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How to construe an insurance policy
From: Muriniti; Newell v Lawcover Insurance Pty Ltd (No 2) [2018] NSWCA 311 beginning at [39]
Legal principles
The principles governing the construction of insurance policies are well established and were not in dispute. In McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65, Gleeson CJ stated, at [22]:
“A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.” (footnotes omitted)
This statement was cited with approval by the High Court in Wilkie v Gordian Runoff (2005) 221 CLR 522; [2005] HCA 17 at [15], the Court adding, at [16]:
“In construing the policy, as with other instruments, preference is given to a construction supplying a congruent operation to the various components of the whole.” (footnote omitted)
In Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561; [2016] NSWCA 370 Leeming JA observed, at [86]:
“Where there is more than one available legal meaning, a court looks at the text, context and purpose, with a view to determining which potential meaning best accords with those considerations. Sometimes, text, context and purpose all point in the same direction, and all support the same conclusion as to the legal meaning of the contractual provision; that was the case in Victoria v Tatts Group Ltd (2016) 328 ALR 564; [2016] HCA 5 at [51] and [75]. Sometimes, as here, text, context and purpose point in different directions. But it remains necessary to assess the potentially available legal meanings against those matters.”
Leeming JA found the observations of Mance LJ in Gan Insurance Co v Tai Ping Insurance Co Ltd (No 2) [2001] EWCA Civ 1047; [2001] 2 All ER (Comm) 299 of assistance where there is a constructional choice as to the proper meaning of a contract or a term of a contract. In Gan Insurance Co v Tai Ping Insurance Co Ltd (No 2), the concern was with a clause which had at least two possible meanings. Mance LJ stated, at [16]:
“… In these circumstances, it is especially important to undertake the exercise on which the judge declined to embark, that is to consider the implications of each interpretation. In my opinion, a court when construing any document should always have an eye to the consequences of a particular construction, even if they often only serve as a check on an obvious meaning or a restraint upon adoption of a conceivable but unbusinesslike meaning.”
This passage was unanimously approved by the United Kingdom Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; [2011] UKSC 50; at [26]. See also the observations to the same effect in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36 per Gibbs J at 109, upon which the primary judge relied:
“It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another.”
What is a deed inter-parties or indenture?
A deed inter-parties is a deed which expressly states that it is made between two or more named persons.
The difference between a deed poll and a deed inter partes is absolutely crucial because of the difference as to who may enforce the deed in question. It is clear that any person named or sufficiently indicated in a deed poll may sue to enforce any obligation undertaken in that deed poll in his favour despite the fact that he is, by definition, not a party to the deed poll and has not executed the deed poll.
By contrast however a person cannot sue on a covenant made in his favour which is contained in a deed inter partes unless he is a party (and named as a party) to the relevant deed. Even if a third party executes a deed inter partes he cannot sue on it unless he is named as a party to the deed. The only way in which a person who is not a party to a deed inter partes can enforce a covenant in his favour contained in that deed is to come within one of the exceptions to the Doctrine of Privity e.g. he would be able to enforce the covenant if he was able to show that there was a completely constituted trust of the covenant in his favour.
Consequently it is vital where you are preparing a deed poll which is to be enforceable by third parties that you do not use language which suggests that there is more than one party to the deed and that it is a deed inter partes. For example avoid phrases such as “this deed is made between”. Conversely, if you are preparing a deed inter parties, make sure that any person who you wish to be able to enforce the deed is named as a party (unless one of the named parties is to be a trustee of the benefit of the deed for a third party beneficiary).
The other historical distinction was between a deed poll and an indenture. Whereas a deed poll, made by one party only, had a shaved or “polled” edge, an indenture, which was a deed to which two or more persons are parties and which evidenced some act, bargain, contract, conveyance, covenant or agreement between them other than the mere consent to join in expressing the same active intention (i.e. the joint and several guarantors example above), was a deed with serrated or indented (hence the term “indenture”) edges so that each party had a similar deed with the two parts being supposed to fit together as a sort of a tally.
The practice of indenting originated in early times when deeds were short; often a deed between parties would be written out two or more times (according to the number of parties) on a single sheet of parchment which was then divided by cutting it with an irregular edge so that each part could be fitted into the other to demonstrate its authenticity.
At first this rule was very strict and a deed executed before 1845 was not an indenture unless it was actually indented, even though it was stated to be an indenture. However in 1845 legislation in the UK was passed providing that a deed between parties has the effect of an indenture even though the parchment on which it is written was not actually indented.
Consequently for all practical purposes the term “indenture” is now a thing of the past and the only real important differentiation nowadays is between deed polls and deeds inter partes.
Doctrine of Privity
The basic Doctrine of Privity is that only parties to a contract may enforce that contact and that a third person who is not a party to the contract may not, unless he can take advantage of one of the limited exceptions to the doctrine, enforce a contact to which he is not a party even if that contract is made for his benefit. For example, if A promises B that A will pay $100 to C if C performs a piece of work, C, having performed the relevant piece of work, cannot sue A for the $100. (Interestingly, in this example, B could also not compel A to pay the $100 to C as B has supplied no consideration for A’s promise unless the facts are such that B agreed to procure performance by C.
It is generally agreed that the modern doctrine of privity was established in 1861 in Tweddle v. Atkinson. In that case the fathers of a groom and bride, in pursuance of an oral contract made between the fathers before their children’s marriage, agreed together in writing to pay the groom, in one case £200 and in the other case £100, adding that the groom should have full power to sue them in any court of law for those sums. The bride’s father failed to pay and the groom, who was not a party to the contract between the fathers, sued the bride’s father for the payment promised by the bride’s father under the contract. The groom’s claim was dismissed on the basis that no stranger to a contract could take advantage of that contract even though made for his benefit.
The Doctrine of Privity was approved by the House of Lords in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. in 1915 where Lord Haldane said:
“In the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property, as for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam”.
This, however, cut little ice with Lord Denning who made several attempts in the 1950’s to allow rights of suit by third party beneficiaries; despite this, however, the House of Lords reaffirmed the general Doctrine of Privity in Midland Silicones Ltd. v. Scruttons Ltd. (Lord Denning dissenting) in 1962.
WARNING: The Doctrine of Privity is an area of the law where concepts of equity or fairness have little or no standing whatsoever. If A promises B that if B (or C) will do something A will pay a cash sum to C there is no equity in the rule that says that C cannot enforce this promise; but that is currently the law so if you wish to confer an enforceable benefit on a stranger to a contract you must make use of one of the exceptions to the Doctrine of Privity and not simply rely on vague concepts of equity/clean hands and all that.
Joint Obligations
A joint promise by two or more persons creates a single obligation upon both or all. The theory of a joint and several promise is that it creates both a joint obligation incumbent upon all and a number of several obligations respectively incumbent upon each one; but the several obligations are non cumulative, so that (as with purely joint obligations) performance by any one will discharge all. The presumption is that a contract made by two or more persons is joint, express words being necessary to make it joint and several: Glanville Williams, Joint Obligations (1949), Butterworths at 24; see too Re Hodgson (1885) 31 Ch D 177 at 188.
The fact that an obligation is joint does not mean that a joint obligor is only partly liable for the amount of the obligation.
A successful plaintiff is entitled to enter judgment for the full amount of its proven claim but is not entitled to double recovery. Payments effect a reduction in the amount of the liability of each defendant.
Junker v Hepburn [2010] NSWSC 88 [52]-[54]