Insurance Policies I
Cases Conditions
Re Arbitration between Bradley and Essex and Suffolk Accident Indemnity Society Ltd
(1911) 105 LT 919
FARWELL LJ
The policy states that the due observance and fulfilment of the conditions of this policy ‘shall be a condition precedent to any liability of the Society under this policy’. The policy then sets out in small print eight clauses, of which it is admitted that several are not conditions precedent, and some are not conditions at all. Clause 5 contains the provision relied on by the Society. It is in he middle of a clause the first and last provisions of which are clearly not conditions precedent. The first paragraph is not a condition at all, and the last is obviously subsequent because the amount due on the policy may become due before the event happens. Bray J has held that the provision for keeping a proper wages-book, inserted as it is in the middle of clause 5, cannot fairly be read as an independent condition precedent, but is merely machinery for that ascertain ment and adjustment of premium which is mentioned in the proposal form. I agree with him because I think that reading the
policy with the proposal form (in accordance with the provision in the form that the form is incorporated in the policy) and construing the policy most strongly against the Society in the interests of honesty and fair dealing, this is the better construction. Any other construction would convict the Society of havin{issueda tricky policy calculated to deceive and entrap the unwary, and of insisting on the success of their devices.
Bond Air Services Ltd v Hill
[1955] 2 All ER 476
LORD GODDARD CJ
Icannot find that these cases have ever been regarded, either in any judgment or in the opinion of eminent text writers, as throwing doubt on what I think is axiomatic in insurance law, that, as it is always for an insurer to prove an exception, so it is for him to prove the breach of a condition which would relieve him from liability in respect of a particular loss. The respondent’s contention, nodoubt, is that, by providing that the observance of conditions is to be a condition precedent to his liability to pay, the policy has shifted the onus on to the claimants. It is enough to say that in this court Stebbing v Liverpool and London and Globe Insurance Co Ltd concludes the matter. In that case there were words to exactly the same effect as here, namely, that compliance with the conditions should be a condition precedent to any liability on the part of the insurer, and the Court decided that the burden of proving the falsity of an answer which amounted to a breach of warranty was on the insurer. … Atshose two cases were not in the Exchequer Chamber, they are open to review in the Court of Appeal. The learned arbitrator in the present case has held that the effect of the provision as to the observance of the claimants’ undertakings is to give to them the quality of warranties, so thata breach would absolve the respondent of liability for a loss occurring when the claimants were in breach but has held that the onus of proof is not affected; and I agree with him. The parties toa policy can use words which will relieve insurers of the onus and
cast it on the assured, as they may with regard to any other matter affecting an insurer’s liability; see, for instance, the judgment of Scrutton LI in Re Hoo/el Hill Rubber and Chemical Co Ltd and Royal Insurance Co Ltd. But, in my opinion, much clearer words than are used here would be necessary to change what I think, certainly for a century and probably for much longer, has always been regarded as a fundamental principle of insurance law,
namely, that it is for the insurers who wish to rely on a breach of condition to prove it.
Brook v Trafalgar Insurance Co Ltd
(1947) 79 LI L Rep 365
Scorr LJ I
To put forward a plea of waiver, whether before breach or after breach, of a condition precedent to the right of action contained in a policy isa very serious step. It is quite obvious that it is essential in the interests of justice that the insurance company in such circumstances should have their attention called beforehand to the fact that it is intended to rely on an issue of the kind upon which evidence can be called, and in the absence of an application for leave at the trial to introduce a new issue in that way.
Allen v Robles
[1969] 2 Lloyds Rep 61
FENTON ATKJNSON LJ
In my view the position was this, that when the third party through their agents, . . . discovered (a) that there was a claim, and (b) that Mr Robles was in breach of his condition, they were in a position then either to elect by refusing to indemnify or to accept a liability to indemnify, or it was open to them to delay their decision, particularly in view of their letter of 10 August 1967, and mere lapse of time, in my view, on the facts of this case, would not lose them their right, ultimately to decide to refuse to indemnify. The lapse of time would only operate against them if thereby there was prejudice to Mr Robles or if in some way rights of third parties intervened or if their delay was so long that the court felt able to say that the delay in itself was of such a length as to be evidence that they had in truth decided to accept liability; and none of these possibilities arise here.
Cases Interpretation
Louden v British Merchants’ Insurance Co Ltd
[1961] 1 Lloyd’s Rep 155
LAWTON J
The words used in the exemption clause of the policy before me have probably been used for many years in policies giving assurance against injury. Counsel for the defendants referred to Mairv Railway Passengers Assurance Co Ltd.4 The policy in that case provided that the assurance should not extend to any death or injury happening while the assured was under the influence of intoxicating liquor. Thecase came before Lord Coleridge CJ, and Denman J, by way of an application for a new trial on the ground that the verdict had been against the weight of evidence. Both learned Judges construed the words, ‘while the assured is under the influence of intoxicating liquor’, although it may not have been necessary for the purposes of their judgment to do so. Neither seems to have thought that the words were so uncertain as to be incapable of construction. Both were of the opinion that these words connoted a disturbance of the faculties, Lord Coleridge CJ,5using the words, ‘as disturbs the balance of a man’s mind’, and Denman J,6 the words, ‘disturbing the quiet, calm, intelligent exercise of the faculties’.
[Counsel], whose experience in matters of personal injury insurance is extensive, was unable to refer me to any case in which a different construction had been put upon these words. In those circumstances, I find that the words were not so uncertain as to be incapable of construction, and I adopt the constructions in Mairv Railway Passengers Assurance Co Ltd,7 albeit they have been expressed in mid-19th century idiom. I add no gloss, as to do so might add confusion where none may have existed among insurers and policy holders during the past 84 years.
Hamlyn v Crown Accident Insurance Co Ltd
(1893) 68 LT 701
LORD ESHER MR
Was it ‘external’? That is really the word which we have to construe in this policy. After having exhausted all argument as to the meaning of that word, I feel certain that the word ‘external’ in this policy and in the place in which it is used, and when we look at the subsequent proviso, bears a meaning which is the antithesis of ‘internal’. I think that the meaning of the policy is, that if the cause is internal, such as a clot of blood or inherent weakness, the case is not within the policy, but that if the cause is not internal, it is external, and the case is within the policy. I am clearly of opinion that ‘external’ is meant to be the opposite of ‘internal’. Here there was no internal cause, and therefore it was an external cause. Everything that happened was the opposite of internal, and was therefore external, and, if external, was visible; the stooping and reaching were all visible. What happened in this case was within the terms of the policy, and the plantiff was entitled to succeed.
Robertson v French
(1803) 4 East 130
LORD ELLENBOROUGH CJ
The only difference between policies of assurance, and other instruments in this respect, is, that the greater part of the printed language of them, being invariable and uniform, has acquired from use and practice a known and definite meaning, and that the words superadded in writing (subject indeed always to be governed in point of construction by the language and terms with which they are accompanied) are entitled nevertheless, if there should be any reasonable doubt upon the sense and meaning of the whole, to have a greater effect attributed to them than to the printed words, inasmuch as the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning, and the printed words are a general formula adapted equally to their case and that of aJI other contracting parties upon similar occasions and subjects.
Lewis Emanuel & Son Ltd v Hepburn
[1960] 1 Lloyd’s Rep 304
PEARSON J
For those reasons my impression, and it follows, my decision, according to the natural and ordinary meaning of the words, is that all these three possible misfortunes are of the same kind: they are all ofa physical kind occurring to the goods themselves. It is physical
loss, physical damage and physical deterioration, and that is the conclusion at which I arrive.
Further, when one construes the phrase grammatically in the one way or the other, one way is to say that the adjective ‘physical’ carries right through and applies to each of the three things, physical loss, physical damage and physical deterioration-that isa quite possible use of the word. [Counsel] gave the example of ‘Tasmanian apples, pears or plums’. In that case the adjective ‘Tasmanian’ would qualify each of the three things, and it would be a natural use of words; but there might be other cases where the
adjective would qualify only one of the three things, separated by the use of the word ‘or’.
But, even if it is not right on the grammatical construction,I should still hold that, in view of the subject-matter being dealt with and the way in which those words are placed in this phrase, one could understand each of the three words, ‘loss’, ‘damage’ and ‘deterioration’, as applying to physical happenings and not merely to financial happenings such as loss of market, and, in my view, those are the decisive considerations to be taken into account here.
Thompson v Equity Fire Insurance Co
(1910) 103 LT 153
LORD MACNAGHTEN
What is the meaning of the words ‘stored or kept’ in collocation and in the connection in which they are found? They are common English words with no precise or exact signification. They have a somewhat kindred meaning and cover very much the same ground. q’he expression as used in the statutory condition seems to point to the presence of a quantity not inconsiderable or at any rate not trifling in amount, and to import a notion of warehousing or depositing for safe custody or keeping in stock for trading purposes. It is difficult, if not impossible, to give an accurate definition of the meaning, but if one takes a concrete case, it is not very difficult to say whether a particular thing is ‘stored or kept’ within the meaning of the condition. No one probably would say that a person who had a reasonable quantity of tea in his house for domestic use was ‘storing or keeping tea there, or (to take the instance of benzine, which is one of the prescribed articles) no one would say that a person who had a small bottle of benzine for re moving grease spots or cleansing purposes of that sort was ‘storing or keeping’ benzine.
Some meaning must be given to the words ‘stored or kept’. Their Lordships think those words must have their ordinary meaning. So construmg them their Lordships come to the conclusion that the small quantity of gasoline which was in the stove for the purpose of consumption was not being ‘stored or kept’ within the meaning of the statutory condition at the time when the loss occurred.
London and Lancashire Fire Insurance Co Ltd v Bolands Ltd
[1924] All ER Rep 642
LORD SUMNER (at 648)
It is true that the uninstructed layman probably does not think under the word ‘riot’, of even such a scene, as is described in the case stated. How he would describe it I know not, but he probably thinks of something, if not more picturesque, at any rate more noisy. But there is no warrant here for saying that when the proviso uses a word which is emphatically a term of art, it is to be confined, in the interpretation of the policy, to circumstances which are only within the popular notions on the subject and are not within the technical meaning of the word. That clearly must be so with regard to martial law; that, I think, must be so with regard to acts of foreign enemies; and I see no reason at all why the word ‘riot’ should not include its technical l’neaning as clearly as burglary or house-breaking do.
Algemeene Bankvereeniging v Langton
(1935) 51 LIL Rep 275
MAUGHAM LJ
I do not doubt that the law of the contract is English, but I do think under the circumstances that the loss which is intended to be covered by the policy is a loss which must be incurred in Belgium; that it is quite wrong in principle to construe the words which have been so much discussed here, ‘fire, burglary, theft, robbery or hold-up’ as if those words could only be construed in a technical sense according to English law. The Belgian bank, of course, do not know what the precise technical meaning, for instance, of the word ‘larceny’ is, if the word ‘larceny’ had been used, in England, and I imagine it is equally true to say that very few commercial men in this country are fully aware of the fact that in order entirely to apprehend the meaning of that word, you must go through more than 100 closely printed pages of Archbold on Criminal Pleading,Evidence and Practice, and consult certainly more than 100 decisions going back for over 100 years. I am content with this, that in my opinion, the phrase ‘lost, destroyed, orotherwise made away with by fire, burglary, theft, robbery or hold-up, whether with or without violence, and whether from within or without’, is a phrase which has to be construed as ordinary commercial men would construe it, or rather would understand it, and in particular I object to the notion that ordinary commercial men in this country, givinga policy containing that phrase, would intend that the phrase should be read as if it were drawn in the form that it was applicable only to crimes which would be treated as burglary, theft, robbery or hold-up, if the crime were being investigated in this country. It is apparent that the theft, robbery or hold-up must bea crimecommitted in Belgium, and that the perpetrator, if he escapes here, is going to be extradited to Belgium for the purpose of investigating the crime; and accordingly, in my opinion, the policy isobviously to beconstrued as if it related to a loss by crimes or misdemeanours perpetrated in that foreign country, and to be punished, if punished at all, according to the laws
of the foreign country.
I would add this, that there is nothing in the phrase which leads me
to suppose that it is intended to have a very technical significance, because it contains some phrases which are not known to English law as technical phrases. It runs: ‘lost, destroyed or otherwise made away with’.I do not think you will find the words ‘made away with’ ina statute or even in an ordinary book on criminal practice.
Pocock v Century Insurance Co Ltd
[1960] 2 Lloyd’s Rep 150
MOLONY QC
The phrase must be looked at as a whole and in its context; and that what attention is directed to is attending to business of any sort, which might be that of a wholesale grocer doing the business nominated in this case or might be some substituted business to which a person might turn; and, in order to bring the clause into operation, the question is whether a man is fit to go to business, to use a vernacular expression. ls he able to attend to a business of the nominated or some substituted type? My view is that a person cannot be said to attend to business in that sense simply because he is capable of doing-perhaps rather badly-some minor part of the work involved in that or any other sort of business.
Of course, the argument of Mr Scott involves us considering every sort of business, and perhaps the conclusive example adverse to the argument is that cited by Mr Dean of the business of selling matches at a street corner. The broad test that I think must be applied in order to understand the application of this clause is to ask oneself: Is a man fit to go to business? It does not mean that he has got to be fit to spend the whole day there; it does not mean that he has got to be fit to carry on all the activities which that business normally involves. The question is: Is he fit to attend there and play a worth-while part in the conduct of it? If the answer is ‘No’, then in the view that I have already expressed, clause (f) applies, and in that sense I find that the plaintiff was disabled from attending to ‘business of any and every kind’ up to the date that has been mentioned.
King v Travellers’ Insurance Association Ltd
.
ROWLATT J )
The question I have to ask myself is whether furs are specially valuable articles in the same sort of sense as jewellery, watches, field glasses and cameras are fragile or specially valuable articles. I think that is the modern and plain English translation of the doctrine of ejusdem generis. In other words, are they specially valuable articles in the sense exemplified by the particular instances named? That is the natural way of putting it.
I do not think they are. Furs are a commonplace article of dress
in the case of nearly every woman of any sort of comfortable means at all. The circumstance that they afford great scope for extravagance and vanity, so that you can get furs of fantastic price, does not, to my mind, show that being commonplace articles of dress they are specially valuable in the same sort of way that jewellery, watches, field glasses and cameras are.
Alder v Moore
[1960] 2 Lloyd’s Rep 325
SELLERS LJ (at 329)
The defendant had, however, declared and agreed in considera tion of the payment to him of the £500 as follows: ‘I will take no part as a playing member of any form of professional football in the future,’ which I read as meaning, ‘I will take no part in any form of professional football in the future as a playing member’ (or more briefly, ‘as a player’). So read I do not find it doubtful or ambiguous. The stipulation with regard to partaking in any form of professional football is as a playing member (or player), not asa spectator, or trainer or referee, manager, or in any other capacity.
I cannot read it as referring in any way to the defendant’s membership of the Union.
There are m ny references in the policy to ‘Member’, both with a large ‘M’ and a small ‘m’ apparently indiscriminately, and there is a definition of ‘Member’ as ‘…a person of the male sex who is registered with the Union as a member of the Union.’
And the Union, by its title, would appear to include both players and trainers. But the words ‘playing Member’ are not together in the policy except in clause 8, and in that setting, as I read them, clearly have no reference to membership of the Union.
I can see no ground for invoking the contra proferentem rule of construction, which cannot defeat the clear meaning of the words.
Nittan (UK) Ltd v Solent Steel Fabrication Ltd and Comhlll Insurance Co Ltd
[1981] 1 Lloyd’s Rep 633
LORD DENNING
The insured Solent Steel Fabrications Ltd contended that Cornhill could not avail themselves of the exclusion clause: because the exclusion only availed Comhill in respect of goods supplied by Sargrove Electronic Controls Ltd, whereas these goods were supplied by Solent Steel Fabrications Ltd. The accident was therefore, they said, covered by the main provision for indemnity in respect of product liability arising out of goods supplied by the insured, ie supplied by Solent Steel Fabrications Ltd.
The Judge accepted that argument. He held that, in the absence of rectification, Cornhill could not rely on the exclusion clause. He considered the cases about rectification. He pointed out that the claim for rectification had been brought in extremely late at the very last moment. He went into the cases about rectification of contracts; about common intention, common agreement, and the like, before you can rectify. He held that there was no case for rectification here at all. Therefore Cornhill must suffer the conse quences of their mistake in describing the company incorrectly.
… cited authorities which, at first sight, would seem to support the Judge’s finding: such as MacKenzie v Coulson;13 or, a more recent case, River/ate Properties Ltd v Paul.14 [Counsel) said that the mistake was the mistake of Cornhill themselves and not attributable to his clients in any way. Therefore the insurance company must put up with it.
Attractive as that argument is-and although it appealed to the Judge-I am afraid that I cannot go along with it. Everyone must have realized that this was just a misnomer. I put this point to [Counsel) ‘Suppose the word “Limited” had been omitted’.
‘Well [-he said-) that would be different. People would understand then that ‘Sargrove Electronic Controls’ was just another way of describing Sargrove Automation.’
It seems to me-reading the correspondence, as I have-that it must have been plain to the parties and to everybody that the words ‘Sargrove Electronic Controls Limited’ were used just as a name to describe the concern called Sargrove Automation, which was a division of Solent Steel Fabrications Ltd.
In this Court we are very used to dealing with misnomers. We do not allow people to take advantage of a misnomer when everyone knows what was intended. I will only refer to one authority, Whittam v W J Daniel & Co Ltd.15 where Donovanh J cited the words of Devlin LJ:
‘I think that the test must be: how would a reasonable person receiving the document take it? If, in all the circumstances of the case and looking at the document as a whole, he would say to himself: ‘Of course it must mean me, but they have got my name wrong’, then there is a case of mere misnomer.’
I would have thought that that would apply here. When Solent Steel Fabrications Ltd received the policy and saw the endorse ment with the words ‘Sargrove Electronics Limited’ on it, they would have said to themselves, ‘Sargrove Electronics Limited’ are out of business. They are dormant altogether. They cannot mean that company. They must mean ‘Sargrove Automation’. That is why they took no point on it at the time. It seems to me that the meaning of the document was clear. The words ‘Sargrove Electronics Limited’ were just a misnomer: and the correct description was well-known to all to be ‘Sargrove Automation’, a division of Solent Steel Fabrications, which was the insured party. So I am afraid that on this point-the point which the Judge decided the case upon-I take a different view from him. It seems to me that the endorsement covers goods supplied by Sargrove Automation.
D and J Koskas v Standard Marine Insurance Co Ltd
(1927) 27 LIL Rep 59, CA
BANKES LJ
I desire to say that I should not have been able to agree with Sankey J’s view that because the clause which is relied upon appears in such small print it must not be taken to be part of the contract and binding upon both parties. It is quite true that it is in small print, but I think it is in sufficiently distinct print, and comparing it with many bills of lading and other documents which one sees, one realises that it is much plainer than a great many documents about which a similar criticism has never been suggested.
SCRUITON LJ
I am not at present disposed to agree with the view of Sankey J, that one way of getting out of the operation of clause 11 is to say it is printed in illegible print. I can only say with a long experience that both underwriters and shipowners have given me much more illegible clauses and much more difficult clauses to read, and I can read this with comparative ease; and I am rather afraid of the doctrine that you can get out of clauses by saying they are difficult to read. There may be extreme cases. I have in mind the bill of a well-known shipping line printed on red paper which wascalculated to produce blindness in anyone reading it. I am not saying that in no case can you get out of it on the point of illegibility, but this case does not appear to me to be a case in which that doctrine should be applied.
Cases Misc
Amey Properties v Cornhill Insurance plc
[1996] LRLR 259
– Queen’s Bench Division
TUCKERJ
There is no doubt that the offending tractor was defective in a number of re spects, as found by Hobhouse J There were faults in the clutch and in the handbrake. In these circumstances I very much doubt whether it could be described as being maintained in an efficient and roadworthy condition. The question is whether that entitles the defendants to repudiate liability under the policy and to refuse to indemnify the plaintiffs against their liability to the United States of America for damage caused to their aeroplane, assessed at $2 million.
The plaintiffs argument, skilfully advanced by Mr Schaff, is that the defence is based on the allegation that the lack of road-worthiness of the tractor was due to negligence and that there is no allegation of recklessness on the part of the plaintiffs. The plaintiffs contend that before the defendants can avoid liability they have to show more than negligence, they have to go on to prove that the plaintiffs themselves were reckless. Accordingly, casual acts or omissions of the plaintiffs’ employees are irrelevant. The defendants’ case, as advanced with equal skill by Mr Ter Haar, QC, is that although there are cases where it has been held that recklessness has to be established, this is not one of them. There does not appear to be any dispute that the fault, of whatsoever degree, has to be shown to be that of the insured rather than casual act on the part of an employee. However, this does not mean that the defendants have to show the existence of fault at boardroom level …
In my judgment the cases show that the courts have adopted different ap proaches to the construction of the words of exclusion clauses depending upon the nature of the policies in which they appear and in particular whether to give a wide construction would be repugnant to the whole purpose for which the policy was taken out. Thus in employers’ liability policies, the courts have applied the standard of recklessness (see Wool/all and Fraser). The same test has been applied in property policies (see Lane, Devco and Sofi). In motor policies, on the other hand, the courts have applied the test of negligence. It has not been held necessary for the insurers to establish that the insured was reckless before liability could be excluded (see NFU, Brown, Liverpool Corporation, Conn and Lefevre).
In my view this distinction can be explained and justified by the fact that motor policies impose a positive obligation to maintain the vehicle in good repair, or, as in the present case, in an efficient and roadworthy condition. That is a clear, specific and sensible obligation to impose and one with which it ought not to be difficult to comply. To hold that if the policyholder, by his negligence, fails to comply with such a condition and thereby loses the pro tection of the policy is not, in my opinion, repugnant to the commercial object of the contract. The insurer is not covering and does not intend to cover the insured for liability arising out of negligent maintenance of the vehicle, but there is cover for liability arising out of the negligent use of a vehicle which is properly maintained. The words of condition 11 of the present policy are plain. There is no need to put any gloss on them or to restrict their meaning in order to give proper effect to the terms of the policy.
I have devoted most of this judgment to consideration of the second limb of the issue. That is because, as I understand it, there is little or nothing be tween the parties as to the first limb. I think I have made it plain that in my opinion it would not be sufficient to establish a casual act of negligence on the part of an employee. The contract of insurance is made with the employer
– the plaintiffs. What has to be shown is that the relevant officer or officers of the plaintiffs was or were negligent in failing to ensure that the tractor was maintained in an efficient and roadworthy condition. This is how the defendants plead their case. It is made plain in para. 8 that they do not rely on the failure of the employee himself.
As to the second part of the issue, I hold that it would be sufficient for the defendants to establish that the plaintiffs were negligent. It is not necessary for the defendants to establish that the plaintiffs were reckless.
Bernard Doyle v Irish National Insurance Co. plc
[1998] 1 I.L.R.M. 502
KELLY J
delivered his judgment on 30 January 1998 saying: On Monday last I acceded to the defendant’s application to stay these proceedings pursuant to the provisions of s. 5 of the Arbitration Act 1980. On that occasion I indicated that I would state my reasons for making that order today. I now do so.
From 1983 until 1996 the defendant was the motor insurer of the plaintiff. On 27 October 1990 the plaintiff was involved in an accident which caused personal injuries to his son. The plaintiff’s son made a claim against the plaintiff arising from the accident. The plaintiff sought indemnity from the defendant in respect of any liability for this claim.
In the course of investigating the son’s claim the defendant became aware that the plaintiff had been convicted of the offence of being in charge of a mechanically propelled vehicle with excess alcohol in his blood contrary to s. 50 of the Road Traffic Act 1961. That conviction had been recorded at Cappawhite District Court on 10 May 1983. The defendant contends that that conviction was not disclosed to it at any renewals of the policy of insurance or indeed at any time. The defendant takes the view that the failure to disclose this conviction amounts to a non-disclosure of a material fact. Accordingly, on 5 January 1996 the defendant wrote to the plaintiff and indicated that it was exercising its entitlement to avoid the policy of insurance on the grounds of non-disclosure of a material fact. It also notified the plaintiff that it would not be indemnifying *504 him in respect of his son’s claim. The letter went on to point out that the effect of the defendant’s avoidance was to retrospectively invalidate each renewal of the policy which occurred after he had been convicted of the offence in question.
On 12 January 1996 the defendant sent a cheque for £3,433.16 to the plaintiff. It was accompanied by a letter which indicated that the cheque was a refund in respect of ‘unexpired term on the above policy following cancellation of same’.
The plaintiff does not accept the validity of the defendant’s purported avoidance of the policy of insurance. Consequently he began these proceedings on 2 April 1997 seeking specific performance of the contract of insurance.
The defendant countered by bringing the motion which I ruled on last Monday and which sought to stay these proceedings on foot of an arbitration clause contained in the policy of insurance pursuant to the provisions of s. 5 of the Arbitration Act 1980.
The insurance policy contained the following condition:
All differences arising out of this policy shall be referred to the decision of an arbitrator to be appointed in writing by the parties in difference or if they cannot agree upon a single arbitrator to the decision of two arbitrators, one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties, or, in case the arbitrators do not agree, of an umpire appointed in writing by the arbitrators before entering upon the reference. The umpire shall sit with the arbitrators and preside at their meetings and the making of an award shall be a condition precedent to any right of action against the company. If the company shall disclaim liability to the insured for any claim hereunder and such claim shall not within twelve calendar months from the date of such disclaimer have been referred to arbitration under the provisions herein contained then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder.
The plaintiff’s answer to the application to stay the proceedings can be stated simply. He says that since the insurance company is effectively treating the policy as void with retrospective effect, it cannot seek to rely upon the arbitration clause because if the defendant is correct, that clause has also been avoided as part of the policy. He says that his position is fortified by the return of the premia to him. His case is that if the contract is no longer valid then neither is the arbitration clause.
Over the years the courts have had to consider the question of whether an arbitrator has jurisdiction to rule upon the existence of the very contract under which he is appointed. In considering this topic the courts have traditionally drawn a distinction between two questions. First, did the contract ever come *505 into existence at all? Second, if it did once exist, has something occurred to bring it to an end? In this case I am concerned only with the second question.
The starting point for my consideration of this issue is the decision of the House of Lords in Heyman v. Darwins Ltd [1942] AC 356. In that case the House of Lords drew a distinction between an arbitration clause and the remaining provisions of a contract. In his speech Lord MacMillan said (at p. 373):
… an arbitration clause in a contract … is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other … but the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution … What is commonly called repudiation or total breach of a contract … does not abrogate the contract though it may relieve the injured party of the duty of further fulfilling the obligations which he has by the contract undertaken to the repudiating party. The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract.
Whilst that decision speaks of repudiation or total breach of contract the principle decided by it is equally applicable in circumstances where one party seeks to avoid or rescind a contract on the ground of a misrepresentation or non-disclosure. That is so whether the misrepresentation or non-disclosure is fraudulent, negligent or innocent. Provided that the words of the clause are sufficiently wide, these are matters which can be referred to arbitration. (vide Mustill and Boyd, The Law and practice of Commercial Arbitration in England , 2nd ed., at p. 112).
The Heyman decision has been consistently applied by the courts in England since it was decided in 1942. In Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corporation [1981] 1 All ER 289 at p. 297 Lord Diplock was able to say without further explanation: ‘The arbitration clause constitutes a self-contained contract collateral or ancillary to the ship-building agreement itself: see Heyman v. Darwins Ltd’. Similarly in Mackender v. Feldia AG [1967] 2 QB 590, the Court of Appeal following the dicta in Heyman found that non-disclosure relating to the practice of smuggling did not abrogate a foreign jurisdiction clause contained in an insurance policy. The non-disclosure only made that contract avoidable and the dispute as to non-disclosure was one arising under the policy and remained within the arbitration clause.
More recently in Harbour Assurance Co. Ltd v. Kansa General International Assurance Co. Ltd [1993] QB 701, the Court of Appeal concluded that an insurance agreement which one of the parties sought to declare void ab initio on the basis of non-disclosure of material facts and misrepresentation did not render the arbitration clause invalid. In so doing the court reviewed the case law and found that the Heyman doctrine was a common thread running through all the cases. The court went so far as to say that an issue as to the initial illegality of the contract was also capable of being referred to arbitration, provided that any initial illegality did not directly impeach the arbitration clause. The issue is whether the illegality goes to the validity of the arbitration clause and not whether the illegality goes to the validity of the contract.
In Hurst v. Bryk [1997] 2 All ER 283, which concerned repudiation of a partnership agreement, Simon Brown LJ relied on the established principle in the Heyman case in order to find that a repudiatory breach did not extinguish the contract altogether and the contract’s clause pertaining to the apportionment of profits and losses of the firm remained intact.
In Ireland Morris J (as he then was) declared Heyman’s case to be a correct statement of the law when he held that the issue of fundamental breach in a building contract should be sent to arbitration. ( vide Parkaran Ltd v. M. & P. Construction Ltd [1996] 1 IR 83).
In these circumstances I am therefore satisfied that the plaintiff’s contention that the arbitration clause in the instant case is no longer valid is not well founded as a matter of law.
Having concluded that the arbitration clause has survived the avoidance of the insurance contract it is then a matter of construction as to whether it is wide enough to cover the dispute. It is to be noted that it is worded so as to cover ‘all differences arising out of this policy’. In the Harbour Assurance case (supra) Hoffmann LJ (as he then was) was of the opinion that the words ‘all disputes or differences arising out of this agreement’ should be given their natural meaning so as to produce a sensible and businesslike result and as such the words were wide enough to cover the dispute. In Heyman’s case the words ‘any dispute’ were said to be wide enough to cover the claim of repudiation. The use of the word ‘differences’ has been said by Mustill and Boyd (supra) to confer the widest possible jurisdiction. Similarly the phrase ‘arising out of’ has been given a wide meaning. It has been said these words cover every dispute except a dispute as to whether there was ever a contract at all (perPilcher J in H.E. Daniel Ltd v. Carmel Exporters and Importers Ltd [1953] 2 QB 242). This phrase embraces the issue of non-disclosure (vide Stebbing v. Livepool & London & Globe Insurance Co. Ltd [1917] 2 KB 433).
In these circumstances I was satisfied that the defendant was entitled to have this dispute referred to arbitration in accordance with condition 5 of the policy of insurance.
The defendant makes no secret of the fact that it intends to rely upon the limitation provision contained in the last sentence of condition number 5 which I have already quoted. In making the order which I did and in stating my reasons for it now I express no view as to whether the defendant is entitled to rely upon that provision or as to whether it has been avoided in the same manner as the other provisions of the contract.