Damages and Compensation — A Rose by Any Other Name?
London and Bermuda Newsletter
Another blow was recently struck for the literal construction of insurance policy wordings. The niceties of construction and interpretation so beloved of lawyers were discussed in detail in the case of Bedfordshire Police Authority v David Constable [Lloyd’s Syndicate 386],  EWHC 1375 (Comm). The defendant excess insurers (“the Syndicate”) had rejected a claim by the police authority (“BPA”) under the public liability section of their policy. The claim was for liability incurred by BPA under the Riot (Damages) Act 1886 (“the 1886 Act”) in respect of property damage and loss consequential to an outbreak of violence at the Yarls Wood Detention Centre in February 2002. Under the 1886 Act (and its predecessors dating from 1714) each police authority is strictly liable for damage to or theft of property in its area caused by “any persons riotously and tumultuously assembled together”. Further to the violence at Yarls Wood, BPA paid in excess of £2 million under the 1886 Act. Primary insurers accepted the claim but the Syndicate did not.
The particular wording at issue was the insuring clause, which provided cover “in respect of all sums which the Assured may become legally liable to pay as damages”.
The Syndicate argued that the sums paid by BPA under the 1886 Act were “compensation”, not “damages”. In support of this argument, the Syndicate cited authorities discussing the construction of those terms and apparently distinguishing the contexts in which they are used. The Syndicate also asserted, with reference to various provisions in the underlying policy, that the parties had made a special effort to be precise in the choice of specific words used.
Mr Justice Walker rejected those contentions. Giving judgment for BPA, the judge noted that, as a whole, the wording of the underlying policy had not been drafted with any particular care, but was a collection of standard form provisions. He concluded that, in the circumstances, the parties had not intended any distinction as between “damages” and “compensation”, and emphasised that “the niceties of language [should] give way to a commercial construction which is more likely to give effect to the intention of the parties”.
This case further underlines the courts’ willingness to take a commercial approach in the construction of agreements which do not demonstrate careful and precise drafting.