Charter Reinsurance Co Ltd v Fagan and Others: HL 24 May 1996

The re-insurers appealed against a finding that they were liable to make payment under a contract which required them to pay ‘sums actually paid.’ They said that the company having become insolvent, no payment would in fact be made.
Held: The contract had to be construed as a whole. Under the contract, the sum became payable when the insurance claim itself became payable and not only when it was actually paid out. The complex layering arrangements envisaged by the contract required this interpretation.
Lord Hoffmann said: ‘I think that in some cases the notion of words having a natural meaning is not a very helpful one. Because the meaning of words is so sensitive to syntax and context, the natural meaning of words in one sentence may be quite unnatural in another. Thus a statement that words have a particular natural meaning may mean no more that that in many contexts they will have that meaning. In other contexts their meaning will be different but no less natural.’
Lord Mustill said: ‘If . . the words ‘actually paid’ can only as a matter of language and context mean what the syndicates maintain, I would hesitate long before giving them any other meaning, just because the result would be extraordinary’ and ‘Subject to [the use of a specialist vocabulary] the inquiry will start, and usually finish, by asking what is the ordinary meaning of the words used.’ and ‘This is . . an occasion when a first impression and simple answer no longer seem the best, for I recognise that the focus of the argument is too narrow. The words must be set in the landscape of the instrument as a whole. Once this is done the shape of the policy and the purpose of the terms become quite clear.’
and: ‘There comes a point at which the court should remind itself that . . to force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made. This is an illegitimate role for a court.’
Lord Mustill, Lord Hoffmann
Times 24-May-1996, [1996] 1 All ER 406, [1996] 3 All ER 46, [1996] 2 WLR 726, [1996] 2 Lloyds Rep 113, [1997] AC 313
England and Wales
Citing:
Appeal fromCharter Reinsurance Co Ltd v Fagan and Others CA 6-Nov-1995
Liability of re-insurers arises on insurers becoming liable to pay, not payment. . .
ConsideredIn re Eddystone Marine Insurance Co, ex parte Western Insurance 1892
. .
CitedArbuthnott v Fagan CA 30-Jul-1993
The court considered the proper approach to construction of the terms in a contract. Sir Thomas Bingham MR said: ‘Courts will never construe words in a vacuum. To a greater or lesser extent, depending on the subject matter, they will wish to be . .

Cited by:
CitedYorkshire Water Services Ltd v Sun Alliance and London Insurance Plc and Others (1) CA 20-Aug-1996
The court was asked whether the costs of flood alleviation works were recoverable under public liability insurance policies.
Held: A claim for the costs of remedial action taken to mitigate future losses were not covered by the terms of the . .
CitedPilkington United Kingdom Limited v CGU Insurance Plc QBD 28-Jan-2004
The claimants had installed glass tiles in a roof. They fractured, and facing a claim for damages, they sought payment from their insurers. The claimants argued that the risk of fracture meant that the damage occurred upon installation, the insurers . .
CitedYorkshire Water Services Ltd v Taylor Woodrow Construction Northern Ltd TCC 8-Jul-2004
The claim arose from works at a sewage plant carried out by the defendants and their sub-contractors. The plant failed to meet performance standards. It was suggested that the form of standard contract restricted the claimant’s ability to pursue a . .
CitedInvestors Compensation Scheme Ltd v West Bromwich Building Society HL 19-Jun-1997
Account taken of circumstances wihout ambiguity
The respondent gave advice on home income plans. The individual claimants had assigned their initial claims to the scheme, but later sought also to have their mortgages in favour of the respondent set aside.
Held: Investors having once . .
CitedBedfordshire Police Authority v Constable and others ComC 20-Jun-2008
The authority insured its primary liability for compensation under the 1886 Act through the claimants and the excess of liability through re-insurers. The parties sought clarification from the court of the respective liabilities of the insurance . .
CitedTrygort (Number 2) Ltd v UK Home Finance Ltd and Another SCS 29-Oct-2008
The landlords claimed that the tenants remained bound under the lease to occupy and use the premises and pay rent. The tenant said that it had exercised a break option. The landlord said that the break was not exercisable because it had otherwise . .
CitedPratt v Aigaion Insurance Company SA (‘the Resolute’) CA 27-Nov-2008
The court considered the interpretation of a term in a contract of insurance to the effect that ‘Warranted Owner and/or Owner’s experienced skipper on board and in charge at all times and one experienced crew member.’, asking whether ‘at all times’ . .
CitedLexington Insurance Co v AGF Insurance Ltd HL 30-Jul-2009
The respondent insurers had been held liable in Washington, and had been granted indemnity against the appellants by the Court of Appeal. The insurance contract had been under the law of Pennsylvania, but that of the re-insurance under the law of . .
CitedSigma Finance Corporation, Re; (in administrative receivership) SC 29-Oct-2009
The court considered how the losses of the insolvent company were to be distributed as between secured creditors and preferential creditors, given the terms of the applicable trust deed.
Held: The court considered the interpretations of the . .
CitedBloomsbury International Ltd v Sea Fish Industry Authority and Department for Environment, Food and Rural Affairs SC 15-Jun-2011
The 1995 Regulations imposed a levy on fish both caught and first landed in the UK and also on imported fish products. The claimants, importers challenged the validity of the latter charges, saying that they went beyond the power given by the 1981 . .
CitedEmployers’ Liability Insurance ‘Trigger’ Litigation: BAI (Run Off) Ltd v Durham and Others SC 28-Mar-2012
The court considered the liability of insurers of companies now wound up for mesothelioma injuries suffered by former employees of those companies, and in particular whether the 1930 Act could be used to impose liability. The insurers now appealed . .
CitedLloyds TSB Foundation for Scotland v Lloyds Banking Group Plc SC 23-Jan-2013
A predecessor bank had created a trust into which it paid a small proportion of its profits. The parties now disputed the calculation of profits when the Bank declared a loss which allowed for an unrealised gain on the acquisition of HBOS. . .
CitedTeal Assurance Company Ltd v WR Berkley Insurance (Europe) Ltd SC 31-Jul-2013
An international engineering company had several layers of professional indemnity insurance. The top later did not cover claims originating in the US or Canada. The several insurers now disputed apportionment of liability between them. The . .
CitedThe Financial Conduct Authority and Others v Arch Insurance (UK) Ltd and Others SC 15-Jan-2021
Many businesses, having been ordered to suspend business during the Covid-19 epidemic, sought to claim under business interruption insurance. The claims were rejected by the insurers and the insurers now appealed from a finding that they had been . .

These lists may be incomplete.
Updated: 17 January 2021; Ref: scu.78995