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Interpreting insurance contracts: a refresher (part 1)

03 July 2020 Donald Dinnie, Norton Rose Fulbright
Donald Dinnie, Norton Rose Fulbright

Donald Dinnie, Norton Rose Fulbright

The Supreme Court of Appeal judgment of Centriq Insurance Company Limited and Oosthuizen contains a useful summary of the general principles of interpretation of insurance policies and other contracts:

  • Insurance policies are contracts like any other.

  • Contract provisions must be construed having regard to their language, context and purpose in what is a unitary exercise.

  • A business-like or commercially sensible meaning must be preferred.

  • The analysis is objective and is aimed at what the parties must have intended having regard to the words they used in the light of the document as a whole and the factual matrix in which they concluded the contract.

  • Provisions which place a limitation on the insurer’s obligation to indemnify are usually restrictively interpreted.

  • Exclusion clauses, like other clauses, must be interpreted in accordance with their language, context and purpose with a view to achieving a commercially sensible result.

  • The literal meaning of words in the contract must yield to a fair and sensible application if the literal meaning is likely to produce an unrealistic and unanticipated result which is at odds with the purpose of the policy.

  • Courts are not entitled, simply because the policy appears to ‘drive a hard bargain’ to lean towards a construction more favourable to an insured than the language of the contract, properly construed, permits.

  • It is not for the courts to construe exclusions in favour of the insured simply because it considers them to be unfair or unreasonable.

First published by: Financial Institutions Legal Snapshot

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