Ch-Ch-Changes: Stumbling Toward the Reasonable Expectations of the Assured in Marine Insurance

Marine insurance contracts have traditionally been interpreted according to well-established contract principles. The construction of policies is said to be governed by the same principles that apply to the construction of any other contracts. Phrases such as the “intention of the parties must be discovered from the document itself,” or words to that effect, still dominate the literature on marine insurance contracts. It is the document itself, not what the parties might have intended to write, that is important. Even in considering the most common exception to this rule, usage, evidence is only admitted to demonstrate the mutual intent of the parties to the contract. This Paper examines the changing judicial attitudes toward the interpretation of insurance contracts. In particular, consideration is given to the doctrine known in the United States as “the reasonable expectations of the assured.” This doctrine has been adopted in Canada in a limited fashion to assist judges in reaching conclusions favorable to an assured. It has not yet been applied to the construction of marine insurance contracts. This paper considers such application.

It is impossible to come away from a study of the doctrine of reasonable expectations without being struck by its incongruity with traditional principles of contract interpretation. This doctrine's approach to construction is based entirely on the “expectations” of one of the parties to the contract. Stripped down to its bare bones, the doctrine represents an individual judge's view of what is fair in the circumstances of a particular case. This paper also explores the extent to which the judiciary, in its desire both to create and to apply rules to guide future conduct, has given birth to a rule that, when applied to its full extent, is the antithesis of the traditional principles of contract construction. One is forced to ask whether judicial models of contract interpretation have changed so radically that the traditional rules are at risk of being discarded. The effect of the dissolution of traditional rule-based analysis in favor of the “reasonableness” approach is another focus of this Paper. As part of its focus, this Paper also explores whether a rule-based analysis may be subject to re-evaluation by the increasing number of women in the legal profession and the judiciary.

Finally, the implications that these developments may have on the future construction of marine insurance contracts are considered. An attempt is made to provide the reader with some idea of the manner in which these developments may affect the outcome of litigation involving marine insurance policies.