Enforcement of interpretation of insurance contracts

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Mr and Mrs Bache and a number of other purchasers entered into contracts to purchase long leaseholds in an apartment development in Middlesbrough.  More than 20 purchasers paid 10% deposits, and the developer, Gold, procured 10 year house builder cover from Zurich in favour of each purchaser.  Zurich promised “to protect you if your developer goes into liquidation against the loss of contract exchange deposit; we will pay where due to developer’s bankruptcy or liquidation the developer fails to complete the construction of the new home and you lose your deposit

The development did not go ahead and the depositors cancelled their contracts with Gold and demanded the return of their money.

Bache v Zurich Insurance (2014) September CILL. TCC


  1. Zurich’s defence was that the failure to pay the deposit was not because of the bankruptcy, it was because the purchasers had cancelled the contracts.  The judge rejected this.
  2. Zurich argued that Gold were never going to finish the development and therefore it was not their bankruptcy or liquidation which prevented the completion.  The judge rejected this.
  3. The judge held that language of a contract should be interpreted in accordance with principles of business common sense.  The words should be given their natural and ordinary meaning by reference to what the parties must have intended.

The parties recovered deposits totalling £357,000 from Zurich, which was not allowed to hide behind clever argument.


The judge was very impatient with the sophisticated analysis of language advanced by Zurich’s QC.  He went on to say “the meaning which a document would convey to a reasonable man is not the same thing as (merely) the meaning of its words.  The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background have reasonably been understood to mean.  The background may not merely enable a reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words syntax.

For further information, help or advice please contact Rob Langley on 0191 211 7975.