It was common ground that the wording of a policy issued by the insurer (insurer 1) to the insured covered the insured's employee, who was involved in a serious car accident. However, both the insured and insurer 1 agreed that this had not been their intention (and that the policy would instead cover only members of the insured's "Employee Car Ownership Scheme"). The employee, who was not a member of that scheme, had been driving a car hired for her by the insured at the time of the accident. Insurance had been arranged by the car rental firm with another insurer (insurer 2). The accident claim was handled and eventually settled by insurer 2, who then sought a contribution from insurer 1, who, it argued, was also liable in respect of the accident. The issue in this case was whether insurer 1's policy should be rectified by the court on the basis that it did not reflect the intention of either insurer 1 or the insured.
The requirements for rectification were approved by Lord Hoffmann in Chartbrook v Persimmon Homes (2008) as follows: (1) a common continuing intention by the parties; (2) an outward expression of accord; (3) continuation of the intention at the time of the execution of the document; and that (4) by mistake, the document did not reflect that common intention. The test of a common continuing intention is objective. Lord Hoffmann also said that "evidence of subsequent conduct may also have some evidential value". In this case, Males J clarified that statement as follows: "To be clear, this is not to say that subsequent conduct may create a common intention where none existed at the time when the contract was concluded, but that evidence of what the parties said and did subsequently may cast light on what they intended at the time".
On the evidence in the case, the judge found convincing proof that insurer 1 and the insured had not intended to cover employees who were not members of the ownership scheme under the policy. In addition to the evidence of the relevant employees, the judge relied on the fact that the premium was based only on a fixed sum per vehicle in the scheme (and nothing else), and the heading of the policy ("Employee Car Ownership Scheme Motor Fleet Insurance") was also a strong indication of its intended subject matter.
Rectification is an equitable remedy, however, and the judge also went on to find that it would be inequitable to render insurer 1 liable to contribute even though it had not agreed to insure the employee and had received no additional premium for that liability (thus giving a windfall to insurer 2, who had received premium to insure the employee).
The judge also noted that the employee had never thought she was insured by insurer 1 and she was, in any event, covered (and fully indemnified) by the policy issued by insurer 2. That, perhaps, begs the question whether rectification would have been ordered had the employee not been covered under any other policy for the accident.
Equity Syndicate Management Ltd v Glaxosmithkline Plc [2015] EWHC 2163 (Comm)
Evidence Which Court Will Take Into Account When Deciding Whether To Rectify An Insurance Policy
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