Civil Engineering March 2022 | Vol 30 No 2

Civil Engineering March 2022 65 similarly extended to coincide with the project period under the insurance policy. Substantial losses arose within the 12-month period after the expiry of the initial project period. These losses were also due to causes occurring during the initial project period. The insurer was required to indemnify the insured under the insurance policy but did not have corresponding reinsurance cover as the project period under the reinsurance policy had not been extended to coincide with the project period under the insur- ance policy. The insurer accordingly sought an indemnity under the reinsurance policy, for the limited cover applicable under the maintenance period provision (of the rein- surance policy) on the basis that the losses arose both during the 12-month period after the date (as recorded in the reinsur- ance policy) on which the project period expired and the maintenance period began, as well as from causes occurring during the initial project period. The reinsurer declined cover contending that the insurer sought cover “where none was intended”. The insurer contended that in this instance “a literalistic approach is the correct one”. This contention was based on a rea- soning that the possibility of mismatching policies was reasonably foreseeable, such that the parties would have been expected to address this possibility explicitly (in the reinsurance policy) “if they did not want the plain language of the contract to bind them”. The parties had not done so. The court disagreed with this “theo- retical” scenario as, “the whole structure of the reinsurance policy was to mirror the insurance policy; that was its com- mercial rationale.” The court refused to apply a literal interpretation of the wording in relation to the reinsurance policy, as such an interpretation would not take into account the commercial reality, that being that the project period had not yet expired, such that “there was no project to be covered during the “main- tenance period(s)”. The court accordingly dismissed the insurer’s claim. COMMENT AND ANALYSIS While the insurer did not pursue the argument, prior to the institution of pro- ceedings it had argued that an “automatic extension” of the reinsurance policy had occurred when the insurance policy was extended. In the course of its judgment, the court considered whether such an argument could possibly be made. It dismissed the possibility in stating that such a “theoretical scenario” was clearly not what the parties had intended as, had the insurer been unable to agree to terms for a corresponding extension of the reinsur- ance policy, the insurer could always have refused to extend the project period in the insurance policy. The court’s view also accords with the general principle, applicable to facultative reinsurance, that insurers, in extending liability under the original insurance policy and after the conclusion of a facultative policy, cannot unilaterally increase reinsurers’ liability. Notably the wording of the reinsur- ance policy also did not support such a possibility as it explicitly contemplated the basis on which an extension of the policy period would be effected in the following terms: “The policy period may be extended at terms and premium to be agreed by the Slip Leaders and the agreement parties. All dates are inclusive and at the location of the risk”. In fact, the insurer had not paid any premium relative to the maintenance period, but only for the project period. On this point, there is a very old (1914) decision of the Cape Provincial Division in General Accident, Fire and Life Assurance Company Limited v National British and Irish Millers’ Insurance Co Limited in which the court ruled as follows: “Upon the point of custom, I may say at once that the plain- tiffs have, in my opinion, entirely failed to prove any custom as existing between insur- ance companies in this country according to which the defendants [reinsurers], upon renewal by the plaintiffs of the [underlying] policies, automatically continued liable as before upon their guarantee policies, with the rights to premiums as before”. In our view, a contemporary South African court would be likely to reach the same conclusion. The interpretive process in the English law is similar to the interpre- tive process applied in South African law. In South African law, the interpretive pro- cess is both a unitary and an objective legal exercise, with equal regard to language, context/purpose, and the application of a commercially sensible interpretation. The judgment of course serves as an important reminder to insurers and bro- kers to ensure that facultative placements are indeed updated and remain back-to- back with principal covers.  The first topic in the booklet is outlined in the January/February 2022 issue of Civil Engineering (Vol.30, No.1). The remaining three topics will be published in future issues of Civil Engineering . To access the full publication visit https://www.ensafrica. com/uploads/newsarticles/0_ensafrica%20insurance%20newsletter%20final.pdf .