In Bedfordshire Police Authority (BPA) v. David Constable (sued on his own behalf and on behalf of all other members of Syndicate 386 at Lloyd’s) (the Syndicate) [2008] EWHC 1375, BPA sought a declaration that the Syndicate be liable to indemnify it in respect of BPA’s potential liability under the Riot (Damages) Act 1886. BPA’s potential liability under the 1886 Act was in respect of claims made by property owners for damage caused from an outbreak of violence at Yarls Wood Detention Centre in 2002.

BPA was insured in respect of its liabilities under the 1886 Act in two layers: (1) the primary layer insured by ARC provided cover for amounts up to £2m (the Underlying Policy). The secondary layer, insured by the Syndicate, provided cover of £38m excess £2m (the Excess Policy). The Excess Policy expressly provided that cover was given in respect of damage insured in accordance with the terms of the Underlying Policy.

The Underlying Policy paid out in respect of sums which BPA became legally liable to pay “as damages”. The Syndicate contended that the sums that the BPA might have to pay out were, under the 1886 Act, compensation, and would therefore not be paid out “as damages”. The Court held that there was no established legal meaning in these circumstances to the words “as damages”. Moreover, the wording of the Underlying Policy overall was not the subject of great thought or care and had simply been the collection of various standard form provisions. Accordingly, the interpretation of the Underlying Policy should be saved the niceties of legal language and instead be given a construction appropriate to the commercial expectations of the parties at the time the insurance was entered into. The words compensation and damages should therefore not be distinguished.

This case shows the courts’ willingness to apply a commercial approach to the construction of insurance policy wordings and should be welcomed in circumstances where insufficient care has been given to their drafting.