Page 27 - The Insurance Times April 2025

Insurance Demystified

Insurance

Contract: Rules of

Interpretation

Prof (Dr) Abhijit K. Chattoraj
Chartered Insurer - Professor of
Insurance &Risk Management and
Director - MDP & Consulting;
IMS Unison University.

Courts frame Common law rules to facilitate interpreting the words used in contracts, including
insurance contracts. Literal rule is the most used way of interpretation and has precedence over
others. It states that the courts should interpret words and phrases in their ordinary sense and
stick to customary grammar and punctuation rules while interpreting.

T he interpretation of words is vital when settling executed. We often encounter disputes about the meaning
of the words as they can have different interpretations.
a claim. From time to time, the courts have
created rules to clarify the words. There are
several rules to assist in interpreting statutes,
including the Interpretation Act, the literal rule, the golden Ambiguity: the contra proferentem rule
Different interpretations of insurance contract wordings
rule and the mischief rule. create ambiguity, leaving both the insured and insurer using
it in their favour. A specific word can have two or more
Courts frame Common law rules to facilitate interpreting meanings. In such cases, the Court applies the contra
the words used in contracts, including insurance contracts. proferentem rule. The verdict is often given against the
Literal rule is the most used way of interpretation and has policy drafter, and the other party is given the benefit of
precedence over others. It states that the courts should the doubt. There must be genuine ambiguity when applying
interpret words and phrases in their ordinary sense and stick the contra proferentem rule. In other words, there must
to customary grammar and punctuation rules while be a reasonable alternative construction rather than one
interpreting. that is grammatically possible but improbable.

Some subsidiary principles govern the literal rule, like In the case of Dyoll Insurance Company Ltd and David
'Noscitur a sociis rule', a general principle specifying that Cardoza (2003), David Cardoza took a comprehensive
context should determine the meaning of the words. household insurance policy with Dyoll Insurance Company
Similarly, the 'Ejusdem generis rule' states that the meaning Ltd for his private dwelling house, swimming pool, walls,
of any general term depends upon any specific words that gutters, and fences.
precede it.
The perils covered by the Policy included fire, explosion,
Therefore, policy drafting is complex and must be carefully lightning and flood. The exclusion clearly mentioned the

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