October 15 2013 Interpretation of insurance policy should follow standard and logical meaning Levitan Sharon & Co | Insurance - Israel Insurance FactsDecisionOn August 21 2013 the Jerusalem Supreme Court ruled(1) that the interpretation of an insurance policy should express the standard and logical meaning of the policy terms, rather than twisting the words in order to suit the interests of the insured.This decision sets an objective and fair precedent, in comparison to recent rulings by the lower courts in which the interests of the insured have been favoured over those of the insurer.FactsThe appellant, Aluminums Products Ltd, was insured with Aryeh Insurance Co Ltd for extended fire and nature hazards insurance.The insured submitted a claim against Aryeh for insurance compensation due to damages caused to the insured following the collapse of the building in which the insured's factory was located. The building collapsed following the failure of a higher floor in the same building.The dispute focused on the interpretation of a policy clause that extended the insurer's obligation to compensate the insured to include any "loss or physical damage caused to the insured property as a result of sudden, incidental and unexpected sinking and/or dropping and/or sliding and/or collapse and/or erosion of the ground" (emphasis added). The parties disagreed as to the interpretation of the phrase 'of the ground'.The insurer submitted a linguist's expert opinion, arguing that the wording should apply to all the alternatives provided in the clause, not only to the last option specified (ie, erosion). This interpretation was allegedly in accordance with the basic rules of Hebrew syntax, as well as the semantic and logical approach under which the interpretation of such clauses should be reviewed.In turn, the appellant argued that the clause was ambiguous and could be interpreted in two reasonable and logical different ways – that is, it could be argued that either:the collapse is one event that may occur to the ground; orthe risk of collapse is a standalone risk that does not necessarily relate to a ground collapse, but could also relate to collapse of the building.Given the difference in possible interpretations, the appellant claimed that the clause should be interpreted widely in favour of the insured. It argued that this would be in line with two basic approaches to insurance law in Israel – namely, interpretation against the drafter and fulfilling the insured's reasonable expectations.On the other hand, Aryeh argued that the policy and the relevant circumstances supported an interpretation according to which it would cover only damages caused as a result of collapse of the ground (ie, not those caused by the collapse of the building).The claim was dismissed by the Jerusalem District Court and the insured filed an appeal.DecisionThe Supreme Court stated that an insurance policy is a contract between the insurer and insured, and should therefore be interpreted in accordance with the common rules applying to the Contracts Law. To this end, the court will usually view the standard meaning of the terminology chosen by the parties to a contract as an expression of their intention and consent.In the case at hand, the court ruled that the appellant had failed to provide proof that could justify a different manner of interpretation of the policy clause from the standard and logical meaning suggested by the insurer.The court held that the clause named five different types of movement – that is, sinking and/or dropping and/or sliding and/or collapse and/or erosion of the ground. It argued that each type applied to the phrase 'of the ground' and none could stand separately out of context. The court determined that it was unnecessary to repeat "of the ground" following each of the situations described. This interpretation complies mainly with common sense and provides a coherent meaning to the entire clause wording.Furthermore, the court stated that the interpretation suggested by the appellant – according to which the phrase applied only to the last situation – deprived most of the clause of its logical content, thereby making its meaning illogical and irrational.After analysing all the evidence, the Supreme Court adapted the district court's conclusion, determining that the insurer's interpretation reflected the common, normal and simple lingual meaning of the clause in question. This conclusion was supported by the fact that the policy was issued to cover specific risks, rather than being a policy issued against all possible risks.For further information on this topic please contact Shira Zecharya at Levitan, Sharon & Co by telephone (+972 3 688 6768), fax (+972 3 688 6769) or email ([email protected]).Endnotes(1) Aluminums Products Ltd v Aryeh Insurance Company Ltd, CA 453/11 MS.