In Project Angel Bidco Ltd (in administration) v Axis Managing Agency Ltd (as representative of Syndicate 1686 at Lloyd’s of London) and other companies [2024] All ER (D) 24, the majority of the Court of Appeal recognised that there was an apparent contradiction on the face of the policy; the “policy appears to give with one hand and take away with the other”. This was not, however, grounds to warrant the court’s intervention to reinterpret the contract and serves as a timely reminder of an English court’s reluctance to stray from the wording of the contract.
Background
The policy was a warranty and indemnity policy (“W&I Policy”) purchased by Project Angel Bidco Ltd (“Project Angel”) following the exchange of the Sale & Purchase Agreement for the acquisition of Knowsley Contractors Limited (trading as King Construction). The purpose of the W&I Policy was to insure against the risk that the target business was not in the state as warranted and is worth less than the purchase price.
Project Angel alleged that there were breaches of the Anti-Bribery and Anti-Corruption (“ABC”) warranties, which resulted in a reduction of King Construction’s business and claimed under the W&I policy.
Under the policy, the ABC warranties were marked as “covered” under the cover spreadsheet. The policy also contained an ABC Exclusion clause that excluded any loss “to the extent that it arises out of… any ABC Liability” with ABC Liability defined as, “any liability or actual or alleged non-compliance…in respect of Anti-Bribery and Anti-Corruption Laws”.
Project Angel argued that there was a “plain contradiction” as the literal reading of the definition for ABC Liability meant that no loss arising out of a breach of ABC warranties would ever be covered by the policy (even though the cover spreadsheet marks these warranties as being covered). Project Angel submitted that ABC Liability should be reinterpreted as “any liability for actual or alleged non-compliance…in respect of Anti-Bribery and Anti-Corruption Laws” thus confining the exclusion to cases of liability only.
Proceedings
The English High Court dismissed Project Angel’s claim. On appeal, the Court of Appeal (by a majority) affirmed the lower court’s decision and declined to include the single “f” to the definition of “ABC Liability”.
The Court of Appeal reiterated that “the quantity of red ink does not matter”, instead, the court will consider if there was a “clear drafting error” (as compared to an “apparent contradiction”) and whether there is a “clear cure” to the alleged drafting error. In the present case, the Court recognised that the underwriters had a coherent and rational reason for wanting to avoid liability for loss arising out of ABC Liability. Seen from the perspective of the underwriters, there may not have been a drafting error in the definition of ABC Liability. Separately, it is not clear if the correction should be made to the definition of the ABC Liability or to the Cover Spreadsheet. As it was “difficult to conclude that there is an obvious mistake in the policy with an obvious correction”, the Court of Appeal by a majority dismissed Project Angel’s appeal.
Conclusion
As seen from the case, definitions (and coverage) may change because of a single letter. Insurers should exercise care and caution in the drafting of policies as the English courts (and ones in other common law jurisdictions) are reluctant to step in to re-write the contract (even when there is an apparent inconsistency). Instead, as seen from the Court of Appeal’s judgment, the court’s intervention is confined to very limited circumstances where there is an obvious drafting error and where the cure is equally obvious.