Reference has been made in this blog to the necessity of having a lawyer in the conclusion of complex contracts.
The same can be said of the necessity of having a lawyer on the interpretation of contracts.
In Analog Devices v Zurich Insurance the Supreme Court affirmed the judgment of the High Court in favour of the plaintiff/respondent.
The plaintiff had a factory in Limerick engaged in;
the manufacture, research and design of high performance linear mix signal and digital integrated circuits…”
The factory closed for maintenance. A workman replaced a filter in a machine with an inappropriate part. When production recommenced the products from the machine were defective.
The losses were substantial.
The plaintiff had the benefit of insurance cover with the defendant for “all risks”. There were two policies; one local (Irish) and one “global”.
The interpretation of the local policy fell under the appropriate Irish law and the interpretation of the global policy fell under the law of Massachusetts.
The local policy had an exclusion clause in the following terms:
(F) Perils excluded
This policy does not ensure against loss or damage caused by or resulting from:
(4) Errors or defects in design or specification, faulty workmanship or faulty materials, unless a loss by a peril not otherwise excluded ensues, and then only for such ensuing loss;
(5) Errors in processing or manufacturing resulting in damaged property being worked upon, unless a loss by a peril not otherwise excluded ensues, and then only for such ensuing loss.
(13) Against loss or damage caused by, resulting from, contributed to or made worse by actual or threatened release, discharge, escape or dispersal of contaminance or pollutants, or whether direct or indirect, proximate or remote or in whole or in part caused by, contributing to or aggravated by any physical damage insured by this policy, unless loss or damage from a peril insured herein ensues and then this policy shall cover such ensuing damage. This exclusion shall not apply where loss or damage is directly caused by a peril insured against under this contract to property covered.
Contaminants or pollutants means any material which after its release can cause or threaten damage to human health, welfare or causes or threatens damage deterioration, loss of value, marketability or loss of use to property insured hereunder, including, but not limited to, bacteria, fungi, virus or hazardous substance.”
The global policy also had exclusion clauses.
The defendant claimed that the loss was covered by the exclusion clauses.
Because Massachusetts law is foreign law, the High Court had heard evidence from legal experts as to the principles applied there in the interpretation of contracts and exclusion clauses. (The experts were not wholly in agreement with each other as to what those principles were.)
The Supreme Court immediately stated:
In general “all risks” policies of insurance cover all perils unless they have been unambiguously and clearly excluded.”
The High Court had found that the losses were not excluded and the Supreme Court approved of that finding, citing, in addition, the “contra proferentem” rule:
If the exempting provision is ambiguous and capable of more than one interpretation then the courts will read the clause against the party seeking to rely on it.”