7. construction & causation - risks & losses

8/9/2019 7. Construction & Causation - Risks & Losses

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CONSTRUCTION, LOSSES, RISKS & CAUSATION

Birds: Until recently, freedom of contract in insurance contracts reigned and

thus the only way to know whether or not a particular loss was within the ambit

of a particular policy was to apply to the insurance contract the general

principles of construction applicable to all written contracts.

o To refer to the rules of construction as aecting only risks covered andrisks excepted is misleading, because these principles may well apply to

the other contents of the insurance contract, for e.g., the meaning of

uestions and answers on a proposal form, or the warranties and

conditions in a policy.

o !n certain respects, it is not strictly accurate to refer to the construction of

words, rather the problem is one of describing their scope. "or e.g. what

loss means in the context of an insurance policy is not so much a uestion

of construction, but of description or de#nition. The same can be said of

the word $accident% commonly found in insurance policies. The rules ofconstruction do not help in #nding out what these words mean, but some

principles may be found to assist in explaining or de#ning them.

Birds: &lthough as a matter of construction, a loss may fall within the risks

covered by a particular policy, it may still be necessary for the insured to show

that the loss was caused by such a risk and not predominantly by an uninsured

risk. Thus the issue of causation needs to also be considered.

Birds: '(ow inapplicable to insurance contracts eected by an individual

consumer insured) There is no reuirement that an insurance policy is

reasonably intelligible in terms of content and there is no reuirement that it be

especially legible. !n *oskas v. +tandard arine !nsurance -o td /01234, the

5udge at #rst instance refused to allow the insurer to rely upon a particular

condition on the grounds that the print was so small that it was barely legible.

The -& overruled this because the print was legible, albeit with di6culty.

o 7er Bankes 8: ! can read this with comparative ease. ! am rather afraid of

the doctrine that you can get out of clauses by saying they are di6cult to

read. There may be extreme cases. ! have in mind the bill of a well known

shipping line printed on red paper which was calculated to causeblindness in anyone reading it.

o 997oh: !t is thus clear that the terms and conditions appearing in an

insurance policy are intended not only to be read but strictly complied

with by an insured. "ailure by an insured to comply with the terms of the

policy often means that the insured%s claim is liable to be defeated even

though he might suer a genuine loss.

7oh: &lthough it is possible in certain classes of insurance contracts to enter into

an oral contract of insurance 'ur#tt v. oyal !nsurance -o td /01224: there

was nothing in ;nglish law to prevent the formation of a verbal contract ofinsurance), most insurance contracts are in practice embodied in a written

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document. The tasks faced by the courts in construing an insurance contract is

in the main, no dierent from construing any other written document.

o The only likely dierence in respect of an insurance contract is that the

insurer is invariably the party responsible for putting the contract

together.

o !n such a situation, there is greater room for the contra proferentemrule

to apply, namely, if an ambiguity is found in the agreement, the ambiguityis to be construed more strongly against the party who formulated the

contract.

1. Risk Intentional & Negligent Conduct Reasona!le Ca"e Conditions

Birds: The essence of insurance is that it provides protection against the risks of

uncertain events befalling the insured, normally events that would be adverse

to him.

7oh: &n insurance policy is intended to insure against the occurrence of an

uncertain event, an event which is unexpected and fortuitous. The indemnity is

payable upon the occurrence of an event which may or may not happen. !tfollows from the underlying basis of the contract that if an insured were to

intentionally or deliberately bring about an insured event, he is not entitled to

recover under the policy as this is not the basis on which the insurer has

contracted with the insured. +uch an event is outside the scope of the policy

because it does not constitute an uncertain event 'see Beresford v. oyal

!nsurance -o /01).

o >owever if a loss is caused by the negligence of an insured, the event

causing the loss is uncertain as it is unexpected and fortuitous. The loss is

within the scope of the policy as it is caused by an uncertain event 'Tinline

v. ?hite -ross !nsurance &ssociation td /01204).

Birds: &s a general rule, the fact that a loss occasioned by the negligence of the

insured is irrelevant, but insurance does not cover losses deliberately caused by

him 'Britton v. oyal !nsurance -o /0=@@4: no cover for deliberate arson by the

insured of property covered by #re propertyA Beresford v. oyal !nsurance -o

/01: no cover for sane suicide of a life insured under a life policy).

o >owever, express policy terms can, if appropriately worded, cover

deliberate losses, so that the general rule is not an absolute one 'inpractice, only likely to apply in respect of suicide under a life policy).

o !n addition, the general rule excludes only losses caused deliberately by

the insured himself. The fact that his spouse intentionally destroys

property he has insured does not prevent the insured who is not a party to

the act from recovering 'idland !nsurance -o v. +mith /0==04A +haw v.

obberds /0=


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td /2CC@4 U*-&: a house and home policy excluding liability for an insured%s

$wilful% acts would cover an insured%s reckless conduct).

o #ACTS$

o The policy excluded $any wilful, malicious or criminal acts%. The damage

was caused by the insured%s coDinsured 00 year old son who had set #re to

a den made of pallets which then damaged a neighbouring property and

destroyed goods in it.o %OLIN'$

o $?ilful% covered an act that was deliberate and intended to cause damage

of the kind in uestionA it would be enough to show that the insured was

reckless as to the conseuence of his act. &s the boy was unaware of the

risk and there was nothing to show that he did not care whether or not the

property burnt down, the exclusion did not apply.

o E(CER)TS$

o ?hat is the proper construction of the liability extension in this policyE !t

provides indemnity to the insured against legal liability arising fromincidents resulting in accidental damage to property. This wide cover is

excluded if the incident giving rise to the liability involves any wilful,

malicious or criminal act. The ad5ectives ualify or characterise the

excluded acts and look to the uality of the act and the state of mind of

the actor.

o !t is tolerably clear what malicious or criminal acts are and ! think these

words lend colour to what is meant by a wilful act. !n this context it must

be some act which is blameworthy. !f so, something more than a

deliberate or intentional act is contemplated. !f that is all the word meant,

the wide cover apparently provided by the extension would largely be

taken away by the exclusion. ost acts, including negligent acts, are

deliberate and intentional.

o Fbviously if the act is deliberate and intended to cause damage of the

kind in uestion it will be within the exclusion. !t will be wilful and might

also be malicious or criminal. But for an act to be wilful it is not necessary

to go as far as this. !t will be enough to show that the insured was reckless

as to the conseuences of his act. ecklessness has been variously

de#ned but if someone does something knowing that it is risky or not

caring whether it is risky or not he is acting recklessly. 7ut more precisely

for present purposes if the insured is aware that what he is about to do

risks damage of the kind which gives rise to the claim or does not care

whether there is such a risk or not, he will act recklessly if he goes ahead

and does it. ! think such conduct was intended to be included in the

exclusion and ! would euate a reckless act with a wilful act for this

purpose. This approach focuses upon the state of the insuredGs mind when

he does the act rather than its intended conseuences. He#ned in thisway the exclusion does not reuire the insured to intend to cause damage

of the kind in uestion.


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o !t falls somewhere between that contended for by the insurers and that

found by the 5udge. !t deals satisfactorily with the example which troubled

me most. !f ! light a bon#re in my garden which gets out of control and

burns down my neighbourGs house would ! be covered by this policyE Fn

the insurerGs construction ! would not because ! had started the #re

deliberatelyA on the 5udgeGs construction ! would be covered because ! had

not intended to burn down my neighbourGs house. But if ! was reckless inthe sense that ! have explained, cover would be excluded and rightly so.

y act could properly be characterised as wilful.

o y conclusion about the proper construction of the policy does not

however aect the result of this case. >aving regard to his age and his

statement, ! do not think -hristopherGs conduct could be described as

reckless. !t could be described as stupid but that is not enough. There

could have been another result if his statement had been dierent, but

taking it as it stands 'as ! must) he was unaware of the risk that his #re

might burn down the mill and there is nothing to show that he did not carewhether it might have done so or not.

&n insured who deliberately sets #re to the insured premises would be

precluded from recovering under the policy on contractual and public policy

grounds '7orter v. Iurich !nsurance -o /2CC14 U*>-).

o #ACTS$

o The policy excluded $any wilful or malicious act%. The insured who had

been drinking heavily and was suering from a persistent delusional

disorder decided to kill himself by setting #re to the insured property. >e

changed his mind and escaped from the property after a large part of the

insured property was ablaJe.

o The insurers denied liability to indemnify on two grounds: 0) that because

he started the #re intentionally, recovery by him would be contrary to

public policy and 2) that the policy excluded wilful acts. The insured

contended that his mental illness was so grave at the time of the #re that

his thoughts and 5udgment were grossly impaired and he had not acted as

a free agent, therefore his conduct was not deliberate, wilful or malicious.

o %OLIN'$

o !t was held that the insured who recklessly caused the loss would only be

able to recover if he could show that he was insane by reference to the

%(aghten rules.

o !t was trite law that an assured could not recover under a policy of

insurance in respect of a loss intentionally caused by his own criminal act.

The rule was founded on the principle of public policy applicable to all

contracts: that a court would not assist a criminal who sought to recover

any kind of bene#t or indemnity for his crime, for to do so would remove a

restraint upon the commission of crimes 'Beresford v. oyal !nsurance -oAKray v. Barr applied).

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o !t was a general rule of insurance law that an assured cannot normally

recover the policy monies when he had intentionally brought about the

event upon which the policy speci#es the money to be payable.

o &n act which was deliberate and intended to cause damage of the kind in

uestion would be within the general exclusion clause. !t would be wilful,

and might also be malicious or criminal. But for an act to be wilful it would

be enough to show that the insured was reckless as to the conseuence ofhis act '7atrick v. oyal ondon utual !nsurance).

o !f the assured was so insane as not to be legally responsible for his

actions, an act of incendiarisim would not prevent him from recovering

under the policy. !nsanity could be shown only if the assured was

labouring under such a defect of reason, from disease of the mind, as not

to know the nature and uality of the act he was doingA or, if he did know

it, that he did not know he was doing what was wrong. The test was

di6cult to satisfy.

o The insured had failed to demonstrate that when he set #re to theproperty, his mental state was so impaired that he did not know the

nature and uality of the act he was doing or if he did know, that what he

was doing was contrary to law. Fn the contrary, the evidence made it

plain beyond any doubt that the insured knew precisely what he was

doing and that he knew that what he was doing was wrong. The #re arose

as a result of < separate factors: delusional disorder, life events and

alcohol, all of which contributed to the #re setting. The insured%s mental

state was only one part of the causative thread and his delusional disorder

was not on its own su6ciently causative to meet the test of insanity.

1.1 Reasona!le Ca"e)"ecaution Conditions

7oh: &n insurer may however expressly exclude the risk of an insured%s

negligence by reuiring the insured to take reasonable care to prevent losses

under the policy. !f this is done, an insured can no longer rely on his own

negligence to make a claim under the policy. >owever such a term cannot

operate to exclude an insured%s negligence when the policy covers third party

liability. &n insured is only legally liable to a third party if he is negligent.

o !n a policy insuring against third party liability, the commercial ob5ect of

the policy is entirely negated if the insured is barred by the policy from

claiming an indemnity when he is negligent in causing the loss or damage

to the third party.

o &n insurer can expressly reuire an insured to take reasonable precautions

to prevent accidents or damage to the insured property. >ow is such a

provision to be construedE !s the duty imposed by the insurer to be

construed literallyE

!f the duty is given a literal construction, it may well take away thevery indemnity the policy purports to provide under a third party

liability policy. &n insured generally does not become liable to a thirdM


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party unless he is negligent. !f an insured%s negligence constitutes a

breach of his contractual duty under the policy, then in reality no

eective insurance cover is provided by the insurer.

o & term reuiring an insured to take reasonable precautions to prevent

accidents must be construed so as not to defeat the commercial ob5ect of

the policy. The policy is intended to provide an insured with insurance

coverage against third party liability when he is negligent.o The courts have construed the contractual duty of an insured to take

reasonable precautions in a third party liability policy to mean that the

insured must not be reckless.

Birds: That the insured who is negligent can recover is sub5ect to the important

uali#cation that a term of the policy may seek to exclude the insurer%s liability

in this respect, by imposing on the insured an obligation to take reasonable

care, which may be phrased as a warranty or condition or as an exception to the

risk. ?hichever way it is done, the eect will be to relieve the insurer from

liability.o Birds: There are basically two common form conditions of relevance for

liability insurance. 0) &dmissions of liability and the conduct of

proceedings. 2) The obligation of the insured to take reasonable care.

This second standard condition reuires the insured to take

reasonable precautions or care to avoid loss. +uch a clause literally

construed would negate a large part of the cover intended to be

eected, since one of the ma5or purposes of a liability policy is to

insure the insured against liability in negligence and negligence is a

failure to take reasonable care reasonable care when a duty of care

is owed. +o the courts have adopted a common sense construction

of this condition.

&n employer was not in breach of a term reuiring him to take reasonable

precautions to prevent accidents under an employer%s liability policy unless he

acted recklessly '?oolfall immer td v. oyle /01L24 U*-&).

o #ACTS$

o The insured employer was vicariously liable for the acts of a foreman who

had failed to ensure that certain scaolding was safe. The employer%sliability policy provided that the $assured shall take reasonable

precautions to prevent accidents and to comply with all statutory

obligations.

o The insurers contended that the plaintis were in breach of their duty to

take reasonable precautions to prevent accidents because the scaolding

was defective and of insu6cient strength. The duty to take reasonable

precautions to prevent accidents under the policy constituted a duty coD

terminous with and similar in uality to the duty owed by the insured to

their own employees.o %OLIN'$

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o The court re5ected the insurer%s argument that the insure had therefore

failed to take reasonable precautions. The insured had complied with that

condition by selecting a competent foreman and reasonably delegating to

him certain tasks. The insured was not personally negligent, which was

the circumstance when the condition might apply.

o The commercial ob5ect of the policy would be negated if the duty imposed

by the policy was given its literal construction. The duty had to beconstrued as meaning that the insured must not be reckless. The

plaintis had discharged their duty of care towards the insurers because

they employed a competent foreman who was responsible for selecting

the materials to be used at the painting 5ob. 7er Koddard 8:

To accept the insurers contention would be to say that we insure you

against your liability for negligence on condition that you are not

negligent. That would be granting an indemnity with one hand and

taking it away with the other.

o By appointing a competent foreman the insured discharged thecontractual obligation owed to the insurers to take reasonable precautions

to prevent accidents. 7er ord 8ustice du 7arc:

!t is not right to say that they delegated to another the duty which

they owed to the underwriters. !n its nature, that is a duty which

they cannot delegate and when they appointed another person to

see that provision was made for the safety of their workmen they

were not delegating their duty to take reasonable precautions but

were performing it.

Birds: This sort of term has been common for some years in liability insurance

policies where sensibly a reuirement of reasonable care has been construed to

be applicable only to reckless acts by an insuredA otherwise such policies would

not provide the very basic cover against negligence liability for which they are

eected '"raser v. "urman /01@34 U*-&: when a policy covers an insured%s

liability towards a third party, a term reuiring the insured to take reasonable

precautions to prevent accidents and loss is to be construed as meaning that

the insured must not be reckless so as to achieve the commercial ob5ect of the

policy which is to guard against the insured%s third party liability).

o #ACTS$

o &n employee sustained serious in5uries when her hand was caught in an

electric welding machine. +he recovered damages based on common law

negligence and breach of statutory duty against her employers for failing

to fence a dangerous part of the machinery. The employers who had

engaged insurance brokers to arrange insurance coverage for them took

out third party proceedings against the brokers claiming that they were

negligent because they failed to eect the necessary insurance coverage.

o The insurance brokers contended that if a policy had been eected, itwould contain a term reuiring $the insured to take reasonable precautions

to prevent accidents and disease% and by virtue of the employer%s Nagrant3


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breach of statutory duty and their failure to fence a dangerous part of the

machinery, the insurers would have been entitled to repudiate liability

under the policy and the employers would have suered no damage from

the broker%s failure to eect the insurance policy.

o %OLN'$

o The court went further than ?oolfall so that only recklessness or worse on

the part of the insured will now amount to a breach of this condition.easonable care does not mean reasonable as between the insured and

third party, but as between insured and insurer having regard to the

commercial purpose of the contract, which includes indemnity against the

insured%s own negligence. The insured%s omission or act $must be at least

reckless, that is to say, made with actual recognition by the insured

himself that a danger exists, and not caring whether or not it is averted.

The purpose of the condition is to ensure that the insured will not,

because he is covered against loss by the policy, refrain from taking

precautions which he knows ought to be taken.o ?hen an employer was reuired to take reasonable precautions to

prevent accidents under an employer%s liability policy, there was no

breach of the duty unless it could be shown that the employer was

reckless. ere negligence would not constitute a breach of the duty under

the policy, the insured must have acted recklessly, he must have

deliberately courted a danger the existence of which he recognised by

failing to take necessary measures to avert the danger. >ere the employer

did not appreciate the risk in uestion and since so, they were not reckles

in failing to fence the machinery. 7er Hiplock 8:

?hat is reasonable as between the insured and the insurer without

being repugnant to the commercial purpose of the contract is that

the insured, where he does recognise a danger should not

deliberately try to court it by taking measures which he himself

knows are inadeuate to avert it.

!t is not enough that the employer%s omission to take any particular

precautions to avoid accidents should be negligentA it must be at

least recklessA made with actual recognition by the insured himself

that a danger exists, and not caring whether or not it is averted.

The purpose of the condition is to ensure that the insured will not,

because he is covered against loss by the policy refrain from taking

precautions which he knows ought to be taken.

7oh: & bailee is generally not liable unless he is negligent in taking care of the

bailor%s goods.

!f a bailee is reuired by his insurance policy to take reasonable precautions to

safeguard the insured property, the duty is to be construed as meaning that the

insured must not be reckless, this construction being necessary to ensure thatthe commercial ob5ect of the policy is not negated by the terms of the policy '?

8 ane v. +pratt /013C4: a road haulier who was reuired to take reasonable=


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precautions to safeguard the insured goods is only reuired not to act recklessly

or grossly negligent in his care of the insured goods).

o #ACTS$

o & #rm of haulage contractors was insured under a Koods in Transit policy

covering the insured%s $legal liability as carrier for loss of or destruction of

or damage to the goodsOmerchandise in transit%. The policy stipulated that

the insured shall take all reasonable precautions for the protection andsafeguarding of the goodsOmerchandise. The #rm hired a diver sent to

them through the abour ;xchange without asking for any references or

verifying the driver%s identity. The driver disappeared with a lorry load of

bacon on his #rst day at work.

o %OLIN'$

o The provision relied upon by the insurers did not apply to the hiring of an

employee and even if it did, it would only apply if the insured was reckless

or grossly negligent. 7er oskill 8:

They are carriers of repute. The last thing they would have wantedwould have been wittingly to have taken on a dishonest employee.

&pplying the test in "raser, the underwriters have failed to show that

they refrained from taking the normal precautions because they

knew they were covered against loss by the policy and were thus

reckless even though they neglected to take precautions.

7oh: & policy taken out by an individual to insure his own property has to be

distinguished from a policy covering the insured%s third party liability. !n a policy

insuring an insured%s own property, a term reuiring the insured to take

reasonable precautions to safeguard the insured property may be given a literal

construction without being repugnant to the commercial ob5ect of the contract.

o &n insurer is entitled to rely on an insured%s contractual duty to take

reasonable precautions to safeguard the insured property.

o +uch a precaution can reuire an insured to take keep any alarm systems

and other safety devices in full operation during the currency of the policy.

&n insured can prove a breach of this duty by showing that the insured

has acted negligently in failing to ensure that the safety devices are kept

in working order.o There is no need for the insurer to show that the conduct of the insured

was reckless.

o &lthough an insurer is entitled to reuire an insured to take reasonable

precautions to safeguard the insured property, it must be recognised that

the duty is to take reasonable precautions to safeguard the insured

property and not an absolute duty to safeguard the insured property. &n

insured ful#ls his duty under the policy if he takes reasonable steps to

safeguard the insured property.

& policy reuiring an insured to keep a burglar alarm system in e6cient workingorder did not impose an absolute duty on the insured to ensure that the alarm

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system was fully operational at all times. The insured discharged his contractual

duty of care if he did everything possible to ensure that the alarm system was in

working order 'Pictor elik -o td v. (orwich Union "ire !nsurance +ociety td

/01=C4).

o #ACTS$

o & warehouse storing treated leather was insured against the risk of theft.

The policy stipulated that $it is a condition precedent to liability that a) theburglar alarm installed at the premises is kept in e6cient working order%.

Fne day the insured was informed that a fault had developed in the

telephone line connected to the alarm system and conducted a check on

their premises to #nd that the telephone lines were not working. The

alarms were then reset to give an audible signal. The thieves who had

earlier cut the telephone lines broke into the insured premises that night.

o The insurers contended that the plaintis failed to keep their burglar

alarm system in e6cient working order. The insured contended that they

were not in breach of the term pertaining to the alarm system and even ifthere was a breach, the insurers either waived the breach or were

estopped from relying on the breach.

o %OLIN'$

o The insured had ful#lled their duty to keep the alarm system in e6cient

working order because they did everything possible to rectify the fault.

There was nothing in the conduct of the insurers to show that they had

waived the beach of condition. 7er ?oolf 8:

The burglar alarm is not reuired to be in e6cient working order but

kept as such. The word kept implies within it a reuirement that

before there can be a breach of that condition by an insured, he

must be aware of the facts which give rise to the alarm not being in

e6cient working order, or if he is not aware of those facts, he should

at least be in a position where exercising common care, he should

have known those facts.

"urthermore he must be given a su6cient opportunity to have the

alarm installed once more restored to proper working order.

The burglar alarm installed at the premises was at all times in

e6cient working order, what was not in working order was the

telephone line 'property of the 7ost F6ce) which had been cut. That

line was cut outside the premises of the insured. The cut prevented

the alarm doing what was intended, but the alarm itself was

operating e6ciently and therefore there was no breach of the

condition.

7oh: Terms in an insurance policy are to be construed consistently throughout

the policy. !f a policy covers both an insured%s own property as well as his third

party liabilities, a term in the policy reuiring the insured to take reasonableprecautions to safeguard the insured property and to prevent accidents is to be

construed consistently throughout the policy to mean that the insured must not0C


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would escape all liability under sections 0 and 2 in the very ordinary

case of damage to a house or its contents by #re 'one of the insured

perils) if the #re were caused by the negligence of the insured. That

cannot be right.

There is no distinction between property insurance nor liability

insurance such that the recklessness test applies only to liability

insurance 'as per "raser) and not to property insurance, it being thecase only in liability insurance that there is nothing to insure at all

unless the insured is liable to a third party.

"or a composite policy such as the present, the condition could not

have dierent meaning in relation to the dierent sections. The

recklessness test is thus eually applicable whether the condition is

included in a property insurance or in a liability insurance.

o The insured did not act recklessly but had taken all reasonable steps to

safeguard the 5ewellery. 7er loyd 8:

They did not leave the 5ewellery exposed to view. They were notgoing to be absent from the car for more than half an hour at most

and were in any event absent for much less than half an hour. The

safest thing in the circumstances was to leave the 5ewellery in the

locked glove compartment.

o The condition was stated to be a condition precedent and the insurers

contended that the insured was obliged to show that he had complied with

the condition before he could claim under the policy. The court decided

that the burden of proof rest with the insurers to show that the insured

was in breach of the term. 7er loyd 8:

The burden was on the insurers to prove a breach of the condition

precedent, not on the insured to prove compliance with the

condition. There is nothing in the language of the condition to shift

the ordinary burden of proof.

o 997oh: >ere the -& considered a composite insurance policy covering both

the insured%s own property and his third party liability. The court did not

agree with the insurer%s contention that the insured%s obligation to take

reasonable steps to safeguard the insured property meant that the

insured must not be negligent as opposed to being reckless. !n the context

of a composite policy, it is clearly illogical for a term in the policy to take

on two dierent meanings. The court was right in this instance to hold that

the insured%s obligation to safeguard the insured property meant that he

must not be reckless.

!t is however doubted that the court was intending to apply this

lower standard of care to all cases where an insured is reuired to

take reasonable precautions to safeguard the insured property. !t is

eually clear that in situations where giving the words in aninsurance policy their ordinary meaning would not be repugnant to

the commercial ob5ect or purpose of the policy, the courts are likely

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to give the words their intended meaningA that ordinary negligence

would su6ce to constitute a breach under the policy.

?hen an insurance policy covers both an insured%s own property as well as his

third party liability, a term reuiring the insured to take reasonable precautions

to safeguard the property insured or to prevent accidents will be construed as

reuiring the insured not to be reckless 'Kunns v. 7ar !nsurance Brokers /01134:

a term in a home contents insurance policy reuiring the insured to takereasonable precautions meant that the insured must not be reckless).

o #ACTS$

o & husband and wife own several 5ewellery shops. They eected a home

contents policy through insurance brokers who did not disclose that the

insured were previously refused home insurance cover by other insurers.

Burglars broke into the insured%s home while they were away taking a safe

containing the insured%s 5ewellery. The insured%s burglar alarm system was

not activated.

o The insurers contended that the insured failed to disclose his previouslosses and the refusal by other insurers to insure them. The insured

sought to recover the losses from the brokers on the ground that the

brokers acted negligently when they failed to disclose the information to

the insurers 'this was re5ected by the court). The brokers contended that

the insured was in breach of a term in the policy reuiring them to take

reasonable precautions to safeguard the insured property when they failed

to activate the alarm system.

o %OLIN'$

o The insured acted recklessly in not activating the alarm system. 7er +ir

ichael Fgden R-:

&s in +o#, the principle extended to this type of policy which applies

to all insurance policies. The insured%s conduct was reckless. "or a

5eweller who knew full well the risks of robbery and burglary to

which 5ewellers are particularly susceptible and unusually easy prey,

the insured%s conduct was extraordinary. This is especially so when

they knew they were being followed 'resulting in the insured to

increase their cover). To go away for the weekend and leave

valuables in a safe which they knew the insurers regarded as not

satisfactory in view of the value of the contents without turning on

the alarm system is incredible conduct.

Birds: & number of perils are never covered by indemnity insurance. 7rimarily

these are wear and tear and inherent vice, in other words, what occurs or

happens naturally. +imply, these are not fortuitous and are not therefore

capable of being covered by an insurance contract, the essence of which is to

cover uncertain risks. The ma5or exception here is in the #eld of contingency

insurance, namely, life and related contracts. & life contract covers the naturalprocess of dyingA a health insurance covers what may be inevitable illness.

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*. Rules o+ Const"uction ContetO"dina"- & Tecnical /eaningCont"a0

"o+e"ente2

Birds: The uestion of construction is a uestion of law and once a word or

phrase has been 5udicially considered, that decision should be followed

according to the usual rules of precedent '? 8 ane v. +pratt /013C4).

o The traditional approach to construing insurance contracts 'rules of

construction):7rimarily it was the intention of the parties as discovered ob5ectively

from the whole of the policy that prevailed. ?ritten parts, if present,

prevailed over printed parts as more likely to express the agreement

of the parties and parol evidence was not in general admissible to

vary or contradict the written document.

The policy was construed according to its literal meaningA only if

that was unclear could extraneous circumstances be examined.

?ords were normally understood in their ordinary meaning, but this

was not the case where they had a technical legal meaningA here

the latter prevailed. +imilarly, the context of a word might dictate a

departure from its ordinary meaning. ?ords appearing in the one

phrase were prima facie to be construed ejusdem generis.

!n the event that there was any ambiguity, the policy was construed

contra proferentem, that is against the person who drafted it and in

favour of the other 'normally against the insurer in favour of the

insured).

o The modern approach to the construction of contracts of all sorts still has

as its prime ob5ective the ascertainment of the intention of the parties.

&lthough literal interpretation divorced from the background of facts in

which agreements are concluded had already been abandoned, it was still

the case that particularly in standard form contracts, the parties%

expressed intention might be interpreted as being rather dierent from

what the parties or perhaps one of them actually intended. ?hat many

regarded as a de#ciency in the law not least because the primary rule was

founded on the often incorrect premise that the contract was the result of

bargaining between parties of eual strength, led to the rules of

construction receiving attention in the >.

& fundamental change has overtaken this area of the law. The result

has been to assimilate the way in which such documents are

interpreted by 5udges to the common sense principles by which any

serious utterance would be interpreted in ordinary life. &lmost all

the old intellectual baggage of legal interpretation has been

discharded '!nvestors -ompensation +cheme v. ?est Bromwich

Building +ociety /011=4 U*>).

7er ord >oman: !n construing contractual documents, theaim must be to #nd the meaning that the document would

0L


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convey to a reasonable person having all the background

knowledge that would reasonably be available to the parties in

the situation in which they were at the time of the contract.

7revious negotiations and declarations of sub5ective intent

must be excluded, but included is the possibility of ambiguity

and the realisation of the possible misuse of words and

syntax. The court is not obliged to ascribe to the parties anintention that plainly they could not have had and in choosing

between competing unnatural meanings, it was entitled to

decided that the parties must have made mistakes as to

meaning. "urther commercial contracts ought to be construed

in a way that makes good commercial sense.

99Birds: The modern day restatement of the principles of

construction certainly has a bearing on the interpretation of

insurance contracts 'see for e.g. cKeown v. Hirect Travel

!nsurance /2CCope.

o %OLIN'$

o The court agreed with the insurers.7er ord ;llenborough -8:

The same rule of construction which applies to all other instruments

applies eually to a policy insuranceA that it is to be construed

according to its sense and meaning, as collected in the #rst place

from the terms used in it, which terms are to be understood in their

plain, ordinary and popular sense, unless they have generally inrespect to the sub5ect matter, as by the known usage of trade or the

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like, acuired a peculiar sense distinct from the popular sense of the

wordA or unless the context evidently points out that they must in

the particular instance, in order to eectuate the immediate

intention of the parties to that contract, be understood in some

other special and peculiar sense.

The words superadded in writing are, if there should be any

reasonable doubt upon the sense and meaning of the whole, to havegreater eect attributed to them than to the printed words,

inasmuch as the written words are the immediate language and

terms selected by the parties themselves for the expression of their

meaning and the printed words are a general formula adapted

eually to their case and that of all other contracting parties upon

similar occasions and sub5ects.

7oh: !n construing a term in a written contract, one of the basic rules of

construction is that one must construe the term in the context of the entire

contract. The term must not be construed in isolation, apart from the rest of thedocument and is to be seen as forming part of a larger document.

& term in an insurance contract must be construed in the context of the entire

contract '>amlyn v. -rown &ccidental !nsurance -o td /0=1


17/80

o %OLIN'$

o !n construing the risk insured, regard must be given to the rest of the

policy, including the exclusion provision. The term external meant

something not arising from an internal weakness or disease.

7er ord ;sher: The expression $external% 'looking at the rest of the

policy) must be taken to mean the antithesis of internal. !f the in5ury

had happened by reason of something internal it would not bewithin the policy but that is not the case. Because the cause of the

in5ury was not internal, it must have been $external% and in that

case, it was also $visible% within the meaning of the policy.

o The term $external% referred to an event which did not arise from an

internal disease or weakness.

7er opes 8: The policy must be read in the way in which a person

of ordinary intelligence would read it and in construing this

particular clause, attention must not be con#ned to that clause, but

must look to the whole of the policy. The exception clause dealsstrictly with matters internal to the person who sustains the in5ury

and the words used in the descriptive clause apply to matters

dierent from and contradistinguished from the internal matters

dealt with in the proviso.

o 99Birds: The uestion is whether subtle changes in wording can aect the

interpretation of words. "or e.g. a personal accident policy may not simply

cover death or in5ury $caused by accident% but one $caused by accidental

means% or $by violent, accidental, external and visible means%. >ere it

could be argued not 5ust that the #nal event or in5ury must be accidental,

but also the means, in other words, the prior act of the insured or whoever

is responsible for the act, so that if a deliberate act led to the #nal

accident, the insured is not covered.

&n argument along these lines seems to have been re5ected in

>amlyn, where the wording was of this sort and the bending over

the insured was clearly deliberate.

>owever in Hhak v !nsurance -ompany of (orth &merica 'U*) td

/011@4 U*-&, recovery was denied in circumstances where the

insured died from asphyxiation due to vomiting while under the

inNuence of alcoholA she had drunk in order to control severe back

pain 'an insured who took a deliberate risk did not suer an in5ury

by accident if the risk materialised).

The earlier ;nglish approach is to be preferred. The attempted

distinction between accidental results and accidental means

will plunge this branch of the law into confusion.

7oh: & word often takes on a meaning from the context in which it is placed.

The meaning of a word was to be gathered from the context in which the wordwas used '7rovincial !nsurance -o td v. eo -hee +wee /01=L4 &"-).

03


18/80

o #ACTS$

o The insured died in a road accident while riding a motorcycle. >is

insurance policy excluded the following risks: $death or disablement

caused by or conseuent upon participation in hunting, mountaineering,

winter sports, racing of any kind, polo, football, motorDcycling or any form

of diving in the sea%. The court was asked to construe the exclusion

provision pertaining to the risk of motorDcycling. The provision could beconstructed as applying when the insured used a motorDcycle or only

where the insured used a motorDcycle as part of some sporting activity.

o The insurers contended that when the meaning of a word was reasonably

clear, the word should be given its plain and ordinary meaning even

though it might operate harshly against an insured. The insured

contended that the maxim noscitur a sociisought to be applied to help

#nd the true meaning of the word $motorDcycling%.

o %OLIN'$

o The word motorDcycling must be construed in the context of the policy and

in this case the word obviously referred to the use of a motorDcycle in

some form of sports, exhibition or competition.

7er >ashim eop & +ani "8: & policy of insurance is basically sub5ect

to the same rules of construction as any other written contract. The

words used in it must be given their plain, ordinary meaning but in

the context of the policy looked at as a whole and sub5ect to any

special de#nitions contained in the policy. &lthough the grammatical

sense is not the sole or primary method of constructing a policy, it

does in this case give a useful guide as to the intention of the

parties. >ere the word $participation% is important. &pplying the

maxim noscitur a sociis to the exclusion provision, motorcycling

must be motorcycling not undertaken in the ordinary sense but

motorcycling in some form of sports or exhibition or competition.

?hen the terms in an insurance policy are clear, eect must be given to the

terms '-hiew +wee -hai v. British &merican !nsurance -o ') +dn Bhd /01=34

alaysia).

o #ACTS$

o The insured%s life insurance policy provided that coverage if the insured

suered any personal in5ury in an accident resulting in a loss of limbs.

The policy stipulated that it was $understood that loss shall mean with

regard to hands and feet, dismemberment by severance at or above the

wrist or ankle 5oint%.

o The insured in5ured his left arm in a road accident 'and became useless to

him) and the doctors who treated him recommended that the arm should

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be amputated. The insured refused to have his arm amputated because it

would be too traumatic and the operation would cost too much money.

o The insurers contended that the severance of the in5ured arm constituted

a condition precedent to the liability of the insurers and until amputation

of the arm had taken place, they were not bound to pay. The insured

contended that refusal of the insurers to make payment was totally

unreasonable and that it was outrageous that the insurers should insistthat the insured should have his arm amputated before they would make

the payment.

o %OLIN'$

o +ince the words in the policy were clear, it was bound to give eect to

them. 7er +hankar 8:

The interpretation should be reasonable and any ambiguities should

be resolved against the person in whose favour the document has

been framed. But where the words of the document are crystal

clear, the sanctity of the contract should be upheld. The words havebeen put there to obviate the necessity of making #ne 5udgments

whether a limb has or has not been lost. ;ven if the plainti%s limp

arm serves a cosmetic purpose, he simply cannot say that he has

lost it because it is still there for the whole world to see.

Birds: The words in a policy are prima facie to be understood in their ordinary

meaning.

?hen a term has no precise or exact meaning, one has to look at the context in

which the term is used to #nd a meaning for the term 'Thompson v. ;uity "ire

!nsurance -o /010C4 7-: a term prohibiting gasoline from being $stored or kept%

on the insured premises constituted common ;nglish words with no precise or

exact signi#cance. !n the context of a domestic #re insurance policy, the term

must be construed as intending to prohibit the storage or keeping of gasoline for

a commercial purpose. !t was not intended to prevent an insured from having a

small uantity of the item for household purposes).

o #ACTS$

o & #re policy taken out by a shopkeeper exempted the insurers from

liability for loss or damage occurring $while gasoline is stored or kept inthe building insured%. The insured had a small uantity of gasoline for

cooking purposes, but no other.

o %OLIN'$

o The insurers was liable for the #re that occurred as the words $stored or

kept% in their ordinary meaning implied fairly considerable uantities and

imported the notion of warehousing or keeping in stock for trading. This

was not the case and so the exception was inapplicable.

o !n construing the words in the exclusion provision, account must be taken

of the commercial context in which the words were used. The exclusion

01


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was not intended to cover possession of prohibited substances for

household use. 7er ord ac(agthen:

?hat is the meaning of the words in collocation and in the

connection in which they are foundE They are common words with

no precise or exact signi#cation. The expression as used in the

statutory condition seems to point to the presence of a uantity not

inconsiderable or at any rate not triNing in amount, and to import anotion of warehousing or depositing for safe custody or keeping in

stock for trading purposes. & person who has a reasonable uantity

of the substance for household uses would not be $storing or

keeping% such substances.

?hen a policy uses an ordinary word, the word was to be given its plain and

ordinary meaning 'eo app td v. c-lure /01MM4).

o #ACTS$

o etal was insured against theft $whilst in warehouse%. +ome of the

relevant metal was stolen from a lorry parked in a locked compound'depot) surrounded by a high brick wall topped by barbed wire.

o %OLIN'$

o The insurer was not liable as the ordinary meaning of the warehouse

implied some sort of covered building and not a yard, however secure.

o The term $warehouse% was a word with a plain and ordinary meaning. !n its

plain and ordinary meaning, the term referred to some sort of building. 7er

Helvin 8:

Unless some evidence is given of a secondary meaning and there is

none here, the ordinary and popular meaning must control the

matter.

Birds: !n two respects however, the ordinary meaning of words will not prevail.

o The #rst is where a word has a technical legal or other meaning.

This will generally be the case in respect of words describing cover

or exceptions to it, which are also the names of criminal oences,

such as theft or have acuired a particular meaning. The meaning in

the latter respect applies to the word in an insurance policy.

o The second way in which the ordinary meaning of a word may not beadopted is where the context reuires otherwise.

!t has been suggested that the traditional approach should be

replaced by an enuiry as to what cover the parties really thought

was being provided by the policy and as to the purposes behind the

insurance in uestion 'erkin)

7oh: ?hen a term is a legal term or a term which has become a technical term

of art, the term is likely to be construed in its legal or technical sense. This

approach in construction can easily work against the interests of an insured,

especially if the term has both a legal as well as an ordinary meaning and the

two meanings do not coincide. & layman may be totally unaware that a term

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used in the policy may have a legal or technical meaning apart from its plain

and ordinary meaning.

o There is a natural tendency for the courts to give a term with which they

are very familiar its legal or technical meaning rather than to look for its

plain and ordinary meaning. This bias towards a legal or technical

construction can cause a great deal of hardship for a lay insured.

The term riot constituted a well known legal term and the term ought to begiven its legal meaning 'ondon ancashire "ire !nsurance -o v. Bolands td

/012L4 U*>: the word riot should be construed in accordance with its de#nition

in the criminal law, deciding in favour of a legal meaning for the term over its

plain and ordinary meaning).

o #ACTS$

o & policy on a baker%s shop against loss by burglary, housebreaking and

theft exempted the insurers from loss caused by or happening through or

in conseuence of inter alia, $riot%. "our armed men entered the shop one

day, held up the employee with guns and stole all the money they could#nd. There was no actual violence used and no other disturbance nearby.

o The policy excluded $loss directly or indirectly caused by or happening

through or in conseuence of invasions, hostilities, acts of foreign enemy,

riots, strikes, civil commotions, rebellions, insurrections or martial law%.

o The insurers disclaimed liability contending that the circumstances under

which the money was stolen constituted a riot under the exclusion

provision. The term must be construed in accordance with its well known

legal meaning in the criminal law. The insured contended that the term

ought to be given its plain and ordinary meaning and in its ordinary sense,

it referred to a tumultuous disturbance of the peace and there was here

no such disturbance. (o one reading the policy would imagine that a

robbery committed by four men would have constituted a riot under the

exclusion provision even if the robbers may be indicted for riot.

o %OLIN'$

o The event constituted a riot and thus the insured could not recover. The

stated reason for the decision was that $riot% is a technical term which in a

criminal context reuires only three people executing a disturbance suchas might cause alarm to a reasonable person. &pplying this meaning to

the case, there was clearly a riot on the facts of the case.

99Birds: >owever it may not be entirely insigni#cant that the shop

was in Hublin and the robbery took place at a time of great

disturbances involving the !& and others. !t is not impossible that

such a body was behind the robbery and to talk in terms of riot

becomes a little more understandable.

99Birds: !t is instructive that an &merican court '7an &m v. &etna

-asualty /013L4) held that riot in an insurance policy meant what

20


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ordinary people would normally regard as a riot, distinguishing

Bolands for these reasons.

!n light of the traditional rules applying to technical words, the

decision in Bolands was clearly correct. ?hat may be

uestioned is whether it is a necessary or fair rule to apply to

an insurance policy the meaning from another context when

such a meaning may be totally dierent from the ordinarymeaning. !t may be that this traditional approach to $technical

words% will not survive the restatement of the principles of

construction in !nvestors -ompensation +cheme v. ?est

Bromwich Building +ociety /011=4 U*>.

o The term was a well known legal term and ought to be given its legal

meaning. 7er ord +umner:

There is no warrant here for saying that when the proviso uses a

word which is emphatically a term of legal art, it is to be con#ned, in

the interpretation of the policy to circumstances which are onlywithin popular notions on the sub5ect, but are not within the

technical meaning of the word. "urther the legal meaning applies in

relation to $martial law% and $acts of foreign enemies%. There is no

reason why riot should not include its technical meaning here as

clearly as burglary and housebreaking do.

997oh: ?hen a term has both an ordinary as well as a legal or

technical meaning, there is little doubt that an uninstructed layman

is likely to construe the term in its ordinary sense and as a result

might misconstrue the scope of the policy. The hardship to an

insured in such a situation is obvious 'see 7an &m).

+ee 7enal -ode ss. 0L0'c) and 0L@:

Unla3+ul asse2!l-

0L0. &n assembly of M or more persons is designated an unlawful assemblyV, if the common

ob5ect of the persons composing that assembly is W

'c) to commit any oenceA

[51/2007]

#o"ce used !- one 2e2!e" in "osecution o+ co22on o!4ect

0L@. ?henever force or violence is used by an unlawful assembly or by any member thereof,in prosecution of the common ob5ect of such assembly, every member of such assembly is

guilty of the oence of rioting

7oh: ?hen a term has no legal or technical meaning, the court is entitled to give

the term its plain and ordinary meaning.

The words $civil commotion% was a term with no technical meaning and the court

was entitled to give the term its plain and ordinary meaning. !n its plain and

ordinary meaning, the term referred to a situation where there was turbulence

or tumult coupled with an ob5ect to commit violence. !solated incidents with no

violence being committed would not constitute a civil commotion 'ondon anchester 7late Klass -o td v. >eath /010


23/80

o #ACTS$

o The plainti insurers issued insurance to cover the risk of damage to plate

glass windows and reinsured the risk with loyd%s underwriters. The

reinsurance policies covered the plaintis against $damage to plate glass

caused directly by or arising from civil commotion or rioting%. & large

number of women simultaneously broke plate glass windows in dierent

parts of ondon. The women acting separately, did not resist arrest. Theplaintis paid out on the insurance and claimed under the reinsurance

policy.

o The reinsurers disclaimed liability on the ground that the loss was not

covered by the policy. The plaintis contended that the words $civil

commotion% was a term with no technical meaning and the term ought to

be construed in its plain and ordinary sense and therefore it referred to a

public disorder or disturbance, covering a state of aairs where the police

anticipated a breach of the peace.

o %OLIN'$o The isolated incidents did not constitute a civil commotion because there

was no turbulence or tumult. 7er Buckley 8:

-ommotion connotes turbulence or tumult and violence or intention

to commit violence. The evidence here is a number of separate

criminal acts committed by violence in the sense that a hammer

was used to break a window but without violence or intention to

commit violence in the sense of assault upon any one. The acts

were in fact done without causing any tumult or disturbance. This

does not disclose a state of facts upon which it could be found that

there was civil commotion.

7oh: &n insurer is invariably the party responsible formulating the terms of an

insurance contract. !f there is any ambiguity in the contract, the ambiguity is to

be construed more strongly against the insurer, the party responsible for putting

the contract together. To resolve an ambiguity, the court will apply the contra

proferentemrule. The rule is applied whenever a patent ambiguity appears on

the face of the contract. The rule is intended to resolve any ambiguity in the

terms of the contract. !t is however, not intended to create an ambiguity in a

contract which is otherwise clear.

Birds: The maxim that provides for ambiguities to be construed against the

party responsible for drafting them may be brought to the aid of the insured.

o The application of the contra proferentem maxim can hardly be said to be

free from doubt. !t is clear that there must be a genuine ambiguityA

ambiguity must not be created simply to apply the maxim. >owever

whether or not a word or phrase is ambiguous is not always apparent. The

cases tend to illustrate that even the 5udges cannot always agree as to

whether or not su6cient ambiguity exists 'see for e.g. ;nglish v. ?estern).

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?hen an exclusion provision 'a term in an insurance contract) lends itself to

more than one possible construction and an ambiguity arises in the meaning of

the term, the construction which was more favourable to an insured ought to be

adopted as the insurer is responsible for formulating the terms of the contract

';nglish v. ?estern /01LC4 U*-&).

o #ACTS$

o & motor policy eected by a 03 year old youth covered his liability forin5ury to all persons except, inter alia, in respect of $death or in5ury to any

member of the assured%s household% travelling in the car with the insured.

>e negligently in5ured his sister when she was his passenger. The insurers

argued that they were not liable to indemnify the insured against his

liability to her by virtue of the above exception.

o %OLIN'$

o !t was held that the expression $any member of the assured%s household%

was eually capable of meaning any member of a household of which theassured was the head as any member of the same household of which the

assured was a member. !t was therefore ambiguous and the meaning

more favourable to the insured 'the former meaning) was adopted so that

the insurers were liable.

o The term was ambiguous as it was capable of two possible constructions.

The term ought to be construed against the insurers. 7er -lauson 8

'Koddard 8 dissenting that the provision was not ambiguous): !f the

phrase used in the policy is in this sense ambiguous, that meaning must

be chosen which is the less favourable to the underwriters who have put

forward the policy.

& term in an insurance policy was ambiguous if it was inapt or could not be

reasonably understood and the ambiguity was to be resolved against the

insurers '>oughton v. Trafalgar !nsurance -o td /01ML4 U*-&).

o #ACTS$

o The motor policy involved an exception which excluded liability when the

car was conveying $any load in excess of that for which it was

constructed%. The insurer argued that the carriage of six persons in a cardesigned for #ve was within the exception.

o %OLIN'$

o This was not a $load%. ?hile the carriage of persons could be so

considered, it eually, indeed more naturally, referred to the carriage of

goods.

o The exclusion provision in the policy was not only ambiguous but it was

also inapt when applied to a passengerDcarrying vehicle. 7er +omervell 8:

!f there is any ambiguity, the ambiguity will be resolved in favour of the

assured. The words only clearly cover cases where there is a weight loadspeci#ed in respect of the motor vehicle, be it lorry or van.

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o The court did not know what the provision meant when applied to a

private motorcar. 7er omer 8: &ny clause or provision that purports to

have that eect ought to be clear and unambiguous so that the motorist

knows exactly where he stands. This provision is neither clear nor

unambiguous. !f applied to a private motorcar, ! have not the least idea

what it means.

7oh: The contra proferentem rule has also been consistently applied by thecourts in alaysia and +ingapore.

?hen the construction of an insurance policy was open to doubt, the doubt was

to be resolved against the insurer '-entral orry +ervice -o +dn Bhd v. &merican

!nsurance -o /01=04 alaysia).

o #ACTS$

o The plaintis were insured under a policy which covered loss or damage

$whilst in ordinary or customary course of transit, occasioned by the

carrying vehicle or conveyance being on #re, derailed, overturned or in

collision, struck by lightning or other accident to the vehicle or

conveyance such as involuntarily leaving the road, breakdown of bridges

and conseuent damage to the conveyance or vehicle and the interest

assured hereby%. The nearDside wooden Nap of the plainti%s lorry carrying

goods gave way and fell from the Noor and were stolen.

o The insurers disclaimed liability on the ground that the loss did not come

within the ambit of the policy. The loss was covered if it was occasioned by

the insured vehicle involuntarily leaving the road or by the breakdown of

bridges.

o %OLIN'$

o The two situations described in the policy were intended as illustrations of

what would constitute an accident and did not exhaustively de#ne the

scope of what constituted an accident.7er &Jmi 8:

There is only doubt and ambiguity in the clause as to whether the

policy covers any accident to the vehicle or is merely con#ned to

accidents caused by the vehicle involuntarily leaving the road or by

breakdown of bridges.

!n construing insurance policies, the contra proferentemrule shouldapply if there is ambiguity or doubt as to the extent of the policy.

+ince the policy is prepared by the insurance company, the doubt

and ambiguity should be construed in favour of the insured.

The policy therefore covers all accidents to the vehicle and the two

events described in the clause are mere examples and not

exhaustive. !t cannot be said that the accident is reasonably

foreseeable so as to take it out from the risk covered by the policy.

The occurrence is similar to the vehicle involuntarily leaving the

road which is expressly included in the policy.

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5. Seci6c esc"itions and Seci6c 7o"ds

+ee Birds pgs 2LMD2L3.

5.1 Accidents

Birds: oss caused by or arising out of an accident or by accidental means or

some similar phrase is a fairly common form of wording in insurance policies

and an essential one in particular types. &s we have seen, insurance prima faciecovers only unintentional acts anyway, so one problem is how the presence of

the word accident uali#es this. &nother is that even a deliberate act by

someone may well be accidental from the point of view of the victim. +imilarly

an insured may be engaged in a deliberate course of conduct when something

happens which he did not intend. !s this an accidentE

o !f it suggested that the answers to these and other problems are best

considered by a separate examination of #rst those #rst party insurances

where the description $accident% is to be found and secondly, cases of

third party or liability insurance where the liability of the insurer toindemnify exists only if the insured acted accidentally. The cases however

do not necessarily adopt this distinction.

7oh: &n insurance policy is intended to cover the occurrence of a fortuitous

event. !n many types of insurance policies, the occurrence of an accident

constitutes a common risk undertaken by the policies. The term $accident%

connotes an event which happens unexpectedly or fortuitously.

& policy insuring against a liability caused $by accident% was intended to cover

an event which took place unexpectedly 'ills v. +mith /01@L4).

o 99Birds: &n important point in this context concerns the relevance of

natural causes to a third party policy insuring against liability caused by

accident. &s has been seen, in the context of personal accident policies, if

the real cause of the loss is natural, it will not be covered, indeed it will

usually be expressly excepted, and of course it is a general principle that

insurance does not cover natural wear and tear.

o #ACTS$

o The plainti%s house was damaged by a neighbour%s oak tree. The

foundations of the house collapsed when too much water was withdrawnfrom the clay subsoil underneath the house by the roots of the oak tree.

The plainti brought an action for nuisance and in negligence.

o The insured was held liable in damages to a neighbour for settlement

damage to the neighbour%s house caused by the root action of a tree in

the insured%s garden taking water from the soil on the neighbour%s land.

o The neighbour%s comprehensive policy covered against legal liability 'a

householder%s liability policy indemni#ed the insured against liability) $in

respect of claims made by any person ... for... damage to property...

caused by accident%. The insurers disclaimed liability contending that thepolicyholder%s liability was not caused by an accident. ?here damage to

2@


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property arose in the course of nature, the damage could not be

attributed to an accident.

o %OLIN'$

o &n accident could be said to have taken place when the event was

unexpected. &n analogy could be drawn from the cases decided under the

?orkmen%s -ompensation &cts where an in5ury suered by a workman in

the course of his employment as a result of exertion in carrying out hiswork had always been held to be an in5ury caused by accident. 7er 7aul 8:

0) >as there been at any moment of time 'or at particular moments

of time) some unexpected event 'or events) which has 'or have) led

to damageE There is no accident until the overstepping 'of the

safety limit of movement) takes place. 2) ?hat was the cause of the

overstepping of the safety limitE The cause was the nuisance of the

roots of the tree penetrating into the plainti%s soil and draining

away the moisture necessary to keep the movement of the house

from overstepping that limit.o This was caused by accident.

99Birds: The 5udge was clearly disposed to give a wide meaning to

these words in a householder%s policy and the insured obviously did

nothing that was intended or expected in any way. Fn the other

hand, it could be argued that the real cause of the insured%s liability

was entirely natural, namely the action of the tree roots, albeit there

was an $accident% when the neighbour%s foundations dropped.

o 7aul 8 regarded it as signi#cant that the insurers had chosen to use the

same words as used to appear in the ?orkmen%s -ompensation &cts and

felt able to rely on leading decisions under those &cts with appropriate

ad5ustments. That led him to the conclusion that there were two uestions

to be answered on the facts. The #rst was whether there had, at any

moment in time, been some unexpected event leading to damage. >ere

the settlement was this event, being more that the natural movement of

foundations. The second uestion involved determining the cause of this.

>is answer was that it was the action of the roots of the tree and that this

meant that the insurers were liable.

99Birds: This reasoning is di6cult to follow. !f the real cause of the

loss was the action of the tree, that was surely natural and not

$caused by accident%. !f the causa proxima rule means anything in

this sort of case, the decision can hardly be supported on this

ground. !f it can be supported, it must be on the ground that the

event must he looked at solely from the point of view of the insured,

ignoring underlying $natural% factors. !f so far as he was concerned,

the event was unexpected and unintended, then the loss was

caused by accident. 7erhaps underlying this is a rationale ofproviding broad support to the individual insured without too much

regard to narrow principles of de#nition and causation.

23


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99Birds: Two further points can be made. 0) -hanges in wording

might make a dierence to the result in this case. !f for e.g., the

policy had provided an indemnity in respect of damage $caused by

an accident% or $by accidental means%, it would have been more

di6cult to reach the same result. &ccident by itself is much more

capable of a wide meaning than an accident and the use of

$accidental means% reuires that the entire causal history must beaccidental 'see Hhak v. !nsurance -ompany of (orth &merica 'U*)

td /011@4). 2) ?orkmen%s compensation cases 'being relied on in

third party policy cases) may be useful when the wording of a policy

is the same as that used in the &ct, in other words $in5ury or damage

caused by accident%. But it is also true that workmen%s

compensation policies were construed more liberally than other

insurance contracts because they were the system of #rst party

insurance established for the bene#t of employees before the days

of state insurance under the social security system. "or e.g. death orin5ury from natural phenomena has been held covered under a

workmen%s compensation policy, whereas it would not be so

regarded under a personal accident policy. ?orkmen%s

compensation cases are therefore no more than useful and are

certainly not binding in this context.

&n accident covers an unexpected or unusual event external to a passenger 'e

Heep Pein Thrombosis &ir Travel Kroup itigation /2CC@4 U*>: !t is an integral

part of the test of what amounts to an accident that it must have a cause

external to the passenger. &n event or happening which was no more than the

normal operation of the aircraft in normal conditions could not constitute an

accidentV).

o #ACTS$

o &n action was brought by passengers or their personal representatives

against 20 international air carriers under &rticle 03 of the ?arsaw

-onvention. The article provided that $the carrier is liable for damage

sustained in the event of the death or wounding of a passenger or any

other bodily in5uries suered by a passenger, if the accident which caused

the damage so sustained took place on board the aircraft or in the course

of any of the operations of embarking or disembarking.

o The claimants alleged that they suered HPT, resulting in serious in5uries

and in some instances, death, while on board the carriers% aircraft. They

contended, inter alia, that the in5ury arose from the cramped sitting

arrangements together with insu6cient levels of oxygen and fresh air in

the cabins. The defendants also failed to warn the defendants of the risks

of HPT.

o

%OLIN'$o &rticle 03 distinguished between the bodily in5ury to the passenger on the

one hand and the accidentV by which the bodily in5ury was caused on the2=


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other, so that the in5ury could not itself be the accidentA that it was the

in5ured passenger who must suer the unintended and unexpected

happening which constituted the accident and it was from his perspective

that the happening must be consideredA that an event or happening which

was no more than the normal operation of the aircraft in normal conditions

could not constitute an accidentV for the purposes of article 03 A that in

order to be an article 03 accident, the event or happening that caused thedamage of which complaint was made must be something external to the

passengerA that the onset of HPT during the normal operation of the

aircraft was not an unexpected or unusual event which was external to the

passenger, and that the cramped seating arrangements in the aircraft and

the failure by the airline to warn passengers of the precautions that might

be taken to guard against HPT could not be regarded as causative links in

the onset of HPT, particularly when there was no established practice of

airlines generally to issue such warningsA and that, accordingly, on the

agreed facts, HPT sustained during the course of or arising out ofinternational carriage by air was incapable of being an accidentV causing

bodily in5ury within the meaning of article 03.

-&


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passengers travelled on Nights 'with cramped seating and the

like) were not capable of amounting to an event that satis#ed

the #rst limb of the de#nition of an accident which $took place

on board the aircraft or in the course of any of the operations

of embarking or disembarking%.

3M The present case involved carriage by air in an aircraft and in a

manner, which were, in terms of industry standards and practice, atthe relevant times, normal, usual and expected. ike the -&, there is

no basis on which the permanent features of the aircraft, or the

sub5ecting of the passengers to carriage in aircraft with these

features could amount to an accidentV within article 03 . That is not

of course the same as saying that an unexpected event during the

Night must always be instantaneous and immediately noticeable,

rather than continuous and unrecognised.

The term $accident% contemplated a distinct event, not part of the usual, normal

and expected operation of the aircraft, which happened independently ofanything done or omitted by the passenger 'Barclay v. British &irways 7lc /2CC14

U*-&).

o #ACTS$

o & passenger%s right foot suddenly slipped on a plastic strip embedded in

the Noor of the aircraft as she lowered herself into her seat. +he heard and

felt her knee $pop% as it gave way and struck the armrest. +he sustained

bodily in5ury. The insured contended that the in5ury was caused by an

accident taking place on board an aircraft.

o The claimant was taking her seat as a passenger aboard the defendantGs

aircraft when her foot slipped on a plastic strip embedded in the Noor and

she sustained bodily in5ury. The strip was a standard #tting and the cabin

environment was in normal working order. The claimant sought damages

from the defendant carrier for bodily in5ury caused by an accidentV on

board the aircraft pursuant to article 03'0) of the ontreal -onvention

0111 which was the successor provision to and materially to the same

eect as article 03 of the ?arsaw -onvention 0121.

o %OLIN'$

o The term accidentV in article 03'0) contemplated a distinct event,

external to the passenger, which was no part of the usual, normal and

expected operation of the aircraft and which happened independently of

anything done or omitted by the passengerA that, therefore, where bodily

in5ury was caused by an event constituted by some contact or interaction

between the passenger and the aircraft in its normal state, such an event

was not capable of amounting to an accidentV within the meaning of

article 03'0)A that the claimantGs slip was not an event external to her, nor

had it happened independently of anything done or omitted by her, butrather was an instance of her personal, particular or peculiar reaction to

the normal operation of the aircraftA and that, accordingly, the 5udge had


31/80

been correct to have found that the claimantGs slip was not capable of

amounting to an accidentV within the meaning of article 03'0).

7oh: !n the context of a workmen%s compensation insurance policy, the term

accident has been construed to include an in5ury suered by a workman as a

result of exertion in carrying out his work. ;ually if a workman is suering from

a preDexisting disease and the disease is accelerated by the exertion of the

workman to a point where it causes in5ury, the resulting in5ury is attributable toan accident.

& workman who suered a fatal heart failure in the course of digging a drain

died as a result of an accident 'Kolden >ope ubber ;state td v. uniammah

Frs /01@M4 alaysia).

o #ACTS$

o & workman was employed as a #eld worker and his duties included the

digging of new drains and the clearing of old ones. >e suddenly collapsed

and died while clearing a drain with a changkol. >e died from heart failure

and the exertion of his work had contributed to the heart failure.o The ?orkmen%s -ompensation Frdinance 01M2 provided for payment of

compensation when a workman suered $personal in5ury by accident

arising out of and in the course of the employment%. The employers

appealed against an award made under the ordinance. The court was

asked to consider inter aliawhether the in5ury suered by the deceased

was due to an accident.

o %OLIN'$

o The workman%s heart failure was due to an accident arising out of and in

the course of his employment. 7er Kill 8: !t has been held that the fact that

a man%s condition predisposes him to a cardiac failure is immaterial where

such failure takes place in the course of and is caused by his work, unless

it can be shown that the work itself did not contribute to or accelerate the

death.

7oh: &n in5ury suered by a workman is due to an accident if the in5ury happens

unexpectedly or fortuitously. Thus a workman who is infected with a disease in

the course of his work may be said to have suered the in5ury by accident.

& workman whose 5ob involved the sorting of wool suered an in5ury by accidentunder the ;nglish ?orkmen%s -ompensation &ct 0=13 when he became infected

with anthrax as the in5ury was unexpected 'Brintons td v. Turvey /01CM8 U*>).

o #ACTS$

o The workman was employed to sort wool at a factory and became infected

with anthrax and died #ve days later. ?orkmen%s compensation was

awarded by the arbitrator. The employer appealed against the award on

the ground that for an in5ury to come within the provisions of the &ct,

there must be an occurrence which could properly be described as an

accident, where the in5ury must have been caused by some force applied


32/80

to the body, for instance, a pinDprick, scratch, contact with a sharp tool,

bruise, wound or some similar event.

o %OLIN'$

o The death of the workman could be attributed to an accident as the event

causing the in5ury happened unexpectedly and fortuitously. 7er ;arl of

>alsbury -:

!t was an accident that the thing struck the man. !t must have beenthough some accident that the poison found entrance into the

man%s system. The man%s death was attributable to personal in5ury

by accident arising out of and in the course of his employment.

Birds: The cases illustrate that $accident% is a di6cult concept to de#ne

accurately. The following tentative conclusions can be drawn. The meaning of

accident is wider in the context of personal accident cover than in third party

cover.

o !n the former, the event need only be either unexpected or unintended,

provided that the insured does not expose himself to a deliberate risk.o !n the latter, it should be both unexpected and unintended.

o >owever the degree of foresight that is relevant to determine whether or

not an event is unintended is not clearly established.

Kray v. Barr /01304 suggests that not a great deal of foresight of an

event is needed before it is so regarded as intended for these

purposes whereas obinson v. ;vans /01@14 &ustralia held that the

insured as a reasonable man must have foreseen the event before

he is denied indemnity. !t may be that Kray should be regarded as

incorrect on this point and treated solely as an authority on

causation and public policy.

5.* Const"uing a )e"sonal Accident )olic- Total )e"2anent isa!le2ent

7oh: The amount of indemnity recoverable under a personal accident policy is

often dictated by whether an insured%s in5ury is of a temporary or permanent

nature and whether the in5ury aects the employment prospects of the insured.

"or this reason, the disability suered by an insured is often classi#ed as a

$partial disablement% or a $total disablement%. &n insurer may provide his ownde#nition as to what constitutes each. The task of determining the scope of

these two terms in any given case is largely one of construction.

o The term $total disablement% has been construed to cover a situation

where an insured is unable to pursue the business he was involved in prior

to suering the in5ury or some substit

7. construction & causation - risks & losses

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