Acasta European Insurance Company Limited v Rose Nat Eshiett & Ors

In construing an insurance policy, the court applies the ordinary principles of contractual construction. The policy is read as a whole, with the text, relevant background, business common sense and practical consequences considered in a unitary exercise.

Where standard-form insurance creates rights for purchasers or successors who could not know the parties’ prior dealings, those dealings have reduced relevance and the wording receives greater emphasis. A policy may provide separate insurance contracts while still imposing a shared aggregate limit. The question is the proper construction of the limit clause, not whether the cover is composite or comprises separate policies.

Acasta sought a declaration under Part 8 of the Civil Procedure Rules concerning its liability under structural-defects insurance covering a house and an apartment block. The defendants contended that the insurance provided separate cover for each flat, with a £1 million limit applying to each flat. Acasta contended that the policy imposed a £1.5 million aggregate limit for all residential properties in one continuous structure.

The parties agreed that the issue was one of contractual construction. The court was required to determine whether the limit of indemnity wording operated individually or in aggregate in relation to the flats.

1. The claim was determined in favour of Acasta. The court declared that the limit of indemnity payable under the policy in respect of the apartment block was £1,500,000, index linked.

2. The framework principles for construing an insurance contract were those applicable to commercial contracts generally. Construction was a unitary exercise, involving the policy wording, relevant background, business common sense and practical consequences. The policy was directed to purchasers, mortgagees and successors in title who could not be expected to know the prior dealings between Acasta, Prime, the Developer and Cite. That circumstance made textual analysis more important, while not requiring literalism or excluding a purposive and practical construction.

3. The distinction between a composite policy and a series of separate policies did not resolve the issue. A composite policy could comprise separate contracts of insurance, and separate policies could nevertheless be drafted to impose a shared aggregate limit. The decisive question was the construction of the limits of indemnity wording.

4. The first part of the definition imposed a £1 million limit for claims relating to an individual flat. The second part, providing that the limit for all residential properties in one continuous structure was £1.5 million, imposed an aggregate limit. The typographical reference to “Residential Property’s” was read as “Residential Properties”. The wider policy used the plural term to refer to separate flats, and the apartment block was an interconnected development likely to be affected collectively by a structural defect. The aggregate interpretation was also consistent with other aggregate limits in the policy, the stated build value and the index-linking provision.

5. The reasoning in Liberty Mutual v Bath Racecourse was distinguishable. That case concerned separate businesses in different locations and lacked wording indicating a shared aggregate limit. Here, the policy contained express wording pointing to an aggregate limit for properties in one continuous structure.