The Supreme Court recently confirmed several important starting points relevant to the periodisation of an insurance event for the assessment of cover (HR-2020-1262-A).
The ruling addressed issues relating both to defining insurance periods and determining when insurance events occur. The Supreme Court also addressed the question of what is required to revise an insurance agreement pursuant to Section 36 of the Contract Act on unreasonable contract terms.
The insured had worked offshore in a position that required him to always have a statement of good health issued by an offshore doctor. Due to this requirement, the employer had taken out licence insurance, which ensured compensation if an employee had their statement of good health withdrawn permanently.
According to the insurance policy, employees were covered while they were employed. In certain cases, they could also be entitled to compensation after their employment had ended, provided that the insurance event occurred within a short period following the termination of employment.
Due to workforce reductions, the insured was dismissed in the summer of 2015. However, the official date for the dismissal ended up being 31 January 2016, as the insured filed a lawsuit against his employer claiming that the dismissal was invalid.
The insured employee had suffered from kidney disease for several years and on 15 November 2015, prior to the court proceedings against his employer, he was put on sick leave due to renal failure. However, his statement of good health was not withdrawn until 6 September 2016.
The insured subsequently notified the insurer, which rejected the insurance claim based on the argument that the insurance event had not occured within the insurance period.
Supreme Court's legal starting points
The Supreme Court started by confirming the general starting point in insurance law: a claim for insurance cover requires an insurance event occurring within the insurance period. The Supreme Court defined an 'insurance event' as the circumstances, events or conditions that create liability for the insurer.
Further, the Supreme Court restated and confirmed that what constitutes an insurance event and the relevant insurance period is determined by the terms of the insurance agreement, which must be interpreted objectively and according to a natural understanding of the wording. The purpose of the insurance may also be relevant for the interpretation.
Lastly, the Supreme Court confirmed that the rule of contra proferentem (ie, that any ambiguity must normally be interpreted against the insurer which has drafted the contract) applies to insurance contracts.
According to the relevant insurance policy, the insurance period generally corresponded with the term of the employment. However, as noted, the insurance policy also stated that in certain cases, the insured may be entitled to compensation if the insurance event occurred within a short period of the termination of employment. The insured claimed that this wording implied that the insurance period was still running on 6 September 2016, when his statement of good health had been withdrawn.
Although the wording included several ambiguous terms, the Supreme Court did not interpret the provision against the insurer. Instead, the Supreme Court understood the provision to be a reference to the mandatory rules in Section 19-6 of the Insurance Contract Act. Pursuant to this provision, the insured is covered by the insurance for:
- at least 14 days after they receive a written notice from the insurer or employer; or
- at least two months after the date on which they are no longer a part of the insured group if such notice has not been received (which was the issue in this case).
According to the Supreme Court, the insurance period therefore ended on 31 March 2016, two months after the dismissal.
The policy covered financial loss caused by a medical doctor's permanent withdrawal of the employee's statement of good health. In the policy it was explicitly stated that the insurance event occurred when it was determined that the withdrawal of the statement of good health was permanent. The Supreme Court understood this to be the point in time when the statement of good health was in fact withdrawn, and that it was not sufficient that the insured's health condition made it clear that the statement of good health would be withdrawn permanently.
To support such understanding, the Supreme Court also referred to other provisions in the policy and even to other insurance products offered by the insurer. The Supreme Court's reasoning thus illustrates the wide range of arguments available when interpreting an insurance policy.
As it can be rather coincidental when a certificate of good health is actually withdrawn, the Supreme Court discussed whether the policy should be interpreted more widely than the wording indicated. However, the Supreme Court restrained from such interpretation as it was not a particularly natural interpretation of the wording and because it is a relatively clear and well-known principle in Norwegian insurance law that the insurance event occurs when the damage is discovered or established. Therefore, the ruling also shows how important the wording and predictability is when interpreting an insurance contract.
Thus, the Supreme Court concluded that the insurance event had occurred on 6 September 2016 – well after the end of the insurance period on 31 March 2016.
Can insurance contracts be revised pursuant to Section 36 of Contract Act?
Section 36 of the Contract Act allows for an unreasonable agreement or an agreement in conflict with good business practice to be revised. In this ruling, the Supreme Court confirmed that the provision also applies to insurance contracts; however, the court noted that the threshold is generally high.
Although the insured had been sick and had thus not prioritised a visit to the doctor, the Supreme Court did not find the insurance contract to be unreasonable and Section 36 was therefore not applicable.
The court emphasised that revising the policy would widely expand the insurance cover, something that required either an extensive amendment of the insurance period or the definition of the insurance event. The latter would also change the nature of the product from a licence insurance to a health insurance policy. As the insurance was group insurance, such amendment would also affect other insureds, and the court had to consider their need for predictability as well.
