Case Alert -  EWHC 2625 (TCC)
Judge confirms irrelevance of prior year policies when construing an insurance policy
The claimant agreed that the defendant could enter into construction contracts in the name of the claimant. After settling claims which were brought by customers of the defendant in 2013, the claimant sought an indemnity from the defendant. The judge found, on the facts, that the defendant had not agreed to indemnify the claimant. A further issue (which the judge did not need to decide) was whether the defendant was a co-insured under a professional indemnity policy taken out by the claimant.
For policies taken out by the claimant between 2002 and 2011, the definition of the insured included associated companies, and the defendant was named as an associated company. However, for the policy year in question, 2012-13, the defendant had not been covered as an associated company and the judge found that, on the facts, the defendant was no longer an associated company at that point.
She went on to say that "the evidence of what happened in prior years does not aid the construction of the contract between the claimant and a different broker and insurer. The contract has to be construed against the background for the relevant year and not by reference to what happened prior to the entry into of that policy". Nor was she prepared to imply a term into the oral agreement between the parties that the claimant would maintain professional indemnity insurance for both parties for such period as any potential liability could arise in respect of construction works carried out by the defendant: "The fact that the defendant was named as a co-insured for the year 2002 and for a number of years thereafter may lead to an inference that the parties would have agreed it if it had been suggested to them…is necessary but not sufficient basis in which to imply a term".
COMMENT: In HIH Casualty & General Insurance v New Hampshire , Rix LJ said that "In my judgment, there is nothing [in earlier decisions] which binds this court to rule that where a prior contract has been followed by a further contract…there is a rule of law which makes it inadmissible to consider the terms of the prior contract….In principle, it would seem to me that it is always admissible to look at a prior contract as part of the matrix or surrounding circumstances of a later contract. I do not see how the parol evidence rule can exclude prior contracts, as distinct from mere negotiations". However, in that case, the factual circumstances were that a slip policy was followed by further policy wording between the same parties, whereas here, the 2012-13 policy was entered into between different parties.
Rix LJ accepted, though, that it might "simply be useless" to try to construe the later policy by reference to the earlier one where the later policy was intended to supersede the earlier one: any differences will usually reflect the fact that the parties have deliberately chosen to depart from the earlier wording (although he said that that was not a conclusive rule of law). He went on to advise that the earlier contract should usually be looked at where there is a dispute as to whether the later contract was indeed intended to supersede it.