Contributed By Matheson (Dublin - HQ)
General rules of interpretation that apply to normal contracts apply to contracts of insurance. The principles of construction as set out by Lord Hoffman in ICS v West Bromwich Building Society (1998) 1 W.L.R. 896 in the UK have been confirmed as applying to the interpretation of insurance contracts by the Irish Supreme Court in two judgments, Analog Devices v Zurich Insurance and ors (2005) 1 I.R. 274 and Emo Oil v Sun Alliance and London Insurance Company (unreported) (2009) IESC 2 with the court in Analog Devices referring to these principles of interpretation as “the modern principles of insurance.”
The Irish courts consider the ascertainment of the meaning that the document would convey to a reasonable person having all the background knowledge that would reasonably have been available to the parties in the situation in which they were at the time of the contract. This is sometimes referred to as the “matrix of fact.” This includes anything that would have affected the way in which the language of the document would have been understood by a reasonable man or woman. However, a number of things are excluded from the admissible background, including the previous negotiations of the parties and their declarations of subjective intent. The meaning of the document is not the same as the particular meaning of the words; it is what the parties using those words against the relevant background would reasonably have been understood to mean. The courts apply the words’ ordinary and natural meaning as it is assumed that people ordinarily do not make linguistic mistakes in formal documents. However, if it is clear from the “matrix of fact” and background that something has gone wrong with the language, judges can attribute to the parties the intention they clearly had.
The court will take an objective approach in determining what would have been the intention of reasonable persons in the position of the parties. Where a contractual term is ambiguous, the contra proferentem rule will apply and the interpretation less favourable to the drafter is adopted. The rule also applies to consumer contracts, and so the interpretation most favourable to the consumer will prevail. The Irish courts have not yet followed recent decisions in England that have arguably limited the application of the contra proferentem rule.