Key Facts
- •Technip contracted with Al-Khafji Joint Operation (KJO) to perform construction works.
- •Technip's chartered vessel damaged KJO's wellhead platform.
- •Technip paid KJO US$25 million for the damage.
- •Technip claimed indemnity from its insurer under a composite offshore construction insurance policy.
- •The insurer denied liability based on an exclusion in Endorsement 2 for damage to existing property owned by any Principal Assured.
- •The policy defined Principal Assureds to include Technip and KJO.
- •The judge ruled against Technip, interpreting Endorsement 2 to exclude coverage for damage to property owned by any Principal Assured.
- •Technip appealed the decision.
Legal Principles
Contractual interpretation involves identifying the intention of the parties by reference to what a reasonable person, having all the background knowledge reasonably available to the parties, would have understood them to mean.
Rainy Sky SA v. Kookmin Bank [2011] UKSC 50
When interpreting a contract, the court must consider the language used, other relevant provisions, overall purpose, facts and circumstances known to the parties, and commercial common sense, but disregard subjective intentions.
Arnold v. Britton [2015] UKSC 36
An insurance policy must be interpreted objectively by asking what a reasonable person, with all background knowledge available to the parties, would have understood the language to mean. Subjective intentions are irrelevant.
The Financial Conduct Authority v. Arch Insurance (UK) Ltd [2021] UKSC 1
Outcomes
The appeal was dismissed.
The court upheld the judge's interpretation of Endorsement 2, finding that it excluded coverage for damage to property owned by any of the Principal Assureds, including KJO. The court considered the language of the policy, the overall structure of Endorsement 2, and the commercial context. The court rejected Technip’s arguments that the clause should be interpreted more narrowly.