With an opening line like that, it is little wonder that the Court of Appeal decision of Catherwood v Asteron Life has hit the papers. Last week, the Court rejected Mr Catherwood’s claim that he was terminally ill even though there was an available cure. It all came down to the meaning of a short phrase in Mr Catherwood’s policy - “regardless of any treatment.”

This article will examine what this case says about interpreting insurance policies (and other contracts for that matter).

Background

Mr Catherwood’s life insurance policy had a death benefit where Asteron Life agreed to pay Mr Catherwood $1.2m if if he died or he became terminally ill.

The policy defined terminally ill as:

……..

your life expectancy is, due to sickness and regardless of any available treatment, not greater than 12 months.

[emphasis added]

In 2019, Mr Catherwood was diagnosed with cancer and received treatment. He claimed the death benefit from Asteron Life. Asteron Life declined his claim saying, with available treatment, he was unlikely to die within 12 months.

Mr Catherwood argued that Asteron Life, in deciding whether his life expectancy was less than 12 months, should not have considered the treatment because the words “regardless of” meant “ignoring the effect of”. He said if he did not have the available treatment he would die within 12 months and that meant he met the policy definition of “terminally ill”,

The Court of Appeal decision

Contractual interpretation principles

The Court summarised the law on contractual interpretation confirming that, when interpreting contracts, the courts try to identify what the parties meant through the eyes of a reasonable reader, looking at the words used and considering the contract as a whole and the broader context. Evidence of subjective intent (ie what one party thought the contract meant) is not admissible, but evidence of a common, mutual understanding can be.

The interpretation of Mr Catherwood’s policy

The Court said the policy was not well-worded because “regardless of” can have two meanings - “disregarding” or “despite” , but looking at the policy as a whole and in context, Asteron Life’s interpretation is the only logical and reasonable interpretation available, representing the parties’ intent. Adopting Mr Catherwood’s interpretation would make the policy strained and artificial for reasons including:

1. Claiming a death benefit when there is available treatment is contradictory. It would ignore the word “terminally” and result in payment to someone who is alive, in good health, and with no adverse health conditions likely to result in their death. They could also take out another life insurance policy, ultimately die and be paid out a death benefit again.
2. The policy distinguishes between the core life provisions, which are dependent on death or imminent death, and other optional add on options which are dependent on health conditions that fall short of death. There would be little or no need for the optional cover provisions if the terminal illness benefit did not require consideration of the impact of medical treatment on the imminence of death. Essentially, a wide variety of medical conditions would become ‘terminal’ if treatments were ignored.

The contra proferentem rule

The Court also rejected Mr Catherwood’s argument that the contra proferentem rule meant his interpretation should be preferred. While the rule provides that an ambiguous contract term should be construed against the drafter of the contract, the Court said there was no ambiguity about the meaning of terminal illness. This may come as a surprise to many who assume that the contra proferentem rule applies whenever there are two possible meanings but this case shows the Courts will not consider the contra proferentem rule when the proper meaning is clear.

Conclusion

With plain language slowly becoming the norm, this case is an important reminder for insurers to choose their words carefully. Asteron have now updated their wording. For insureds, it emphasise the need to consider not just what you think a policy means, but also how a ‘reasonable reader’ may interpret it. We also think this case may help to dispel the myth that contra proferentem applies simply when a word has more than one dictionary meaning - instead, there has to be genuine ambiguity.

If anything in this article has made you think of an insurance policy issue you are dealing with, please contact our expert insurance team. We regularly provide indemnity advice to both insurers and insureds on anything from interpreting policies, to making and handling claims, and all the way to reviewing complex policy wordings to ensure they comply with regulations (including plain language drafting).

Special thanks to Jennifer Liu for her assistance in writing this article.