The recent decision in the case of Equity Syndicate Management Limited v GlaxoSmithKline Plc [2015] EWHC 2163 (Comm) considered whether a co-insurer could prevent the rectification of an insurance policy where both the insurer and the insured stated that the policy was not reflective of their common intention at the time the agreement was entered into. The court looked at the requirements for rectification of a policy and this case serves as a useful reminder of those requirements and the importance of the careful wording of policy agreements.

GlaxoSmithKline Plc (GSK) ran an employee car ownership scheme, administered by Interleasing, which was insured by Equity Syndicate Management Limited (Equity). In error the policy was worded so that it covered cars hired by GSK for employees outside the scheme. GSK had a policy with a second insurer, AXA Corporate Solutions Assurance SA (AXA), to cover those outside the scheme in circumstances where a vehicle was hired from National Car Rental.

An issue arose following a road traffic accident involving a GSK employee, Janet Ball, in October 2006. Ms Ball was not a member of the car ownership scheme and GSK had hired a car for her business use. The other party to the road traffic accident was badly injured and made a claim against Ms Ball for her role in the incident. AXA settled the claim for £2.3 million in damages plus costs, and sought a 50% contribution from Equity who, they argued, were co-insurers.

Equity accepted that the wording of their policy did in fact cover Ms Ball in the circumstances.  However, supported by GSK, Equity argued that this was never the intention of the policy. The intended purpose of the policy was to cover those vehicles within GSK's car ownership scheme. Equity therefore claimed for rectification of the policy.

The court considered the case of Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 in which Lord Hoffmann approved the requirements for rectification, as follows:

  1. The parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
  2. There was an outward expression of accord;
  3. The intention continued at the time of the execution of the instrument sought to be rectified;
  4. By mistake, the instrument did not reflect that common intention.

Lord Hoffman also confirmed that, in deciding whether a common continuing intention exists, the test is an objective one, i.e what an objective observer would have thought the intentions of the parties to be and not the inward thoughts of the parties.

Mr Graham Eklund QC, for Equity, argued that it had always been the common intention of GSK and Equity to arrange cover for vehicles within the scheme only and this remained the parties' intention throughout the negotiations that led to the original contract in 2004 and to the later renewal contracts. He argued that the outward expression of this accord could be seen most notably in the premium charged and paid for this insurance, which was a flat rate premium charged per vehicle in the scheme.

Mr Howard Palmer QC, for AXA, argued that the only intention which the parties had was to contract on the terms actually agreed which had been carefully negotiated between them. There was no outwardly manifested objective intention to limit cover to vehicles within the scheme.  In any event, the 2006 renewal of the policy was negotiated by a different underwriter at Equity than the original 2004 policy, and his only intention was to renew the policy on the terms contained in the existing policy.

The court considered oral evidence given by GSK's director of UK employee benefits, the underwriters at Equity who had negotiated both the original and the renewal policies, and the account manager for Interleasing who administered the employee car ownership scheme for GSK.  All of the witnesses were unanimous and adamant that the insurance provided by Equity was intended to be limited to vehicles in the scheme.  Whilst this was subjective evidence the court felt it to be powerful evidence of what was agreed between the parties in an objective sense.

The court also considered objective matters including the fact that the premium was based on the number of vehicles in the scheme and no information had ever been provided to Equity to calculate what premium was appropriate if cover was to extend beyond the scheme (eg number of vehicles).  Secondly, the heading of the policy and the definitions within the policy itself were strong indicators of the intended subject matter of the policy. The court also looked at post-contract matters which demonstrated the intention and understanding of the parties.

The court found in favour of Equity stating that it would be unjust for rectification to be refused.  AXA therefore failed to obtain a contribution to their outlay in respect of the claim against Ms Ball.  The court stated that to refuse rectification would be unfair to Equity as it would render it liable to contribute to Ms Ball's liability which it never intended or agreed to insure and for which it never received a premium.  It would provide AXA with a windfall claim to contribution when it is the only insurer to have received a premium for insuring Ms Ball, and rectification would not affect Ms Ball's rights as she never thought she was insured by Equity.

Whilst Equity was successfully able to claim rectification to their policy in the circumstances, this case demonstrates the importance of careful wording of insurance policies. Had both parties' intentions not been so objectively clear, Equity may have found themselves contributing towards a claim in circumstances they had not intended and for which they had not received a premium.