Insurer’s poor punctuation helps claimant to secure coverage

Comma sense prevails, as a recent decision of the NSW Court of Appeal¹ reminds us of the importance of grammatical accuracy and a Court’s tendency to interpret an insurance policy in favour of the policyholder.

Interestingly, the Court adopted a reading of the policy terms consistent with the context for and purpose of the policy even though that was less natural and literal than that argued for by the insurer based on the wording.

The learnings for policyholders are that:

• prevention is better than cure – ideally, insurance policies like all contracts should be free of ambiguity and clearly reflect the parties’ intention as to coverage to minimise the likelihood of costly and lengthy disputes in the event of a claim;
• however, if this is not the case, even if the policy wording looks like it might be against you, if that would give a result contrary to the intent of the policy viewed in its proper context – look again. Even if your insurer won’t concede to the intent of the policy coverage, the Courts may well find in your favour. 

Grammar lesson

An individual, injured when a metal ramp attached to a stationary trailer fell on top of him, sought to advance a claim directly against the insurer of the vehicle involved, National Transport Insurance pursuant to section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).²

The ramp had failed due to a defect, leading NTI to decline the claim based on an exclusion ‘for any liability for death or bodily injury arising out of or in any way connected with a defect in Your Motor Vehicle or in a Motor Vehicle, but in Queensland only if it causes loss of control of the vehicle whilst it is being driven …’. The injury occurred in NSW whilst the vehicle was not being driven so the Court was asked to determine whether the qualifying words ‘whilst it is being driven’ only applied to incidents in Queensland (in which case the exclusion would apply) or applied to the entire preceding words of the exclusion (in which case the exclusion would not apply, as although the injury arose from a defect the vehicle was not being driven at the time). There was much attention given to the absence of a comma before the words “whilst it was being driven”.

Six key findings on interpretation and ambiguity

The leading judgment in the 2:1 Court of Appeal decision was delivered by Justice Leeming (with Justice Sackville concurring), who affirmed the decision of the trial judge that in the context of the policy the words ‘whilst it is being driven’ applied to all vehicles, not just those being driven in Queensland, such that the exclusion did not apply.

In doing so, Justice Leeming made the following key points:

• the process of interpretation involves three stages: (1) discerning the literal or grammatical meaning or meanings of the relevant clause; (2) discerning which of those literal meanings comprises the definitive legal meaning of the clause; and (3) applying the legal meaning to the facts of the case;
• the literal meaning of the clause was ambiguous. This ambiguity was not resolved by the grammatical structure of the clause (as argued by the insurer), specifically the use of commas, because the use of punctuation elsewhere in the policy did not support a conclusion that punctuation was used ‘consciously and not haphazardly’;
• while the more natural reading of the clause as a matter of English favoured the insurer’s position, it did not follow that this was the legal meaning of the clause – this looks beyond simply the words and grammar and involves consideration of those words in the broader context of the whole policy, the surrounding circumstances and purpose and object of the policy;
• the legislative context in which the policy was entered into (being cover for liability not covered by the statutory regime for compulsory third party insurance in the relevant States) may be taken into account in interpreting the provisions of the policy. In that context, it was clear that the commercial purpose of the policy was to not achieve double insurance, but rather supplement (and complement) compulsory statutory insurance cover in cases to which it did not extend;
• where two meanings are open, it is proper to adopt the meaning that will avoid irrational or and unjust consequences (even though it may not be the most obvious or grammatically accurate construction) – the meaning argued by the claimant (standing in the shoes of the policyholder) avoided the capricious and arbitrary result that stationary defects liability is excluded throughout Australia, except Queensland, and was therefore the proper legal meaning; and
• even if he was incorrect and there could be said to be ‘genuine ambiguity’ in the legal meaning of the clause (because there were two legal meanings, one supported by textual considerations and the other by contextual and purposive considerations), the exclusion ought be interpreted contra proferentem against the insurer (as drafter of the policy) (the approach adopted by the trial judge), in which case the same outcome applied.

More information

For information regarding possible implications for your business, contact Mark Darwin, Partner or Guy Narburgh, Special Counsel.

End notes

1. Zhang v ROC Services (NSW) Pty Ltd [2016] NSWCA 370 (22 December 2016)
2. For our recent article on reform of this provision, click here.