Less is not always more in the context of commercial insurance clauses

The recent Court of Appeal judgment in Al Mana Lifestyle Trading LLC v United Fidelity Insurance Co PSC [2023] EWCA Civ 6 is a quick read on a relatively short point and serves as a useful recitation of the rules of interpretation in the context of insurance policy wordings.

However, much more interestingly than that, this case neatly demonstrates that faced with contractual provisions that are, in the words of Lord Justice Males, "tersely expressed", four senior judges (Mrs Justice Cockerill at first instance and Lord Justice Males, Lady Justice Andrews and Lord Justice Nugee on appeal) applied this same toolkit to different effect.

Laura Sponti and Tamsin Hyland of RPC's policy wordings team consider the take aways for those drafting commercial insurance contracts.

The facts

Hanging essentially on the interpretation of a handful of words within a substantial and complex multi-national insurance programme, were claims for business interruption losses estimated to be worth approximately US $40 million. The insured, who carried on business in the food, beverage and retail sectors primarily in the Middle East and Gulf region wanted to bring those claims in the UK Courts, despite having no business presence in the UK. The Defendants objected on the basis that the Applicable Law and Jurisdiction condition within the policy mandated that such claims be brought in the local Courts (where the policies were issued).  The relevant condition read as follows: "Applicable Law and Jurisdiction: In accordance with the jurisdiction, local laws and practices of the country in which the policy is issued. Otherwise England and Wales UK Jurisdiction shall be applied, […]".

All agreed that the first question was to ask how the words of the contract would be understood by a reasonable policyholder. Lord Justice Males in the leading Court of Appeal judgment noted that first impressions were a useful starting point, but that the Court would then go on to engage in more complex linguistic and contextual analysis, essentially to pressure test that first impression. However, the problem was that this clause created strong and crucially competing first impressions in the different judges that were ultimately justified in their individual judgments.  

Lord Justice Nugee, who acknowledged that he had had the benefit of reading the other judgments first, on his own, [63] referenced the inherent shortcomings of language and the issues of semantics when he said, "It must be admitted … that it is not always easy to articulate with precision why one reading of a disputed provision seems more natural and ordinary than another, as the way in which language strikes a reader is an accumulation of experience of how language is ordinarily used. And, as the present case illustrates, the same words may strike different readers differently".  Meaning is not solely in the words or their context, but also in the very eyes of the beholder.  

Of central relevance was the word "otherwise" which attracted by far the most analysis, particularly in respect of its impact on the two provisions that is seemingly connected: did it denote a true "either/or" alternative, or a primary/secondary alternative" and if so, upon what basis.  

All agreed "otherwise" implied a choice but that it could also denote that which would happen if something else did not happen, i.e. a conditional provision. Lord Justice Males and Lord Justice Nugee formed the view that the primary rule was contained in the first sentence, ostensibly because the first sentence dealt both with jurisdiction and governing law whereas the second sentence, after "otherwise" dealt only with jurisdiction. The somewhat duplicative reference to England, Wales and UK could have been indicative of a failed attempt by the drafter to deal both with law and jurisdiction, but in any event they considered the option of a second forum was conditional upon the first not being available. 

Lady Justice Andrews (dissenting and agreeing with Mrs Justice Cockerill at first instance) reached a different conclusion by taking a more holistic approach to the language. She considered that even where "otherwise" was used in the "if not (a) then (b)" context, it did not necessarily follow that "it was (b) if (a) was not possible". She thought there was still room for choice. In some measure, she justified this interpretation by considering the nature of the reader from whose perspective the clause was to be interpreted. She said,  "Whereas the defendants' interpretation might commend itself to a commercial lawyer, I doubt whether it would even occur to the reasonable policyholder, appraised of all the relevant circumstances, that it could be understood as meaning that it was mandatory to bring proceedings in the local forum, and that they could not go to the English court unless they could establish that the local court had declined, or would decline jurisdiction. They would understand it to mean that if, for whatever reason, they did not bring proceedings in the local forum, they would have to do so in England and Wales."

Lessons learned from a wordings perspective: 

• Intelligibility is improved by short and pithy drafting. However, it is a balance and in some instances, less is not always more. Important provisions with triggers and mechanisms of application, require proper explanation. Law and Jurisdiction provisions in the context of a multi-national insurance programme are a classic example. 
• Think carefully about how two alternatives are dealt with together within one provision. Are the provisions strict alternatives, i.e. "(a) or (b)" and in which case who can elect to decide, or, are the provisions conditional upon each other, i.e. "if not (a) (and ideally why not (a)), then (b)". 
• Be careful with words that have multiple natural meanings and require context. "Otherwise" is a classic example and could mean, "if not", "failing that", "or", "or else", or "alternatively" all of which could be different and it therefore has to derive its substantive meaning from the language which preceded it. 
• The judicial narrative of rejecting submissions relating to the meaning of insurance language as the product of "pedantic lawyers" or conditional upon "minute textural analysis" is going nowhere and chimes with the approach of Regulators. Wordings must be drafted through the lens of the policyholder's sphere of influence and understanding and to the extent that insurers wish to exert rights through those contracts they must do so in clear and express terms.   

The full appeal judgment is available here.

RPC Wording Team

RPC has a core cross-disciplinary wordings team made up of lawyers with a claims background and technical drafting expertise, who partner with colleagues from the insurance regulatory and commercial side of the business – bringing oversight of the wider regulatory landscape, product governance issues, FOS/FCA oversight/jurisdictions etc. The breadth of the wording function is such that we can deal with reviews of individual products (of the type you describe), library consolidation projects and thematic reviews as well as new product design and drafting across mono-line and combined products for SME/mid-market through to global and multi-national master programmes with jurisdictional intricacies.

If you want more information, get in touch with Tamsin Hyland and Laura Sponti.