England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		15th November 2004

Mr. Justice Moore-Bick:

1. On 16^th October 1997 a professional footballer, Martin Dahlin, suffered an injury to his back while taking part in a practice match. Although it was not immediately clear that the injury would have long term consequences, it proved to be sufficiently serious to prevent him from competing in top class football and effectively put an end to his professional career.
2. His club, Blackburn Rovers, ("the Club") had obtained insurance from the defendants against the risks of injury to its players, including Mr. Dahlin, and accordingly made a claim under the policy. That claim was rejected by the insurers on the grounds that his disablement had not been caused by the injury alone but resulted directly or indirectly from a degenerative condition of the lower spine and was therefore not covered by the policy. The Club has therefore brought this action against the insurers seeking the indemnity to which it says it is entitled.
3. The policy, so far as material, provided as follows

" The insurers hereby agree with the Insured . . . . . that if an Insured Person shall sustain any Accidental Bodily Injury as herein defined or in the event of his Illness as herein defined, the Insurers will pay to the Insured . . . . . according to the Schedule of Compensation . . . . . .

In this Insurance

1. "ACCIDENTAL BODILY INJURY" means accidental bodily injury which

(a) is sustained by the Insured Person during the period of the insurance,

(b) solely and independently of any other cause, except Illness directly resulting from, or medical or surgical treatment rendered necessary by, such injury, occasions the death or disablement of the Insured Person within twenty four calendar months from the date of the accident.

3. "PERMANENT TOTAL DISABLEMENT means disablement which entirely prevents the Insured Person from engaging in his usual occupation as a football player . . . . . . . . . and which lasts twelve calendar months and at the expiry of that period the Insured Person is beyond hope of improvement.

SCHEDULE OF COMPENSATION

A. Compensation payable in respect of ACCIDENTAL BODILY INJURY

1. . . . . . . . . . .

2. Permanent Total Disablement 100% of Capital Sum Insured

EXCLUSIONS

This insurance does not cover death or disablement directly or indirectly resulting from or consequent upon:-

. . . . . . . . . . . . . . . . . . . .

4. Permanent Total Disablement attributable either directly or indirectly to arthritic or other degenerative conditions in joints, bones, muscles, tendons or ligaments;"

4. The capital sum insured in relation to Mr. Dahlin was £4 million.
5. In their defence the insurers alleged that Mr. Dahlin suffered from degenerative disc disease unrelated to any particular incident or to his playing career as a professional footballer and that any injury he sustained on the occasion in question was caused directly or indirectly in whole or in part by that underlying condition. They therefore denied that he had suffered accidental bodily injury within the meaning of the policy and contended that in any event the claim fell within Exclusion 4.
6. There are issues between the parties about the precise nature of Mr. Dahlin's injury, the extent to which he suffered from pre-existing disc degeneration and the extent, if at all, to which any such degeneration contributed to his injury. However, in paragraphs 3 and 6 of its reply the Club pleaded that Exclusion 4 is not apt on its own terms to cover the present situation and that even if it is, the reference to arthritic or other degenerative conditions is not to be construed as including degenerative changes that are present in the large majority of the population of Mr. Dahlin's age, including professional footballers, and are largely a function of age. In other words, the exclusion is not to be construed as referring to the degree of degeneration that is no worse than is normally found in this class of person.
7. At the case management conference Colman J. directed that the following be tried as preliminary issues:

(1) Whether the matters pleaded in paragraphs 3 and 6 of the Reply preclude the Defences raised in paragraphs 5.3, 7.3 and 7.4 of the Defence;

(2) Whether it is a permissible and necessary aid to construction of the Policy to have regard to the incidence of degenerative disc disease in the population at large.

8. However, in order to understand better the real nature of the issues which have to be decided, I think it may be more helpful to re-formulate them as follows, adopting, where appropriate, the language used in the Club's reply:

(1) whether Exclusion 4 is incapable of bearing any rational meaning;

(2) whether Exclusion 4 is to be construed literally, in favour of the insured;

(3) whether degenerative changes that are (a) typical of the male population of Mr. Dahlin's age in general and (b) typical of top-class professional footballers of Mr. Dahlin's age are to be disregarded for the purposes of the policy.

9. The Club admits that Mr. Dahlin suffered from degenerative disc disease of the lower spine prior to the accident. Apart from that, the facts are in issue and although I have been provided with copies of some of the medical reports that have been produced in this case, it is not possible to make any further findings at this stage. The preliminary issues must therefore be determined on the basis of a number of assumptions. These are:

(1) that a large proportion of the male population of Mr. Dahlin's age (it was agreed for the purposes of the present trial that it should be taken to be as high as 75%) suffers from degenerative disease of the lower spine related to ageing;

(2) that top-class professional footballers typically exhibit more serious degeneration that ordinarily active people;

(3) that the nature and degree of the degeneration suffered by Mr. Dahlin was no worse than normal for a top-class professional footballer of his age; and

(4) that the degeneration was a cause, direct or indirect, of the injury he received on 16^th October 1997.

Exclusion 4

10. It is convenient to begin with the construction of Exclusion 4. Although in paragraph 3(i) of the Reply it is alleged that Exclusion 4 is not capable of being given any rational meaning, this point did not feature prominently in Mr. Cogley's submissions. In the pleading itself it appears as a prelude to the proposition that paragraph 4 does not stand alone but must be read in conjunction with the opening words of the clause. In my view that is clearly correct, but it gives rise to other difficulties of construction to which the first limb of the argument was directed.
11. Mr. Cogley submitted that the language of Exclusion 4 as a whole is perfectly clear. The introductory words are designed to be read in conjunction with the numbered paragraphs, each of which describes an activity or event that may give rise to death or disablement. Accordingly, paragraph 4 excludes liability for death or disablement resulting from or consequent upon Permanent Total Disablement as defined elsewhere in the policy. It is not permissible, he submitted, to ignore the introductory words or to manipulate the clause in order to give it any other meaning. If, however, it is capable of bearing some other meaning, the court should choose that which is more favourable to the insured. In this case that would mean construing Exclusion 4 as applicable only to those cases (no doubt very few in number) in which death or disablement had resulted from Permanent Total Disablement. Mr. Stuart-Smith Q.C., on the other hand, submitted that I should take a broader approach altogether to the construction of this provision, which he argued, was clearly intended to exclude liability for Permanent Total Disability in cases where an arthritic or degenerative condition had played any part in causing a player's disablement.
12. The established approach to construing contracts of insurance was conveniently summarised by Stuart-Smith L.J. in Yorkshire Water Services Ltd v Sun Alliance & London Insurance Plc [1997] 2 Lloyd's Rep. 21 at page 28 as follows:

" 1. The words of the policy must be given their ordinary meaning and reflect the intention of the parties and the commercial sense of the agreement. Thus they must be construed in their context or, as Lord Mustill put it in Charter Reinsurance Co. Ltd v Fagan and Others [1996] 2 Lloyd's Rep 113 at p. 117, col. 1; [1996] 3 All ER 46 at p. 51e: "the words must be set in the landscape of the instrument as a whole."

2. A literal construction that leads to an absurd result or one otherwise manifestly contrary to the real intention of the parties should be rejected, if an alternative more reasonable construction can be adopted without doing violence to the language used.

3. In the case of ambiguity the construction which is more favourable to the insured should be adopted; this is the contra proferentem rule."

13. A recognition of the need to give a policy a sensible meaning consistent with its fundamental purpose has led the courts on various occasions to overlook obvious grammatical errors, even, if necessary, to disregard inappropriate phrases as surplusage: see MacGillivray on Insurance Law, 10^th ed., paragraph 11-7. In each case the court must strive to identify and give effect to the intention of the parties as expressed in the words they have used. If that intention is clearly expressed, the court must resist any temptation to give the contract some other meaning that would produce what it considers to be a more reasonable or businesslike result. However, sometimes the language chosen by the parties does not yield a clear meaning or only one that is apparently at odds with the main purpose of the contract. In those circumstances it is necessary to ask oneself whether that is what the parties really intended and, where more than one construction might properly be placed on the language, to consider the effects of adopting one construction rather than another in order to ascertain the their true intention. A recent example of this approach can be found in Gan Insurance Co. Ltd v Tai Ping Insurance Co. Ltd (No. 2) [2001] 1 Lloyd's Rep. 667 to which my attention was drawn.
14. As I have said, Mr. Cogley is plainly right in saying that the overall structure of the Exclusions clause requires the introductory words to be read in conjunction with each of the numbered paragraphs. As drafted, therefore, the Exclusion 4 reads as follows:

" This insurance does not cover death or disablement directly or indirectly resulting from or consequent upon Permanent Total Disablement attributable either directly or indirectly to arthritic or other degenerative conditions in joints, bones, muscles, tendons or ligaments."

15. Read literally the exclusion applies only to death or disablement caused directly or indirectly by Permanent Total Disablement (which is itself attributable directly or indirectly to a degenerative condition), but since Permanent Total Disablement is itself no more than a particular form of disablement, it is quite difficult to imagine a situation in which the exclusion could operate if that were what it was intended to mean. Mr. Cogley suggested that it might apply when a footballer died as a result of medical treatment following a disabling injury. That might enable some meaning to be given to the words when the treatment resulted in death, but would still leave a problem of construction where the final outcome was still disablement, even though the disablement might be more severe. In any event, illness resulting from medical or surgical treatment rendered necessary by the original injury is expressly provided for in the definition of Accidental Bodily Injury.
16. The insured event under this policy is not death or disablement as such, but accidental bodily injury or illness which causes death or disablement. However, before the policy will respond in the case of an injury causing disablement, it must be shown that the disablement amounts to Permanent Total Disablement as defined in the policy. There are, therefore, three elements in the establishment of a claim where the injury results in disablement: (1) the occurrence of an illness or an accidental bodily injury which (2) causes disablement which (3) is sufficiently serious and prolonged to amount to Permanent Total Disablement. Since it is death or disablement that determines whether the injury or illness is capable of giving rise to a claim, it is perhaps not surprising that the Exclusions clause should be directed to those circumstances rather than to the insured event as such. It is clear from its opening words that the purpose of the clause is to identify those circumstances in which death or disablement will not give rise to a claim under the policy. However, it makes no sense to exclude death or disablement resulting from Permanent Total Disablement and I cannot accept that that is what the parties intended. What appears to have happened is that when directing himself to disablement resulting from degenerative conditions the draftsman's attention slipped from disablement in general to Permanent Total Disablement as being the only kind of disablement which gives rise to a claim.
17. It is interesting to note that a literal approach to construction also leads to difficulty and confusion in the case of paragraph 5 in which the cause of death or disablement is expressed to be

"the Insured Person being under the control of his National Association, commencing from the time that he leaves his home address or normal place of business until his return thereto".

It is difficult to see how the fact that a player is under the control of his National Association is itself ever likely to be a cause, direct or indirect, of his death or disablement and it is reasonably clear from the concluding words that the real thrust of this paragraph is intended to be temporal in nature. This only serves to reinforce the need to construe the terms of the policy, including the Exclusions clause, in a sensible manner.

18. In my view this is one of those cases where the intention of the parties can be collected with confidence from the words they have chosen to use, even if that involves treating some of those words as surplusage. In the present case both the opening words of the Exclusions clause and paragraph 4 itself encompass both direct and indirect causation and there is little impediment, therefore, to ignoring the words "Permanent Total Disablement attributable either directly or indirectly to" which to a large extent duplicate the earlier language.
19. Mr. Cogley submitted that any ambiguity in the Exclusions clause should be resolved in favour of the insured and no doubt that is a proper approach where the language is genuinely ambiguous. In my view, however, this is not a case of ambiguity but an example of something having gone wrong in the drafting. I am satisfied that Exclusion 4 is to be construed as extending to death or disablement resulting directly or indirectly from arthritic or other degenerative conditions of the kind there described.

Normal degenerative changes

20. Accidental Bodily Injury is defined as an injury which solely and independently of any other cause occasions the disablement of the insured person. This corresponds quite closely with Exclusion 4 which relates to cases where disablement is the direct or indirect result of a degenerative condition. The real issue between the parties, therefore, is whether the insurers are liable under the policy in a case where the player concerned was suffering from a degenerative condition which contributed directly or indirectly to his disablement, but where that degeneration can properly be described as "normal" in the sense that it is very common (though not universal) both in nature and extent among people of his age and profession.
21. It has been recognised for a long time that the court should lean against construing a policy of insurance in a way that would substantially deprive the insured of the protection which the policy is designed to provide. In Cornish v The Accident Insurance Co. Ltd (1889) 23 QBD 453, a policy covering the insured against accidental death or injury excluded injuries happening by exposure of the insured to obvious risk of injury. The insured was killed by a train while attempting to cross a railway line in circumstances that made it difficult to understand how he could not have seen or heard the train approaching. The issue between the parties, therefore, was whether he had exposed himself to an obvious risk of injury within the meaning of the policy. Lindley L.J. giving the judgment of the Court of Appeal said at page 456

"The words are "exposure of the insured to obvious risk of injury." These words suggest the following questions: Exposure by whom? Obvious when? Obvious to whom? It is to be observed that the words are very general. There is no such word as "wilful," or "reckless," or "careless"; and to ascertain the true meaning of the exception the whole document must be studied and the object of the parties to it must be steadily borne in mind. The object of the contract is to insure against accidental death and injuries, and the contract must not be construed so as to defeat that object, nor so as to render it practically illusory. A man who crosses an ordinary crowded street is exposed to obvious risk of injury; and, if the words in question are construed literally, the defendants would not be liable in the event of an insured being killed or injured in so crossing, even if he was taking reasonable care of himself. Such a result is so manifestly contrary to the real intention of the parties that a construction which leads to it ought to be rejected. But, if this be true, a literal construction is inadmissible, and some qualification must be put on the words used. In the American cases cited by Mr. Jelf, the language of the policy was different, but the foregoing reasoning was adopted by the Court. The real difficulty is to express the necessary qualification with which the words must be taken. In a case on the line, in a case of real doubt, the policy ought to be construed most strongly against the insurers; they frame the policy and insert the exceptions. But this principle ought only to be applied for the purpose of removing a doubt, not for the purpose of creating a doubt, or magnifying an ambiguity, when the circumstances of the case raise no real difficulty. Without attempting to paraphrase the language so as to meet all cases, it is, we think, plain that two classes of accidents are excluded from the risks insured against, viz. (1) accidents which arise from an exposure by the insured to risk of injury, which risk is obvious to him at the time he exposes himself to it; (2) accidents which arise from an exposure by the insured to risk of injury, which risk would be obvious to him at the time, if he were paying reasonable attention to what he was doing. "

22. This decision is authority both for the principle that the contract should not be construed in a way that would make it practically illusory and for the principle that in a case of real ambiguity the court should lean in favour of the insured, but it also contains a warning against creating doubts or magnifying ambiguities in order to reach a decision in favour of the insured.
23. A similar approach has been adopted a number of more recent cases, most notably, perhaps, in Fraser v B. N. Furman (Productions) Ltd [1967] 1 W.L.R. 898, a case involving an employer's liability policy which contained a condition precedent that the insured should take reasonable precautions to prevent accidents and disease. Diplock L.J. said at page 905

" "Reasonable" does not mean reasonable as between the employer and the employee. It means reasonable as between the insured and the insurer having regard to the commercial purpose of the contract, which is inter alia to indemnify the insured against liability for his (the insured's) personal negligence. That, too, is established by the case which I have cited. Obviously, the condition cannot mean that the insured must take measures to avert dangers which he does not himself foresee, although the hypothetical reasonably careful employer would foresee them. That would be repugnant to the commercial purpose of the contract, for failure to foresee dangers is one of the commonest grounds of liability in negligence. That, too, is established by the case which I have cited. Obviously, the condition cannot mean that the insured must take measures to avert dangers which he does not himself foresee, although the hypothetical reasonably careful employer would foresee them. That would be repugnant to the commercial purpose of the contract, for failure to foresee dangers is one of the commonest grounds of liability in negligence. What, in my view, is "reasonable" as between the insured and the insurer, without being repugnant to the commercial object of the contract, is that the insured should not deliberately court a danger, the existence of which he recognises, by refraining from taking any measures to avert it. "

24. The same principles were approved and applied by the Court of Appeal in Morley and Morley v United Friendly Insurance Plc [1993] 1 Lloyd's Rep. 490 to which I was also referred
25. Mr. Cogley submitted that since (as I must assume) most men of Mr. Dahlin's age, including most top-class professional footballers, suffer from a degree of arthritic degeneration and since the most likely form of injury to such a person is damage to joints and muscles sustained in the course of training or competition to construe the policy as excluding liability if a pre-existing degenerative condition played any part in the injury would deprive it of virtually all practical benefit. In order to give proper effect to the parties' intentions it is necessary, therefore, to take account of the normal incidence of arthritic degeneration and to disregard any normal degree of degeneration, both for the purposes of deciding whether disablement was occasioned by an injury solely and independently of any other cause and also for the purposes of deciding whether disablement results directly or indirectly from a degenerative condition within the meaning of Exclusion 4.
26. Mr. Stuart-Smith did not challenge the approach to construction exemplified in Cornish v The Accident Insurance Co. Ltd and the other cases mentioned earlier, but he submitted that it could properly be applied only in cases where a literal construction would deprive the insured of so much of the benefit of the policy as to render it, in the words of Lindley L.J., "practically illusory", i.e. worthless. Relying on Great North Eastern Railway v Avon Insurance Plc [2001] 1 Lloyd's Rep. 793 he submitted that even on a literal reading a clause cannot be treated as repugnant to the main object of the policy simply because it very significantly reduces the cover available under one of a number of different limbs. More than that is required. He also submitted that the expression "solely and independently of any other cause", which is used in the definition of Accidental Bodily Injury, is well-known in policies of this kind and is included in order to protect insurers from liability in cases where a pre-existing medical condition is one, though not necessarily the only, cause of death or disability. He referred me by way of example to Jason v Batten (1930) Ltd [1969] 1 Lloyd's Rep. 281, a case in which the insured suffered a coronary thrombosis partly as the result of an accident caused by the defendant's negligence and partly as a result of a pre-existing medical condition. He submitted that any attempt to ascertain whether the nature and degree of degeneration from which a player was suffering was "normal" is likely to be fraught with difficulty and highly contentious. One of the purposes of incorporating such wording in this type of policy is to avoid the need for a debate of this kind once it is established that a degenerative condition contributed directly or indirectly to the disablement of the player concerned. He submitted that the concept of normality in this context is so imprecise as to be unworkable and that it is unnecessary and uncommercial to introduce it into a policy of this kind.
27. The cases to which I have referred are all examples of an approach to construction which recognises that a policy of insurance is a commercial contract and one that should be construed in its context with a view to giving proper effect to the parties' intentions. The court must give full effect to the terms of the contract if they are clear, but the greater the derogation that a literal reading would make from the essential purpose of the cover, the more likely it is that the court will conclude that the parties did not intend the language they used to have that effect.
28. In Great North Eastern Railway v Avon Insurance the Court of Appeal was faced with an argument that a particular exception clause should be disregarded altogether because it would deprive the insured of the benefit of one particular head of cover. Longmore L.J. pointed out at page 800 col.1 that the repugnancy doctrine only entitles the court to disregard an exception clause if the contract as a whole would otherwise be virtually reduced to a declaration of intent, referring to a passage in the speech of Lord Roskill in Tor Line AB v Alltrans Group of Canada (The 'TFL Prosperity') [1984] 1 W.L.R. 48 at pages 58-59. I accept that, of course, but problems of construction have to be resolved by having regard to the language of the contract, the context in which it was made and its general commercial object, all of which are likely to vary from case to case. The nature of the court's task and the proper approach to it is well demonstrated by cases such as Cornish v The Accident Insurance Co. Ltd, Fraser v Furman and Gan v Tai Ping to which I have already referred.
29. The policy in the present case provides cover against accidental bodily injury and illness without restricting the circumstances under which they may occur. So, for example, if a player were involved in a road accident and were to suffer a fracture of the leg of sufficient severity to prevent him continuing his playing career, there would be a claim under the policy. Similarly, if a player were to be infected by a virus which permanently affected his breathing or circulation in a way that prevented him from continuing his career, the policy would respond. If the insurers' argument in this case is correct, however, it would mean that there would be no claim if, instead of a broken leg, a player injured in a road accident were to suffer an injury to his spine which was exacerbated to any degree by a pre-existing degenerative condition, even though that may be a function of age and one that it shared by the overwhelming majority of men of his age and profession. That is a surprising result, partly, perhaps, because the persons insured under this policy are all ordinarily (even unusually) fit and healthy young men. It is difficult in those circumstances to accept that the parties intended that conditions exhibited by the majority of ordinary healthy people of their age should operate to deprive the insured of cover unless the policy makes that quite clear. It is right to say that the construction which the insurers say should be put on the policy would not deprive it of all content whatsoever, as the examples mentioned earlier show. However, the fact that the persons insured are professional footballers means that they are particularly exposed to the risk of injury to the spine and lower limbs when training or competing. No attempt has been made, however, to exclude injuries suffered in those circumstances (except while players are under the control of their National Associations) and to exclude any claim in cases where a normal degree of degeneration has played any part, direct or indirect, in the injury would therefore involve a serious derogation from the cover.
30. All this points to the conclusion that in order to give proper effect to the parties' intentions the reference to arthritic or other degenerative conditions in joints, bones, muscles, tendons or ligaments must be construed as referring to conditions of sufficient severity to be regarded as an illness or an ailment and not to conditions that are merely a reflection of the normal ageing process, or what in another context might be described as "ordinary wear and tear". I accept that the concept of "normality" is imprecise, that in the case of some types of degeneration the population at large will exhibit a range of conditions and that there will be cases falling near the margins in which it may be difficult to decide whether the degree of degeneration is or is not within what can properly be described a the normal range. However, this difficulty will not arise in all cases and does not provide a strong argument for construing the policy in a way which in my view would very significantly reduce the protection it is designed to provide. I have reached the conclusion that Exclusion 4 must be construed as referring to degenerative conditions that are abnormal in their degree and of sufficient severity to amount to an illness. For the same reason I do not think that a normal degree of degeneration is to be regarded as a "cause" of injury when considering the definition of Accidental Bodily Injury.
31. For these reasons I answer the questions raised by the preliminary issues as I have reformulated them as follows:

(1) 'No';

(2) 'No'

(3) 'Yes'.