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Interpreting insurance contracts: a refresher (part 3 – ambiguity)

18 July 2020 Donald Dinnie, Norton Rose Fulbright
Donald Dinnie at Norton Rose Fulbright

Donald Dinnie at Norton Rose Fulbright

Ambiguous insurance contracts may be construed against the insurer. In case of doubt and where there is ambiguity a contract, including an insurance policy, may be construed against the contracting party by whom it was formulated.

This is generally known as the contra proferentem rule (see for example, Pereira v Marine and Trade Insurance Co Limited 1975 (4) SA 745).

The rule is based on the assumption that the contracting party who drafted the contract had the opportunity to express themselves in clear language and then having failed to do so, the ambiguity must be interpreted against them.

The rule, however, is often trotted out as a refuge of the lazy and before the primary rules of interpretation have been applied. The rule should only be applied as a last resort.

It should be used to clarify an ambiguity when all the other rules of construction (see parts 1 and 2 in this regard) have failed to do so and needs to be applied cautiously. It does not represent the basic attempt at arriving at the actual intention of the parties. One should not strain to find ambiguity and then apply the contra proferentem rule. The rule is only to be applied in cases of real doubt.

It also should not be applied to manufacture a difficulty in ascertaining the true intention of the parties (see for example, Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insure Co of SA Ltd 1961 (1) SA 103 A at 108). The rule should not be applied for the purpose of creating doubt or magnifying an ambiguity when the circumstances of the case raise no real difficulty (see Spire Healthcare Limited v Royal & Sun Alliance Insurance Plc).

A meaning should not be rejected just because the wording might have been better expressed.

First published by: Financial Institutions Legal Snapshot

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