This case involved an attempt by a co-insurer to prevent the rectification of a policy, in circumstances in which evidence from representatives of both the insurer and the insured was unanimous that the wording of the policy did not reflect their common intention at the time of its agreement. The case is a useful reminder of the requirements of rectification and of the kinds of factors which will be held to evidence the parties’ intentions at the time of concluding their agreement. It is also interesting for the fact that it was a third party and not either of the parties to the agreement who sought to resist rectification.
GlaxoSmithKline Plc (G) ran an “Employee Car Ownership Scheme”, which Equity Syndicate Management Limited (E) insured. During the relevant period, G separately provided its employee (B) with a temporary vehicle for the purposes of her employment.
The provision was not part of the scheme and was insured separately by (A).
B was involved in a serious accident giving rise to a claim against B which A handled and settled for a significant sum. A subsequently sought a 50% co-insurance contribution from E, on the basis that, although the vehicle had not been provided as part of the scheme insured by E, the loss was nonetheless covered under E’s policy wording, by virtue of the wide description of the insured vehicles in the relevant insurance certificate.
It was common ground between the parties that E’s policy wording was wide enough to include cover for B, even though she was not a member of the scheme. However, E’s case was that this was not what was intended or agreed and that the policy wording should be rectified accordingly. A, as co-insurer, resisted such rectification, whilst G (although named as a defendant) played no part in the proceedings.
A argued that the parties’ only intention had been to contract on the terms which they actually agreed and which had been the subject of careful negotiation. A also argued that there was no outward manifestation of an intention to limit cover to vehicles within the scheme. Finally, A argued that even if there had been such an intention at the time of the original placement, there had been so such intention at the time of renewal (which had been effected by a different underwriter), the only intention at that stage being to renew the policy on its existing terms.
The court held that the parties did intend to limit cover to vehicles within the scheme and that this was evidenced by several matters, including:
- The method of calculating premium on E’s policy by reference to the number of vehicles in the scheme.
- The fact that G paid a separate premium to A and to another insurer for separate insurance of other vehicles, which would have been unnecessary if the intention had been for these vehicles to be covered under E’s policy.
- The headings and definitions within the policy, which provided a strong indication that this was the intention.
Equally, despite being post-contractual matters, certain features of the way in which the scheme was in fact administered had evidential value in making clear that this was the intention.
The court also rejected A’s renewal argument on the basis that, although a different underwriter handled matters, it remained the parties’ intention to provide insurance only for vehicles in the scheme, and the new underwriter acted on that clear understanding, albeit he had not been involved in the original placement.
The court accordingly held that E was entitled to the rectification sought. A argued against this that rectification is an equitable remedy and that the court should not exercise its discretion in circumstances in which:
- G had no interest in the rectification sought.
- Rights had accrued many years before the possibility of rectification was raised.
- The contract created rights for third parties.
However, the court determined that there was no unfairness in permitting rectification, which merely ensures that effect is given to what the parties actually agreed and what all parties concerned understood to be the position. To refuse rectification would in fact be unfair to E as it would render it liable to contribute B’s liability, which it never intended or agreed to insure and for which it has received no premium. Rectification would also provide A with a windfall claim to contribution when it was the only insurer to have received premium for insuring B.
The case is a useful reminder of the requirements of rectification and the factors that the court will take into account in deciding whether or not there is evidence of the parties’ intentions at the time of concluding an insurance contract. It also provides an interesting perspective on the factors that the court will take into account in deciding whether to exercise its discretion to order rectification. Finally, the case illustrates the importance of making sure that policy wordings are sufficiently and carefully drafted and in particular that the wording reflects (and goes no further than) what the parties intended to agree. Had E been unable to adduce persuasive evidence in support of its rectification argument, it would, as noted above, have been faced with having to make a 50% contribution to a loss which it never intended to insure and for which it received no premium.
Although there is no suggestion that the broker in this case was at fault, this raises issues for brokers just as much as for the parties to insurance contracts. In circumstances in which an insurer is faced with an expectedly liability of this kind, the likelihood is that it will seek to recoup its loss from the broker who has produced and/or relied upon the wording in question