UK: Has Something Gone Wrong In The Drafting?

Last Updated: 8 February 2005
Article by Sheila Simison and David Abbott

Where a clause in an insurance policy makes little sense, or seemingly cannot express the intention of the parties, how far will the courts go to enforce what they perceive to be the intent of the agreement? This question goes to the heart of the English approach to interpretation of contracts.

Contract clauses will generally be given their expressed, ordinary meaning: the parties, within certain limits, having the freedom to contract on whatever basis they wish. The court will only reluctantly intervene and, where it does, must be very clear and careful about the grounds. The recent judgment in Blackburn Rovers Athletic Football Club v. Avon Insurance (15 November 2004) considered this issue afresh.

In this case the Blackburn Rovers’ striker, Martin Dahlin, suffered an injury to his back whilst taking part in a training match. Although it was not immediately clear that the injury would have long-term consequences, it proved to be serious enough to prevent him from competing in top-class football and ultimately his disability put an end to his professional career. Blackburn had obtained insurance from the defendants against the risk of injury to its players, and made a claim under that policy. The insurers rejected the claim on the grounds that Dahlin’s disablement had not been caused by the injury alone, but resulted directly or indirectly from a degenerative condition of the lower spine and was therefore not covered by the policy.

The insurance policy paid out in the event that an insured person sustained an actual bodily injury or illness (as defined elsewhere in the policy). 100% of the sum insured was payable in the event of permanent total disablement (which, within the meaning of the policy, Dahlin had suffered). Under the exclusion section of the policy, however, it stated "This insurance does not cover death or disablement directly or indirectly resulting from or consequent upon: … 4. Permanent Total Disablement attributable either directly or indirectly to arthritic or other degenerative conditions in joints, bones, muscles, tendons or ligaments".

The judge expressed the issues relating to the application of this exclusion were to be decided as follows: whether the exclusion was incapable of bearing any rational meaning; whether it was to be literally construed in favour of the insured; and whether degenerative changes that were (a) typical of the male population of the relevant age; and (b) typical of top-class professional footballers of Dahlin’s age, were to be disregarded when construing the policy.

The exclusion certainly appeared difficult to apply. As drafted, it applied only to disablement which itself resulted from permanent disablement. There could thus be very few circumstances in which this exclusion could operate. The judge was consequently faced with a difficulty. Should he interpret the clause literally with an effect that in his view cannot have been intended by the parties, or did he have the scope to take a broader approach to the interpretation of the clause?

The judge was assisted by previous authority. For example, in Yorkshire Water Services Limited v. Sun Alliance and London Insurance plc [1997] 2 Lloyd’s Rep 21, it was held that "a literal construction that leads to an absurd result or one otherwise manifestly contrary to the intention of the parties should be rejected, if an alternative more reasonable construction can be adopted without doing violence to the language used…". This recognition of the need to give a policy sensible meaning consistent with its fundamental purpose has led the courts on various occasions to overlook obvious grammatical errors and, where necessary, even to disregard inappropriate phrases as surplusage. Basing his opinion on this, the judge said he would not hold either that the clause simply had no rational or an extremely limited meaning. Instead, he held that the intention of the parties could be understood from the words they used in the particular clause, even if that necessitated treating some of those words as surplusage. It was possible, he said, to ignore the words "Permanent Total Disablement attributable either directly, or indirectly, to..." as these duplicated earlier language in the exclusion section of the policy.

The judge then decided that this was not a case of ambiguity or unclear meaning to be resolved in favour of Blackburn. Instead it was an example of "something having gone wrong in the drafting", despite clear intentions.

He concluded that he was satisfied the exclusion should be construed as extending to death or disablement resulting directly, or indirectly, from degenerative conditions of the kind there described. On this basis, the answer to the first two issues to be decided was in the negative. The question remained, did these conditions apply to exclude this loss?

In deciding this third question, the judge elicited a further principle of interpretation, namely that the court should "lean against" construing a policy of insurance in a way that would substantially deprive the insured of the protection that the policy was designed to provide. The judge found it difficult to accept the parties intended that conditions which were shown in the majority of ordinary healthy people of Dahlin’s age, should operate to deprive Blackburn of cover unless the policy made that absolutely clear. The reference to degenerative conditions in the exclusion clause was accordingly construed as referring to conditions of sufficient severity to regard it as an illness, or an ailment, and not merely a reflection of the normal ageing process.

If a contractual intention is clearly expressed, the court will resist any temptation to give the contract some other meaning that would produce what it considers to be a more reasonable or businesslike result. This case, however, highlights the court’s willingness to intervene so as to make sense of a clause where the intentions of the parties appear clear, but the clause is expressed in a way that can have little rational meaning. There is always danger in relying on the courts to apply the parties’ intentions, and indeed they will always be reluctant to do so. Far better, of course, to be clear at the drafting stage of the contract.

The case also made clear that pre-existing conditions which are shown in the majority of healthy people of an insured’s age may well not exclude loss via a ‘preexisting condition’ exclusion clause of the kind in this case. There are, of course, potential difficulties in applying that principle elsewhere. The judge accepted that the concept of ‘normal’ wear and tear was imprecise and that in the cases of some types of degeneration the population at large would exhibit a range of conditions. There will be cases falling near the margins in which it may be difficult to decide whether the degree of degeneration is, or is not, within what can be described as a ‘normal’ range. The judge, however, felt that this difficulty would not arise in all cases and does not provide a strong argument for construing the policy in a way which would very significantly reduce the protection it is designed to provide.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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