The Court of Appeal in International Entertainment Holdings Ltd & Ors v Allianz Insurance Plc [2025] 1 ALL ER Comm 623 has again reinforced the test for correction of mistakes by construction, following a similar decision by the Court of Appeal early last year (see our article here). In short, a party needs to show first that there is a clear and obvious mistake, and second that it is clear what correction ought to be made to cure the mistake.

Where there are a number of possible corrections that might be made to the provision, it will not usually be appropriate for the Court to correct the mistake by construction.

When construing a contractual provision, the court will usually infer that terminology within a contract has been used consistently between the various clauses. However, this inference is only appropriate where the contract has been drafted as a coherent whole and is not appropriate where a ‘pick and mix’ approach has been taken to the construction of a contract.

Insurance policies are particularly susceptible to a ‘pick and mix’ approach as policies are often amended over many years, resulting in a bespoke contract. As such, it will be more common for the Court to not construe terms consistently between clauses in insurance policies than other types of contract.

Correction by construction

It is not always necessary for parties to apply for rectification of a document to correct a mistake. A mistake in a document may be corrected as a matter of construction if two conditions are satisfied:

• First, there must be a clear mistake on the fact of the document.

• Second, it must be clear what correction ought to be made to cure the mistake.

The construction issue before the Court of Appeal in International Entertainment v Allianz concerned the question of whether the wording of the limit of indemnity provision (extracted below) meant that there was an aggregate limit of £500,000 for all claims made under the policy.

“The liability of the Insurer for any one claim in the aggregate during any one Period of Insurance shall not exceed £500,000”

The dispute between the parties centered on what the words “for any one claim in the aggregate” were intended to mean. The Insurer submitted that there was an obvious mistake in the provision and that the parties had intended to use the phrase “any one claim and in the aggregate”, the effect of which would be that an aggregate limit of £500,000 would apply to all claims under the policy.

The Court of Appeal accepted that something had gone wrong with the language of the clause, explaining that “a limit cannot sensibly apply to ‘any one claim’ and also ‘in the aggregate’. The court also pointed to the oddity of the wording “during any one Period of Insurance”, which made no sense in this policy because it only contained one period of insurance.

Nevertheless, the Court of Appeal agreed with the first instance Judge that the solution to the drafting issue was not clear. This is because there were two very different alternatives, and it was not clear which solution the parties intended. For example, the Insurer’s interpretation would lead to there being an aggregate limit across all claims of £500,000 whereas the opposing interpretation would lead to the opposite result. The Court of Appeal therefore held that the first instance judge was right to reject the Insurer’s case of correction by construction on the basis that it was not clear what correction ought to be made to cure the mistake. The decision at first instance, in which it was held that the insured peril was specific to each premise insured and that the prevention or restriction of access to each individual premises gave rise to a separate claim to which the limit applied, was upheld.

“Pick and mix” insurance policies

A separate but related issue arose in International Entertainment v Allianz as to whether it was appropriate to infer that terminology used within the insurance policy had been used consistently between the various clauses for the purpose of construction.

An insurance contract must be interpreted in the same way as any other contract, that is by asking what a “reasonable person with all of the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the contract to mean” [see paragraph 15 of the judgment]. In this context, it is relevant to have in mind whether it is appropriate to construe terms used within the contract consistently between clauses.

The Court of Appeal held that while it would be appropriate to infer that terminology is used consistently between various clauses where a contract had been drafted as a coherent whole, such an inference was not necessarily appropriate in the context of insurance policies.

This is because insurance policies can often be generated through a ‘pick and mix’ approach whereby standalone policies terms and/or terms from other policies are grouped together and/or ‘bolted on’ to another policy. This can often give rise clumsily drafted policies and policies in which the interaction between various clauses has not been properly considered. It follows that there is danger in the court trying to find coherence between clauses where there has been no attempt to ensure such coherence at the time of drafting.

It is therefore important for Insureds to not assume that policy terms have been used consistently and to be alive to the possibility that the same or similar terms used throughout a policy may be subject to different interpretations. The case reminds Insurers and Insureds alike that policies should be subject to careful review to ensure the words used have the effect intended. The English Court is unlikely to come to the rescue where badly drafted policies would benefit from correction.