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Chapter 8 Legal issues relating to reinsurance 8/9

B2 Historical rules
Notwithstanding the entrenched purposive approach, the courts continue use the long established rules
Courts continue to use
of construction, but now as presumptions or guidelines. These include: rules of construction
1. The Parol Evidence Rule
This rule, aimed primarily at promoting certainty, prevents evidence from being admitted to add to,
vary or contradict a document which is presumed to be the whole of the parties contract. In practice,
this presumption is reinforced by including an entire agreement clause.
This rule operates to exclude oral evidence of the pre-contractual negotiations, draft agreements
or slips.
In New Hampshire Insurance v. MGN (1997), Staughton, LJ, identified the Superhull case as authority for the
proposition that
the policy will…be conclusive evidence of the contract unless and until it is rectified; the slip cannot be
used to add to, explain or contradict the meaning of the policy.

There are, however, numerous exceptions to the rule and it would not preclude extrinsic evidence to
clarify meaning, for example:
• factual background material to show the commercial purpose of the contract; or
• expert evidence to show, for example, what meaning would have been ascribed by a reasonable
professional in the market at the time and what, therefore, could reasonably be presumed to have
been intended by the parties when they entered into the contract.
In recent times, parties have sought to exploit these exceptions to avail themselves of the change in
emphasis to the construction of documents.
2. Contra proferentem
The doctrine of contra proferentem is a rule used by the Courts to resolve ambiguity by construing it
Rule used by the
against the party drafting the relevant clause. In a reinsurance context, the draftsman is usually the Courts to resolve
broker who acts on behalf of the reinsured. ambiguity
At other times, it may be the reinsurer who prepares the wording, which is then negotiated with each Reference copy for CII Face to Face Training
party proposing amendments. It is the origin of the ambiguity that determines against whom the
court may apply the doctrine. It has been suggested that the doctrine should not be applied to
standard clauses in reinsurance contracts (Gan Insurance v. Tai Ping Insurance (No.2) (2001)).
3. Standard printed terms are overridden by those terms specifically agreed by the parties which may,
for example, have been written, stamped or typed.
4. Ejusdem generis
This rule provides that, in a string of words, general words which follow two or more specific words
are restricted to the same type as the preceding specific words but, in practice, is often avoided by
using phrases such as ‘whether or not similar to the foregoing’ or ‘without prejudice to the
generality of the foregoing’. The rule does not apply when specific words follow general words. Chapter
Be aware
Another way in which the courts occasionally resolve issues of ambiguity is to imply certain terms. Implied terms 8
are discussed in section D.

C Express terms

In this section, we look at express terms, in particular, how incorporation, aggregation and loss
settlement clauses have each given rise to legal issues in reinsurance contracts.

C1 Hierarchy of terms
There is a hierarchy of express terms in insurance and reinsurance contracts, each with different
remedies on breach.