On 2 December 2021, the Court of Appeal confirmed that: (i) clear wording in an insurance policy could not be overridden by countervailing factors in the factual background; and (ii) a claim could not be estopped where the insurance policy expressly precluded the party claiming estoppel from avoiding liability in the relevant circumstances. The judgment reinforces that, where there is clear and unambiguous contractual wording, the Court will apply it. Contractual language may be displaced by the factual matrix or the parties' intentions only where there is uncertainty about its meaning.
Clear language triumphs: the Court of Appeal's decision in ABN Amro Bank N.V. v Royal & Sun Alliance Insurance plc  EWCA Civ 1789
The claimant bank ("ABN") provided structured commodities financing through repurchase transactions by which it agreed to purchase cocoa beans and cocoa products from two counterparties, who would then repurchase the goods at a later date and a specified price. Those transactions were underwritten by various underwriters (the "Underwriters") on terms contained in a marine cargo insurance policy (the "Policy"). ABN's counterparties defaulted in 2016. ABN sold the goods on the secondary market, but they were of poor quality and so ABN suffered financial losses.
ABN made a claim against the Underwriters under the "Transaction Premium Clause" ("TPC") in the Policy. In effect, the TPC stated that ABN was insured for the "Transaction Premium" (the difference between the purchase price paid by ABN and the amount actually received by ABN upon the sale of the goods) of any repurchase transaction. This was an unusual clause in the marine insurance market, given that (on its face) it appeared to provide insurance cover for financial (rather than purely physical) loss.
ABN also sued the insurance broker (the "Broker") in the alternative for breach of contract and negligence.
At first instance, Jacobs J held that:
- Most of the Underwriters were liable under the TPC for ABN's financial losses.
- ABN was estopped from relying on the TPC against two of the Underwriters (the "Estopped Underwriters") because they had not been aware of the TPC. The Policy was a renewal of an expiring policy that did not include the TPC and, at the time of the renewal, the Broker had mistakenly (but innocently) informed the Estopped Underwriters that the renewed Policy was "as expiry", which they took to mean it was on the same terms as the expiring policy.
- The Broker was liable for the Estopped Underwriters' shares of the indemnity under the TPC.
The Underwriters (apart from the Estopped Underwriters) appealed the decision, arguing that the purpose of the TPC was only to calculate the measure of damages where there had been physical loss or damage to the goods. In particular, they argued that Jacobs J had given insufficient weight to the factual matrix and the relevant insurance market.
The Broker also appealed, relying on various estoppel-based arguments and asserting that the Estopped Underwriters could not avoid liability because of a "non-avoidance clause" ("NAC") in the Policy, which expressly provided that the Underwriters could not reject a claim on the basis of a non-fraudulent misrepresentation.
The Court of Appeal considered two discrete issues.
Issue 1: did the Policy insure ABN for its financial loses?
The Underwriters contended that certain elements of the factual matrix should have displaced the natural reading of the TPC. In particular, they argued that the TPC ought to be interpreted in view of the fact that: (i) it was unprecedented in the marine cargo insurance market; (ii) certain other contractual provisions indicated that the purpose of the Policy was to insure ABN against the risk of physical loss and damage only; (iii) due diligence information had been provided about the likelihood of physical loss and damage but not about the likelihood of the goods being defective (and therefore being worth less than the amount that ABN had originally paid for them); and (iv) ABN did not pay an additional insurance premium for the TPC.
The Court of Appeal acknowledged that, in certain circumstances, it is possible for the natural meaning of contractual language to be displaced by countervailing factors in the factual matrix, particularly where the language is unclear.
However, it held that the Policy provided cover for ABN's financial losses. While some elements of the factual matrix (including some of the points raised by the appealing Underwriters) pointed away from a literal interpretation of the TPC, the TPC was drafted sufficiently clearly to convey that it provided cover beyond mere physical loss and damage. In particular, while the primary purpose of the Policy was to insure ABN against the risk of physical loss and damage, a number of industry-standard "add-ons" to the Policy expressly insured risks unrelated to physical loss and damage (including, for example, fraudulent documentation), suggesting that the Policy was not confined to providing coverage for physical loss and damage. In these circumstances, the factual matrix did not outweigh the clear and unambiguous language of the Policy.
Furthermore, the Underwriters' argument that the TPC only purported to provide a basis for measuring or calculating loss was rejected.
In summary, the Court of Appeal determined that, on the basis of the unambiguous language of the TPC, the parties had clearly intended the TPC to provide cover for ABN's financial losses.
Issue 2: was the Broker liable for the share of the indemnity of the Estopped Underwriters?
The Court of Appeal accepted that the Estopped Underwriters had not understood the Policy to include the TPC, having been informed by the Broker that the terms of the renewed Policy were the same as the expired policy. However, this did not absolve them from liability.
The NAC clearly provided that the Underwriters were prevented from rejecting a claim for loss on the grounds of a non-fraudulent representation. Therefore, in circumstances where it was accepted that the Broker's misrepresentation was innocent, the Estopped Underwriters were liable for their share of the indemnity under the TPC. Accordingly, the Broker was not liable.