Insurance policy interpretation - now favouring insurers? (Cathy Hawkins)
Monday, November 20, 2017
Lately a few people have asked me whether the contra proferentem rule is “dead” in the light of case decisions that seem to say so. Contra proferentem is an important help for policyholders where an ambiguous policy term is presented as excluding their claim. The rule says that if the wording is unclear, it will be narrowly interpreted against the party who drafted it or relies on it, usually the insurer. It can very often mean that policyholders are entitled to cover beyond the insurer’s view of it.
But recently decisions have seemingly reduced its power in insurance policies. For example the recently reported Crowden v QBE where an exclusion in a professional indemnity policy for insolvency was not interpreted narrowly, and so cover was excluded.
The judge said that insurance exclusions define the extent of cover and shouldn’t be interpreted in the incredibly narrow way that exclusions of primary liability in “normal” contracts often are.
I am not sure that all the fuss about a new judicial direction is justified: the clause in Cowden was not really ambiguous, and was specifically directed to excluding cover for a problem apparent in the insured’s industry which insurers probably just didn’t want to underwrite.
Policyholders and their brokers shouldn’t yet worry that the courts have abandoned the contra proferentem rule. But we should all be cautious about the approach to exclusions as the courts’ approach is perhaps to see them as a rather neutral definition clause determining what is and isn’t covered, rather than a “full on” exclusion of liability clause.
Cathy Hawkins has over 25 years’ experience in the financial sector and specialises in insurance law. She is a member of Cubism’s financial liabilities team and advises policyholders on complex insurance claims.