Finding Meaning in an Insurance Policy

Introduction


Even though endless hours may be spent drafting an insurance policy, making sure that every ‘t’ is crossed and every ‘i’ dotted, questions can still arise as to what a particular word, phrase or sentence in the issued version of the policy means.


The recent decision of the New South Wales Court of Appeal in HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 (‘Wonkana’) has attracted significant notoriety because of its impact on business interruption insurance in Australia.

But deep down it is a powerful restatement of the principles to be followed in finding meaning in an insurance policy. And it is for that reason that Wonkana should be embraced.


Background


Wonkana presented a well-known factual scenario. The policies before the Court both contained an exclusion which provided that: -


The cover ... does not apply to any circumstances involving ‘Highly Pathogenic Avian Influenza in Humans’ or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments.


One the issues[1] which the Court was asked to determine was the meaning of the expression ‘and subsequent amendments’.


The insurers submitted that this expression should be read to encompass changes that amount to a repeal and replacement of the Quarantine Act with another Act that has a different name but the same substantive purpose and function. The insured submitted that such a broad meaning could not be found in those words.


The Court unanimously found in favour of the insured. In reaching that decision the Court offered a blueprint for finding meaning in an insurance policy.


Finding Meaning – The Bluepint


The goal is to identify objectively the parties’ intention. Their own perspectives are irrelevant.


The steps are as follows: -

  • The starting point is the words which the parties used to record their contract (here a contract of insurance). The meaning of those words is determined objectively. What would a reasonable person in the position of the insured understand those words to convey.

  • The words must be given their natural and ordinary meaning. The outcome cannot be forced. This is not an exercise in trying to drive a square peg into a round hole.

  • The words (whatever be their natural and ordinary meaning) must be considered against the circumstances which the (policy) addresses, and the objects which it is intended to secure’.[2] Those ‘circumstances’ may even play a role if the words are ambiguous or otherwise pose an issue of construction.

  • The circumstances that may be considered are generally circumstances external to the policy about which the parties are taken to have known. They can include the wider policy, its business or commercial purposes, its legal context and the existing state of the law.

Following these steps should avoid the need to rely upon the principle of contra proferentem (any ambiguity in a policy of insurance should be resolved by adopting the construction favourable to the insured) but it remains a principle which may ultimately determine what the words mean.


Application


The Court of Appeal was satisfied that the natural and ordinary meaning of the words ‘and subsequent amendments’ did not extend their meaning, as submitted by the insurers, to another Act that had a different name but the same substantive purpose and function.


And if you think about it objectively, that makes perfect sense. You do not even need to consider too deeply the surrounding circumstances. The Court of Appeal did not.


Key Point


Questions about the meaning of an insurance policy can arise in all sorts of situations some more notorious than others.


Even so, the blueprint outlined above remains the way to resolve these issues irrespective of the background. It is built on established authority and makes sense. It is hard to see the High Court of Australia thinking otherwise.


The name of the case is HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 (18 November 2020).



Disclaimer: This Insight is prepared for general information purposes. You should seek separate advice on the application of these principles to your own set of facts and circumstances.


____________________________ [1] The insurers also submitted that in the insurance contracts made in 2019 and 2020 the reference to the Quarantine Act was an obvious mistake which could and should be corrected to give effect to the objective intention of the parties. On this point the Court also found in favour of the insured.

[2] McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65

per Gleeson CJ at [22]

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