Law of Insurance Contracts
19-1 EXCEPTIONS IN GENERAL
19-1A The Nature of Exceptions
The scope of a contractual promise can be stated either in simple positive terms1 or in a mixture of positive terms and negative terms such as exceptions.2 The use of exceptions as tools of definition has been recognised in the general law,3 and has been found in the law of insurance for longer.4 Insurance cover may be defined positively by specifying the risks or circumstances in respect of which cover is provided, for example cover for negligence is a concept which implicitly excludes intentionality and dishonesty. Alternatively, cover may be expressed in broad terms, such as “property damage”, subject to exceptions that subtract from the broad terms,5 so that the precise cut of the insurer’s liability, voluntarily assumed in broad terms, is “contractually tailored”.6 In that latter instance it may be that the proper construction of the contract is that there would be cover were it not for the application of an exception; that the matters excepted are carved out of the cover as a sculptor reveals the finished work of art by carving out of a block of stone. Such may be the most natural construction of that type of cover which in practice is often referred to as “all risks”; in respect to which and despite the labelling the cover is always subject to some limitation. Frequently, the intended extent of cover may be expressed as being “subject to” stated exceptions.7 If exceptions are used all these forms, the counsel of caution might be that they are to be regarded in most, if not all, respects like any other exceptions. This seems to be the current view of exceptions in general contract law,8 and insurance contract law does not generally differ significantly. However, more recently in Impact Funding Solutions Ltd v AIG Europe Ltd
9 the Supreme Court has indicated that exceptions within an insurance policy that serve to operate to define the scope of cover are not to be treated as exemptions of liability arising by operation of law, for example for breach of contract more generally; that there is no doctrine of law which holds that insurance exceptions are as a matter of law to be construed narrowly. Similarly, the Court of Appeal has taken the view that where cover is expressed as being “subject to” stated exceptions the task of construction does not start from the premise that one has primacy over the other.10 Adopting a narrow construction may be appropriate where as a matter of construction of the whole contract it is necessary to do so to support rather than to undermine the contractual purpose as that is objectively determined and by judging the contract in its entirety. These are matters of contract construction which may engage the interplay or appropriate relationship between terms as to cover and exceptions. Where the scope of an exception becomes a live issue this will also engage the principles and rules as to causation of loss.