Malekout v Allied Dunbar Assurance Plc

J U D G M E N T

LORD JUSTICE CLARKE:

Introduction:

1. This is an appeal by Dr Cyrus Malekout against an order of His Honour Judge Shaun Spencer QC made on 10th June 2003 in which he dismissed his claim against Allied Dunbar Assurance Plc under a pension policy. The appeal is brought with the permission of the judge. The appeal raises a single question of construction of the policy. There were a number of other issues between the parties at the trial, all of which were decided in favour of the appellant. None of them arises in this appeal.

The Policy:

2. The policy is described in the contractual documents as a Personal Retirement Plan. It contains a number of benefits for the policy holder including provision for his pension and death benefits. However, this appeal is concerned only with clause 13 which provides so far as presently relevant as follows:

"13 Waiver of Contribution Benefit .

(1) Supplementary Definitions ...

In this Provision:-

'Disablement' means bodily injury, physical or mental infirmity or illness arising directly or indirectly from any condition which first came into existence after the date on which the Policy was signed as shown on the Schedule...

(2) Availability of Benefit .

(a) Where this benefit is specified in the Schedule or in a notification from the Company as applying to the whole or part of Regular Contribution if, by reason of Disablement the Policyholder is totally incapacitated for a period exceeding the Deferment Period and thereby prevented from carrying on his usual Gainful Occupation (or any other Gainful Occupation which in the Actuaries opinion he is capable of and reasonably suited for) the benefit will apply as set out [in (3)] below. If this benefit is specified as applying to part only of a Regular Contribution, (3) [below] is to be interpreted as applying only to the specified part."

By clause 13(3), where the benefit applies under clause 13(2)(a), the policy holder's obligations to pay contributions is waived and his contributions will be treated as duly paid.

3. The question in this appeal is one of construction of the definition of "disablement" in clause 13(1). It is now common ground that the appellant became totally incapacitated for a period exceeding the deferment period which, in his case, was 3 months and that he was thereby prevented from carrying on his usual gainful occupation, which was that of dentist. In short, the question is whether the appellant became totally incapacitated by reason of disablement, as defined in clause 13(1). It follows that the question is whether he sustained or was suffering from "bodily injury, physical or mental infirmity or illness arising directly or indirectly from any condition which first came into existence after the date on which the policy was signed."

4. It is now common ground that that is the question, although at the trial there was an issue as to whether the policy included a waiver of contributions benefit from inception or at all. The judge held that, although the benefit was not originally incorporated, it was subsequently incorporated by agreement as from inception and, in any event, that the respondent was estopped from denying that it was not. The respondent does not challenge those conclusions. It follows that we must proceed on the footing that the policy included waiver of contributions benefit from inception.

5. As I understand it, the purpose of this part of the policy is to waive the policy holder's obligations to pay contributions but to maintain his right to pension during any relevant period of relevant disablement. Before leaving the policy I should note that the respondent has not relied on any contractual exclusions. I note, in particular, that although there are exclusions arising directly or indirectly from participating in dangerous sport and the like, there is no exclusion in a case where the disablement arises from an accident such as falling off a ladder, or a car crash.

The Factual Background:

6. In 1987 the appellant was carrying on practice as a dentist. He was buying a house with the assistance of a mortgage. He intended to combine the mortgage with a pension which would mature at the age of 60, enabling him to discharge the mortgage debt; hence the policy which was entered into on 28th July 1987. The appellant had had some health problems which were disclosed to the respondent, which does not allege any material non-disclosure.

7. In January 1987 the appellant suffered a soft tissue neck injury. Following an incident when he turned his neck briskly at breakfast in January 1987, he was diagnosed as suffering symptoms of a mild cervical disc problem. He was treated with physiotherapy, including rest. He stopped working. By July 1987 he was still off work but feeling much better. The appellant resumed treating patients on 7th September 1987 working part-time for four to five hours a week and spending a further two hours a week on the administration of his wife's dental practice. By January 1988 he was described by the treating rheumatologist as improving, and taken off the list for an MMR scan. On 17th January 1989 the appellant had an MRI scan of his cervical spine which was reported to be normal and no significant indentation of the theca was apparent.

8. However, later in 1989/1990 the appellant's symptoms altered for the worse. In July 1989 Dr Huskisson noted tenderness over the right anterior chest. In March 1990 the appellant began to suffer different, more serious and extensive symptoms including acute episodes of pain and spasms in the muscles of his chest wall, headaches, pain in the left clavicular area, loss of power and sensory deficit and parathesia. By October 1990 he was complaining of pain in the left scapular and cervical region, seriously aggravated by stress or when he attempted to operate, having increased his hours and workload up to 10 hours a week from October 1989. On 15th December 1990 the appellant was medically retired.

9. On 16th January 1991 Dr Walters, a consultant radiologist, suspected thoracic outlet syndrome (TOS) and on 14th February 1991 Dr De Almeida reported that:

"Recently it has become apparent that [the appellant] may also have another medical condition (the diagnosis of which is still uncertain and under investigation). The blood supply to his left arm and shoulder have become restricted and he has been complaining of continuous pains, headaches, fatigue, loss of concentration and sleepless nights."

Throughout 1991 and into 1992 there followed a series of investigations of the appellant's condition. IVDSAs and MRI scans were carried out in March 1991, which showed a narrowing of the subclavian artery, and on 22nd March 1991 the appellant was found to have a difference of 10 mm in blood pressure between the left and right arms. He was diagnosed as suffering from TOS, which is a recognised syndrome where the patient suffers symptoms due to the obstruction of the inlet of the thorax, either of the neural pathways, ie branches of the brachial plexus, or vascular symptoms due to pressure on the subclavian vessels supplying the arms.

10. There was a considerable amount of medical evidence before the judge at the trial. Oral evidence was however given by only one doctor, namely Dr Naveed Hasan, who is a consultant surgeon and specialist in vascular surgery. Pursuant to an order made by Master Rose on 9 October 2002, he was instructed, as a single joint expert, to express an opinion on two issues, namely (a) the appellant's medical condition at the time when he ceased work, and (b) when such medical condition first came into existence.

The Judgment. Conclusions of fact:

11. The judge considered a number of questions which arose out of Mr Hasan's evidence. One of the most important of those questions was whether the appellant suffered from TOS in July 1987. There was a good deal of material which might have led to the conclusion that he did, since Mr Hasan had, at one stage, expressed that view. However, as I read the judgment, the judge accepted the following evidence given by Mr Hasan:

1. The appellant suffered a soft tissue neck injury, in January 1987, from which he subsequently recovered.

2. He suffered from a work related illness, known as TOS, from about 1989 or 1990, which caused him to retire on 15th December 1990.

3. He has suffered from TOS since then, without significant or lasting recovery.

4. The soft tissue injury in January 1987 was not causative of the appellant's TOS.

5. A medical syndrome is a demonstrable group of signs and symptoms which occur together to indicate an illness.

6. TOS is such a syndrome which was not present before about 1989 to 1990 and therefore not before July 1987.

7. The appellant has a congenital abnormality of his cervical ribs with fibrous bands which has existed since birth. That condition was described by the consultant neurologist Dr Turnbull as follows:

"I cannot believe that anybody would dispute that there are large, fully developed and bilateral ribs arising from the seventh cervical vertebrae. These are seen to articulate with the sternum. This is a developmental anomaly, that is a feature of Mr Malekout's make-up, unique to him and which of course has been present all his life. As Dr Khan points out, not only may the cervical ribs in themselves cause compression of the neural tissues and/or vascular structures passing in close proximity to them, but even more importantly associated fibrous bands frequently emanate from these ribs, usually attaching themselves to the under-surface of the next pair of ribs between them, which in this case would be the true first ribs. These bands are very difficult to image, but are readily discernible at surgery, their significance being the compressing effect they have on the neural and vascular bundles passing beneath them.

I have not had the opportunity of viewing the DSA images, but reading Dr Khan's report he was left in no doubt whatsoever that these showed narrowing of the left subclavian artery and of course that is exactly what I would have expected. If there is undeniable stenosis or narrowing of this artery, then one is bound to recognise that there may be similar compression of one or more nerves comprising the brachial plexus."

Mr Hasan agreed with those opinions.

8. The several ribs with fibrous bands were not themselves the cause of TOS, although, as Mr Hasan put it, they were essential background at least: "the TOS would not have developed but for the cervical ribs, but many people have such a congenital abnormality without developing TOS."

9. The most important objective sign of TOS in the appellant's case was the narrowing of the subclavian artery on abduction which did not occur until after July 1987.

10. Fibrous bands may or may not compromise the subclavian artery or nerve but if they do compromise the artery they are very likely to compromise the nerve, because of the closeness of the structure.

11. The posture adopted by a dentist will involve his neck being flexed for long periods of time, which triggers a state of affairs where the fibrous band from the cervical rib compromises the artery and, or the brachial plexus.

12. Thus, as I see it, the judge in effect found that the appellant's congenital condition of cervical ribs with fibrous bands led, as a result of occupational strains, to a narrowing of the left subclavian artery which did not develop until after July 1987. That narrowing in turn led to TOS. Indeed it may be that the narrowing of the subclavian artery and its effects are really the same thing as TOS. At one stage, notably in his skeleton argument, Mr Hamer submitted that narrowing was itself a medical condition distinct from TOS, but he did not so submit in the course of his oral submissions. In the course of argument Mr Hamer and Mr Innis treated them as essentially the same thing.

13. The judge summarised his conclusions on this part of the case at the outset of his judgment, in paragraphs 4 and 5, as follows:

"4. Third, has the claimant established on the balance of probabilities that his disablement arose directly or indirectly from a condition which first came into existence after the date on which the policy was signed, that is to say 28 July 1987? To that question my answer is: No.

5. Still dealing with that third question to which I have provided the answer 'No', I set out three propositions to make clear upon what findings my conclusion on that third question rests:

(i) I accept, on the balance of probabilities, Mr Naveed Hasan's evidence that the symptoms of thoracic outlet syndrome first manifested themselves in 1988/1989, that is to say after the contract was signed.

(ii) I accept, indeed it is non-controversial, his evidence that the claimant has the congenital anomaly of cervical ribs with fibrous bands.

(iii) In 1987 when the contract was signed, the claimant had as part of his anatomy the necessary physical components for this kind of syndrome.

In my judgment the physical components constituted the 'condition' within the meaning of clause 13 of the policy. The syndrome arose directly or indirectly from the condition. It will be apparent that in relation to that last point I have preferred as a matter of language the defendants' construction of provision 13 to that advanced on Dr Malekout's behalf."

14. In this regard, I should I think add two points in relation to conclusions (i) and (iii) respectively. As to conclusions (i), as I read his judgment, the judge accepted that neither the narrowing of the artery nor the TOS was present in July 1987. This is not therefore a case in which an alleged condition existed at inception of the policy but only became symptomatic later. As to conclusion (iii), the judge was there referring to the congenital abnormality mentioned earlier, namely, cervical ribs with fibrous bands.

The Judgment. Conclusions On Construction.

15. It is convenient here to repeat the definition of disablement in the policy of insurance, which is crucial to the determination of the appeal. It is in these terms:

"'Disablement' means bodily injury, physical or mental infirmity or illness arising directly or indirectly from any condition which first came into existence after the date on which the policy was signed and shown on the schedule..."

The judge first considered whether, in the phrase, "which first came into existence after the date on which the policy was signed", the word "which" refers back to condition or to bodily injury, physical or mental infirmity, or illness. He held it refers back to condition, so it is the condition which must come into existence after the date of the policy. He was, in my opinion, plainly correct so to hold and no one now argues the contrary.

16. The judge identified the competing arguments as these. The respondents submitted (i) that TOS is a physical infirmity or illness, (ii) that the physical infirmity or illness arose directly or indirectly from the congenital anomaly of the cervical ribs probably with fibrous bands, and (iii) that it follows that TOS arose directly or indirectly from a condition which came into existence before the policy. The appellants submitted that the TOS was the condition and that the condition did not come into existence until after July 1987.

17. The judge referred to the respondent's submissions. He did so in paragraphs 69 and 70 of his judgment in these terms:

"69. It seems to me to be a short point. I accept the defendants' submission. I accept the submission of the defendants because it seems to me that by doing so I can give some meaning to all the words in that clause. The claimant's interpretation gives the clause a more tautological aspect in as much as it would have the tendency to treat the condition and the physical infirmity or illness as the same thing.

70. In those circumstances, therefore, I am not satisfied that the disablement, albeit being physical infirmity or illness, did not arise directly or indirectly from a condition which first came into existence after 28 July. On that basis, as I indicated at the very outset, the claim fails."

It is common ground that paragraph 70 contains a typographical error in that it has one too many nots. It should read: 'In those circumstances, therefore, I am not satisfied that the disablement, albeit being physical infirmity or illness, arose directly or indirectly from a condition which first came into existence after 28 July. On that basis, as I indicated, the claim fails.'

The Appeal.

18. There is no issue between the parties as to the correct approach to the construction of the policy. It may be summarised as follows:

(i) The words in the clause should be given the natural and ordinary meaning which the clause would convey to a reasonable person having all the background knowledge which would reasonably have been made available to the parties in the situation in which they were at the time of the contract: see Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 per Lord Hoffmann pages 912 to 913.

(ii) No special rules of construction apply in relation to insurance policies. Thus in Hayward v Norwich Union Insurance Limited [2001] Lloyd's Rep IR 410 Peter Gibson LJ said at paragraph 16 that:

"...insurance policies are contracts to which the general rules of construction of contracts apply and that the starting point is that words are to be given their ordinary and natural meaning as understood from the background against which the words were used or the meaning which the document would convey to the reasonable man."

(iii) In construing a clause in a contract it is appropriate to have regard to its purpose.

(iv) Where a clause is ambiguous it may be appropriate to have regard to the principle that such a clause should be construed contra proferentem. It is common ground that the proferens here is the respondent.

19. There is, so far as I am aware, no authority on the true construction of this clause. However, we were referred to the decision of the House of Lords in Cook v Financial Insurance Co Ltd [1998] 1 WLR 1765. That case involved a differently worded policy, where the majority of the House of Lords held that the word "condition" could not be construed as including symptoms of a generalised kind, which might include any number of different diseases or none, and that the word "condition" meant a medical condition recognised as such by doctors: see for example per Lord Lloyd of Berwick at page 1771 A to B.

20. It seems to me to be appropriate to adopt a similar approach to the use of the word "condition" in this policy. The judge held that the TOS was not a "condition" within the meaning of the policy, whereas the congenital abnormality was. He held that the TOS was a physical infirmity or illness, which arose directly or indirectly from that condition, namely the congenital abnormality, which of course arose before 1987, and that it followed there was no disablement within the meaning of the clause. Mr Innis submitted that the judge was correct so to hold.

21. The alternative view of the case which is espoused by Mr Hamer is that the TOS is a complaint within the meaning of the clause and that, since on the judge's unchallenged finding the TOS postdated the policy, it followed that there was disablement within the meaning of the clause.

22. For my part, I would hold that both the TOS and cervical rib or ribs with fibrous bands were medical conditions, and thus conditions within the meaning of the policy. They would, as I see it, both be naturally described as conditions and, in Lord Lloyd's phrase, recognised as such by doctors. However, the judge rejected the conclusion that the TOS was a condition within the meaning of the policy for the reason given in paragraph 69 of his judgment quoted above, namely that it would give the clause what he described as a more tautological aspect because it would tend to treat the condition and the physical infirmity or illness as the same thing.

23. One of the puzzling features of the definition of disablement is what is meant by the expression "bodily injury, physical or mental infirmity or illness". That puzzle can be seen by reference to an example deployed in argument. Suppose that a policy holder who is entirely fit and without any relevant medical condition has a car crash or falls off a ladder, with the result that he breaks his back and as a result is no longer able to work. It is plain, and indeed is common ground, that he is totally incapacitated within the meaning of clause 13(2)(a) by reason of disablement as defined in clause 13(1).

24. How then is the definition to be construed to achieve that end? That is the puzzle. There are two possibilities, neither of which is entirely satisfactory in the light of the language of the clause. The broken back is undoubtedly a condition within the meaning of the clause, since otherwise there could be no disablement and thus no benefit. Yet it is artificial to describe the policy holder as suffering bodily injury arising from the condition, namely the broken back, because the bodily injury is the broken back. On the other hand, the clause must be so construed unless the policy holder is to be regarded as suffering physical infirmity arising from the broken back, where physically the infirmity is, say, the inability to work.

25. Mr Hamer submitted that that is the preferable construction, whereas Mr Innis submitted that such an approach is not consistent with clause 13(2)(a) itself. He submitted that the question whether a person who is totally incapacitated, ie unfit to work within clause 13(2)(a), depends on whether he has, for example, a relevant physical infirmity within the definition of disablement. It makes no sense to treat the incapacity to work and the physical infirmity as the same.

26. There is undoubtedly force in that submission but, try as he might, Mr Innis was not to my mind able to solve the puzzle. It seems to me that the language presents a problem for either view but, given the common ground that the policy holder in the example is entitled to benefit and that it follows that the broken back must be within the phrase "any condition which first came into existence" after the policy was signed, one or other approach to the first part of the clause must be correct.

27. In short, the clause is ambiguous. In these circumstances it should be construed, so far as necessary, against the respondent as proferens and in favour of the policy holder. It follows that, to my mind, the judge was wrong to hold that the TOS could not be a condition within the meaning of the definition. I have already expressed the view that TOS is naturally to be described as a condition, and I would hold that it is "any condition" within the definition.

28. Since TOS is also an illness, given the difficulty of holding that TOS arises directly or indirectly from TOS, I would accept Mr Hamer's submission that the better view is to hold that the appellant's physical infirmity was the inability to treat patients and that it was a physical infirmity which "arose directly or indirectly from any condition which first came in existence after the date of the policy", namely 28 July 1987, that condition being TOS.

29. That conclusion seems to me to be consistent with the purpose of the policy which was, as in the example of the policy holder who breaks his back, to provide benefit for total incapacity caused by a post-policy medical condition. On the judge's findings of fact, the TOS was a post-policy medical condition. It was not the same condition as the pre-policy cervical ribs with fibrous bands. The position would, I think, be different if it were.

30. That congenital abnormality was a contributory factor to the TOS which could not have existed in the absence of it, but the one does not necessarily lead to the other. It may or may not. They are different conditions. It is important to note that the policy does not purport to exclude infirmity or illness arising directly or indirectly from a pre-policy condition. On the contrary, it is sufficient for the policy holder to show a condition which first came into existence after the policy. The fact that that condition might arise directly or indirectly from some other pre-policy condition does not assist the insurer.

31. I should perhaps add that the insurer is protected by the duty which the law imposes upon the policy holder as insured to disclose all material facts. Any failure to disclose material facts which induces the contract would in principle enable the insurer to avoid the policy. However, as already indicated, no such suggestion has been made here.

32. It seems to me that this construction is consistent with the policy wording construed in its context and enables the parties to know in respect of what conditions they will benefit under the policy. Subject to the other terms of the policy, the answer is that there is benefit in respect of conditions which first come into existence after the date of the policy or, put another way, post-contract conditions.

33. For these reasons, I have reached a different conclusion from the judge and would allow the appeal.

34. LORD JUSTICE SEDLEY: I agree. Putting the same reasoning another way, there is nothing intrinsically wrong with the analysis preferred by the judge, namely that the claimant has an illness (TOS) arising from a condition (cervical ribs) which predates the policy. Nor, however, is there anything wrong with the analysis that the claimant has a physical infirmity, the disabling and debilitating effects of TOS which arising from a condition (TOS), postdates the policy. With respect to the judge, this is not a tautologous reading.

35. The reason why the definition clause will accommodate both meanings is its protean character. The noun "condition" is equally apt to describe cervical ribs and TOS. Disablement is so defined as to include both illness, which would describe TOS, and infirmity, which would describe the manifestations of TOS. This being so, the clause falls, on first principles, to be construed in favour of the insured and against the insurer whose common form contract it is.

36 I too would therefore allow the appeal.

37. THE PRESIDENT: The order therefore is that the declarations that the contributions are treated as duly paid, special damages and interest. The costs of the action before the judge and before the Court of Appeal and legal aid assessment.

38. MR INNES: My Lady, may I raise one point with very great diffidence. I make an application for permission to appeal with no non adjust. Whether pursued or not I understand the rule if there is that one has to make application to the Court of Appeal. I would therefore normally make application, I would do so simply on the basis of the arguments I have raised today, that there is some difficulty over the construction of the clause. The judgment recognised that. It is arguably a matter of some importance, because one assumes the policies are widespread. There are other cases going on in the House of Lords, Cook , which appears on interpretation of a policy perhaps in similar terms. So really, going into detail, with no disrespect I would make that application.

39. THE PRESIDENT: We think we will allow their Lordships to make an issue if they wish to entertain an appeal. The application to this Court is refused. Thank you both very much.