial insurance policy, a capitalised term defined in the relevant section will ordinarily bear its defined meaning. Where the definition uses “means” and sets out a closed list, the court should not convert that list into open-ended cover merely because other wording creates an apparent inconsistency. A heading may assist interpretation but cannot override clear operative language. Arguments from redundancy have limited force, and contra proferentem is a last resort.

The claimants operated hotels and associated hospitality businesses in Cornwall under a commercial combined insurance policy. They claimed business interruption losses arising from Covid-19 restrictions between March and July 2020.

The policy’s Infectious Diseases extension covered interruption caused by “any human infectious or human contagious Disease”, excluding AIDS and AIDS-related conditions. The Business Interruption definitions stated that “Disease” meant a specified list of 33 diseases, which did not include Covid-19. The central issue was whether that definition limited the extension or whether the ordinary meaning of infectious disease supplied open-ended cover.

1. The claim was dismissed. The word “Disease” in the Infectious Diseases extension was limited to the specific diseases in the Business Interruption definition. Covid-19 was therefore outside the cover.
2. The policy had to be construed objectively by reference to what a reasonable and conscientious policyholder, with the relevant background knowledge, would understand its language to mean. The court considered natural and ordinary meaning, documentary and commercial context, contractual purpose, facts known at inception and commercial common sense. Hindsight and subjective intention were irrelevant.
3. The definition used “means” and was exhaustive. Treating it as immaterial would transform a closed-list risk into open-ended cover and create a materially different underwriting proposition.
4. The heading “Infectious Diseases” was only a label or signpost. The extension also covered heterogeneous risks such as murder, suicide and defects or infestation, so the heading could not control the operative wording.
5. The words “AIDS or” were redundant or formulaic over-drafting, but that limited surplusage did not justify making the exhaustive definition redundant. The exclusion could not enlarge the insuring clause.
6. Contra proferentem was unavailable because ordinary contractual interpretation produced a clear answer.