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


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 . .

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Lists of cited by and citing cases may be incomplete.

Insurance, Contract

Updated: 17 June 2022; Ref: scu.78995