Gard Marine v (1) Lloyd Tunnicliffe (on his behalf and on behalf of all other members of Lloyd’s Syndicate 780 for the 2005 year) (2) Glacier Reinsurance AG (3) Agnew Higgins Pickering & Co Ltd [2011] EWHC 1658 (Comm)

The Claimant had participated in the insurance of an oil and exploration company (the “Company”), which insurance covered all risks of physical loss or damage to offshore or onshore property and business interruption. The Claimant reinsured part of the insurance with the Defendant. The “sum insured” clause in the reinsurance policy provided “to pay up to Original Package Policy limits/amounts/sums insured excess of USD250million (100%) any one occurrence of losses to the original placement”.  

When the Company claimed on the insurance, the Claimant paid its proportion and then claimed on the reinsurance. It calculated its claim on the basis that the $250m excess point referred to 100% values of the property and other subject matter comprising the Company’s claim. As the Company had less than a 100% interest, the excess point had to be scaled down to reflect that lower interest. That, the Claimant argued, was the effect of the “(100%)” notation in the sum insured clause. Scaling down the deductible increased the amount due from the Defendant.

The Court held that the question of construction should be approached on the assumption that the parties intended to use words which had a special meaning within a particular trade. The express terms of the contract would prevail if they were inconsistent with any such meaning. However in this case, the evidence pointed to the fact that the notation “(100%)” in regard to an excess or limit had a recognised and established meaning on the market writing direct insurance of offshore energy risks and facultative reinsurance. It meant that the limit or excess had to be scaled to reflect the assured’s interest in the relevant assets.  

The Claimant’s interpretation of the reinsurance policy was correct: the excess point in the sum insured clause was based on the total insured value of the original lost asset, and not on the Company’s interest in that original lost asset. In other words, the excess point scaled for interest.