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The contra proferentem rule and insurance policies – again

20 November 2020 Donald Dinnie, Norton Rose Fulbright
Donald Dinnie, Norton Rose Fulbright

Donald Dinnie, Norton Rose Fulbright

The application of the contra proferentum rule was one of the issues which the English High Court considered in Financial Conduct Authority v Arch Insurance (UK) Limited and Others.

The rule provides that where there is doubt about the meaning of a contract, the words will be construed against the person who proffered them.

The court said that the rule ‘if it still has any validity, can only apply if there is genuine ambiguity, which cannot otherwise be resolved by applying the principles of construction. It should not be relied on to create ambiguity where there is none’.

The court referred to a number of useful judgments discussing the rule and its application. In Impact Funding Solutions Limited (Respondent) v AIG Europe Insurance Limited (formerly known as Charteris Insurance UK Limited) the court said that it could see no ambiguity and therefore saw no role in the case for the doctrine of interpretation contra proferentem.

The court in Crowden v QBE Insurance (Europe) Ltd, said that a court must adopt an approach to the interpretation of insurance exclusions which is sensitive to their purpose and place in the insurance contract. To that end the court should not automatically apply a contra proferentem approach to construction.

The judgment of Rainy Sky SA v Kookmin Bank said that in the case of ambiguity the court should prefer the more commercially sensible construction, but ’where the parties have used unambiguous language, the court must apply it’.

The contra proferentum principle remains a rule of last resort whose application is usually not required when the first rules of interpretation are diligently and thoughtfully applied.

First published by: Financial Institutions Legal Snapshot

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