CONSTRUING INSURANCE TERMS

As an insurance policy is a type of contract, principles which are invoked when construing contracts also apply when courts seek to interpret insurance terms. The purpose of such construction is to seek to establish what the parties must have intended. The courts have developed various principles or “rules”, but exceptions to those principles regularly occur. Some principles of construction have been more popular in certain periods and with certain judges. Some judges favour interpreting terms fairly narrowly, paying close attention to the words employed. Other judges, particularly in recent times, are prepared to place more weight on the factual matrix or surrounding circumstances and the purpose behind the policy. This is particularly apparent in cases where some judges regard particular terms as harsh on the insured or particularly onerous, for example, clauses which on the face of them might appear to be continuing warranties, or where the wording seeks to restrict unduly the circumstances when insurers might be liable, for example, in particular exclusion clauses. Set out below are certain general principles that apply in interpreting the terms of insurance policies: