Right language, right place: What King Trader can teach us about the placement of language within insurance policy wordings

The recent High Court judgment of MS Amlin Marine NV on behalf of MS Amlin Syndicate AML/2001 -v- King Trader Ltd & others (Solomon Trader) [2024] EWHC 1813 (Comm) is the latest in a string of recent decisions that shine a light on the construction of insurance policy wordings. 

This case concerned an MS Amlin shipping policy which contained a condition that said insurers would only pay claims when the insured had first paid out the liability or loss for which they were seeking indemnity. The insured went insolvent before discharging a significant liability to a third party and insurers had declined to pay on the basis of this condition. The third party (via the 2010 Act) sought to argue that this condition was not properly incorporated into the policy, but if they were wrong on that, that it was inconsistent with the primary objective of the policy which was to give cover and so should be read down/struck out. The arguments failed. 

In this case, the policy wording withstood the attack. 

Nonetheless, it is worth reflecting on the kinds of arguments that were deployed as there are valuable lessons in here for those of us who draft insurance policy wordings. It it never enough just to get the provisions in there that you want to rely on. How and where you deploy them can make the crucial difference: a point which is increasingly important and seemingly directly proportional to the complexity of the policy structures. 

Reflecting on this judgment, ICOBS2.5.1(1)(R) came to mind. This provides that insurers must not seek to exclude or restrict or rely on an exclusion or restriction of any duty or liability it may have to a policyholder unless it is reasonable to do so. Regulators do not like wordings that give with one hand and take away with the other. Against MS Amlin, the arguments were advanced in different terms but if we don’t draft in a way that is sufficiently sensitive to this premise, we risk a raised regulatory eyebrow, or litigation. 

Ultimately the Court decided that the suspension of the obligation to pay in the MS Amlin policy was not an inherent challenge to the purpose of the insuring clause. On different facts the outcome could have been different. There are of course, two types of condition precedent: one for coming on risk at all and another which instead, suspends the obligation to pay claims. The latter has a legitimately independent purpose to the insuring clause. There is a restatement in this judgment that there is nothing inherently contradictory about these conditions showing up in third party liability wordings. 

This judgment also walks us through how various presumptions will impact the determination of meaning where there is actually a conflict between provisions. A different approach will be taken whether the two clauses appear in the same or multiple documents, and on a micro level, within a document, in different places in it. Part of the argument raised against MS Amlin was that any condition buried at the back of the wording that introduces a contingency to the insuring clause (that could and should have been in there), must be subordinate. Ultimately the Court didn’t accept that there was a conflict so this point failed, but we have seen this line or argument succeed before. In Arch¹  the insuring clause and exclusions were cast as two sides of the same coin, with the exclusion narrowing the gift of cover granted in the insuring clause. In that context, the oft cited imperative following Arch to properly signpost these narrowing provisions and to elevate them from the position of "a woolf in sheep's clothing" (to quote the language used in King Trader) has had a big impact on how we draft wordings in recent years.  

Different again will be the treatment where a point of conflict exists between bespoke language and stock wording. For instance, it will take a lot for a Court to be persuaded that anything in bespoke language (like schedules or endorsements) should be treated as subordinate precisely because this is presumed to be an obvious expression of the specific deal struck between the parties.  

The judgment also touches upon language that makes express the relative importance of different provisions within a document, e.g. "…in the event of conflict, […] prevails". This device to determine hierarchy can deliver clarity where it is needed, but more often than not it is applied too liberally with unintended consequences. 

So, as guiding principles, let structure do the heavy lifting and think strategically about the placement of provisions that might potentially conflict, to maximise clarity and intelligibility. 
   

 View our Insurance Policy Wordings page here.