In case there remained any doubt, three Court of Appeal decisions in the space of two months have reaffirmed that insurance policies are subject to the normal rules of contractual interpretation. It will take strong evidence to persuade a court that a clause should be interpreted differently to its natural and ordinary meaning.

We reported earlier this year on the Court of Appeal decision in Project Angel Bidco Ltd (In Administration) v Axis Managing Agency Ltd & Ors [2024] EWCA Civ 446 . In a trial of preliminary issues, the Court of Appeal had to decide on whether losses arising from a breach of a warranty listed as "covered" in an appendix to a Warranty & Indemnity Insurance Policy, could still be specifically excluded from cover under provisions contained in the main body of the Policy itself. The court held that there was no obvious error in the drafting of the insurance policy – the Policy did not respond as the insured had believed it should and the losses were excluded. See our article for a detailed review of the facts of this case.

Hot on the heels of Project Angel Bidco, the Court of Appeal was asked in quick succession to consider issues of policy interpretation in the following two cases:

  • Bellini (N/E) Ltd v Brit UW Ltd [2024] EWCA Civ 435 (Bellini) - In the first decision, the Court of Appeal found there was no obvious mistake in the Policy wording. The Policy required physical damage and in the absence of that damage the insured's claim for business interruption cover failed. On its ordinary meaning, no cover was provided in the absence of physical loss, damage or destruction. It did not matter that the insured thought cover should be provided and that something had 'gone wrong with the language'.
  • Technip Saudi Arabia Ltd v The Mediterranean & Gulf Insurance and Reinsurance Co. [2024] EWCA Civ 481 - The second decision, (Technip SA) required the Court of Appeal to consider the meaning of a clause excluding damage to existing property owned by the 'Principal Assured'. Two parties were listed as Principal Assureds' and Technip (one of them) argued that the clause did not prevent a claim in respect of damage to property owned by the other. The Court of Appeal held that the natural and ordinary meaning of the clause meant it excluded claims for damage to property owned by any of the Principal Insureds named in the Policy.

Bellini – background and first instance decision

The Insured, Bellini, ran a restaurant and claimed under its Business Interruption Insurance Policy (the Policy) for business interruption losses caused by the Covid-19 pandemic. 

The Policy stipulated that the insurance cover would apply for a period of three months, starting with the occurrence of the loss and "during which the results of the business shall be affected in consequence of the damage".

Clause 8.1 of the Policy provided for business interruption (BI) cover where there is 'damage to property used by the insured'. The sub-clauses of Clause 8.2 provided BI cover for different situations which caused damage. Clause 8.2.6 was at the centre of the dispute between the parties.  Headed "Murder, suicide or disease", it provided that Bellini would be indemnified in respect of "interruption of or interference with the business caused by damage, as defined in clause 8.1" arising from a number of different scenarios.

Clause 8.1 did not include the definition of "Damage". Clause 18.16.1 defined Damage as "physical damage and physical destruction". 

It was accepted that the damage suffered by Bellini did not include any physical damage to the premises or to any property within the premises. Rather, the damage was suffered as a result of "human infectious or contagious disease" – which Bellini argued the Policy should respond to.

The judge did not accept that there was any inconsistency or ambiguity in the clause or Policy as drafted, and concluded that no amendment was required. He found that a reasonable small or medium business enterprise would have read the policy wording and would have understood that damage was required before cover would be triggered. Furthermore, Bellini had obtained cover through an expert intermediary and therefore had access to advice on the available cover before the Policy was concluded.

The judge found that clause 8.2.6 did provide some cover beyond the basic cover provided by clause 8.1, but it still required Damage. The fact that a notifiable disease was unlikely to cause physical damage did not justify giving the word damage a different meaning in this sub-clause, and it was worth noting that the Policy was entered into when Covid was not in contemplation.

Bellini appealed to the Court of Appeal. 

Court of Appeal decision

Bellini sought to argue that the Policy only made sense if clause 8.2.6 was amended by removing the reference 'caused by damage' and replacing 'in consequence of the damage' with 'in consequence of the insured perils'.

Insurers argued that the Policy was standard and of a well-known kind – it provided BI cover only where there was physical damage to property. Clause 8.2 was all about cover extensions arising from physical damage. There was only one exception, which provided for non-damage cover specifically in relation to the 'accidental failure of gas or electricity supplies'. General cover for BI losses where there was no physical damage was available separately at a premium, but this separate cover had not been purchased by Bellini.

The Court of Appeal dismissed the appeal, confirming that it would only be permissible to rewrite clause 8.2.6 if something had gone wrong with the language used. If not, then the clause had to be given its natural meaning – even if that meant it only provided limited additional cover beyond the cover provided by Clause 8.1.

Sir Geoffrey Vos held that nothing had gone wrong with the language, whether obviously or at all. Clause 8.1 clearly provides for BI cover where there is damage to property at the premises. The rest of clause 8.1 is about how losses are to be calculated. The sub-clauses of clause 8.2 provide BI cover for various things caused by physical damage – clause 8.2.6 is no exception.

The reference to "damage, defined in clause 8.1" was not an obvious mistake – it is making clear that the damage based BI cover in 8.1 is being extended to the indemnity clauses in clause 8.2.

While this may not make sense in terms of BI following an outbreak of Covid, the Policy must be interpreted at the time of its inception – in October 2019. Covid was pretty much unheard of at that time so clause 8.2.6 cannot be interpreted with Covid in mind. A reasonable reader would have concluded at the Policy's inception that Clause 8.2.6 was only providing damage-based cover.

The Court of Appeal dismissed the appeal, reiterating that where the parties have agreed terms in unambiguous language that language must be followed – even if that means the Insured does not end up with the insurance cover they may have thought they had.

Technip Saudi Arabia Ltd v The Mediterranean & Gulf Insurance and Reinsurance Co. [2024] EWCA Civ 481 (09 May 2024), involved the interpretation of an exclusion clause which the commercial court had decided did apply to a claim made by Technip under the Policy.

Technip – background and first instance decision

Technip had entered into a contract with an unincorporated joint venture (KJO) to provide construction works to a major oil and gas field located offshore in Saudi Arabia (owned by KJO). In 2015, a vessel chartered by Technip collided with and caused damage to a platform in the field. Technip made a claim in respect of its liability for that damage under the offshore construction projects all risks insurance cover that was in place (the Policy). The Policy used the main policy wording used by the energy market – the WELCAR standard form wording. Technip and KJO were both included in the Policy as Principal Assureds.

Insurers rejected Technip's claim on a number of bases, including on the basis that cover for damage to pre-existing property of the Principal Assured was excluded, unless it was specifically included in the Schedule of Existing Property in the 'Endorsement' (in respect of which a further fee had been paid).

At first instance, Mr Justice Jacobs held that Technip’s claim was excluded by the Existing Property Endorsement (the Endorsement). The Endorsement excluded liability for damage to existing property which was owned by a Principal Assured. While Principal Assureds was not defined in the Policy Principal Insureds was a defined term and it included Technip and KLO. The judge found that a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into Policy, would have understood the language of the Policy to mean that if damage was caused to the existing property owned by any Principal Assured, cover would only be provided if the existing property was included in the Schedule of Existing Property. If the property was not included in the Schedule, then it would be excluded. This was the ordinary meaning of the words – and it would be a complex and rather odd result if a particular item of existing property was subject to the exclusion if the claim were made by one insured but was not subject to the exclusion if the claim were made by a different insured.

Court of Appeal decision

On appeal, Technip argued that the judge had failed to pay proper regard to the language of the Endorsement and argued that “[A]ny property which the Principal Assured” owned did not mean “any property which [a or any] Principal Assured” owned. As a result the only Principal Assured the Endorsement can have been referring to was “the Principal Assured” claiming the indemnity under the Policy. That was consistent with other usages in the Policy and commercial common sense. The Policy was a composite policy that was expressly “deemed to be a separate insurance in respect of each Principal Insured” (the words Insured and Assured were used interchangeably in the Policy and no point was taken on this). Reading the Policy as a separate insurance for Technip, it was obvious that the Principal Assured whose property was referred to in the first limb of the Endorsement was Technip, not KJO or any other Principal Assured.

The Court of Appeal, again through Sir Geoffrey Vos, agreed with the judge at first instance. The words “the Principal Assured” had to have the same meaning in the Endorsement in all the notional separate insurances of the composite policy. That meaning was, because of the definition in the Policy: Technip and/or KJO and/or associated companies. It was not possible to exclude any of the Principal Insureds to which the words “the Principal Assured” referred.

Sir Geoffrey Vos held that the judge’s construction corresponded with the natural and ordinary meaning of the Endorsement and its commercial purpose. The composite nature of the Policy did not affect that analysis: although each insured under the Policy was deemed to have separate insurance, the meaning of the term “Principal Assured” was the same in each nominal separate insurance between each insured and the insurer. Treating the Policy as a composite insurance policy did not alter the correct construction of that term.

The claim had been made in respect of property that had been excluded by the Endorsement. The appeal was therefore dismissed.

Interpretation of insurance policies going forward

These three recent Court of Appeal cases make it clear that insurance policies must be interpreted in the same way as any other contract. A policy must be interpreted objectively, having regard to what a reasonable person with the knowledge of the parties at the time the policy was entered into would understand the policy to mean. The words in the policy must be given their natural and ordinary meaning, even if that produces a result contrary to the understanding of the insured or the insurer. Only if something has clearly gone wrong with the words will the court look behind them and carry out a factual inquiry to establish the true meaning of what has been agreed.

The court will always be reluctant to rewrite the terms of any contract if it is capable of being enforced on its terms. The court will not interfere to assist a party to escape a bad bargain. If the terms have been agreed, particularly with the assistance of legal advisers, the court will not step in and reject the natural meaning of a provision.

Those entering into policies of insurance (or indeed any other contracts) need to make sure clear, unambiguous and consistent terms are used. Make sure the policy reflects what has been agreed and that it provides the cover the insured thinks it is getting.