CATHERWOOD v ASTERON LIFE LIMITED [2023] NZCA 357

CATHERWOOD v ASTERON LIFE LIMITED [2023] NZCA 357 [9 August 2023]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA8/2023[2023] NZCA 357BETWEEN HUGH RODERICK CATHERWOODAppellantAND ASTERON LIFE LIMITEDRespondentHearing: 13 June 2023Court: Wylie, Thomas and Brewer JJCounsel: H D J Holderness for AppellantC M Meechan KC and A Borchardt for RespondentJudgment: 9 August 2023 at 11 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay costs to the respondent for a standard appeal on aband A basis with usual disbursements. We certify for second counsel.____________________________________________________________________REASONS OF THE COURT(Given by Wylie J)Introduction[1] Notwithstanding that he is alive and, on the evidence, in good health, theappellant, Hugh Catherwood, seeks payment of the sum insured (or the death benefit)under a life insurance policy he holds with the respondent, Asteron Life Limited(Asteron). He says that he is entitled to payment of the sum insured because, in earlyto mid-2019, he was "terminally ill". The policy provides that an insured is terminallyill if his or her "life expectancy is, due to sickness and regardless of any availabletreatment, not greater than 12 months". Mr Catherwood says that when he made theclaim for the death benefit in early 2019, he was sick, that the policy requires that thetreatments available to him be ignored and that, when they are ignored, his lifeexpectancy at the time was not greater than 12 months.[2] Asteron has declined to pay the sum insured to Mr Catherwood. It argues thathis condition at the relevant time did not fall within the definition of the words"terminally ill" contained in the policy. It says that the policy requires thatMr Catherwood's life expectancy had to be not greater than 12 months, despite thetreatments which were available to him at the time. It notes that Mr Catherwood'sprognosis in early 2019, taking into account the treatments he was then receiving andwas likely to undergo, was that he was unlikely to die within 12 months.[3] In the High Court at Christchurch, Dunningham J ruled in favour of Asteronand rejected Mr Catherwood's assertion that Asteron was in breach of the policy whenit declined to make payment of the sum insured to him.1[4] Mr Catherwood appeals this judgment. He says that the Judge failed tocorrectly interpret the relevant provisions in the policy, that as a consequence she erredin interpreting the same and that she made a number of associated errors. Asterondisagrees. It says that the policy was correctly interpreted by the Judge and that it isnot yet obliged to pay the sum insured to Mr Catherwood under the policy.2[5] The dispute between the parties is narrow. It turns on the meaning of the words"regardless of" found in the definition of the words "terminally ill". Mr Catherwoodsays that the words "regardless of" mean "ignoring the effect of". Asteron says thatthe words "regardless of" mean "despite the effect of".1 Catherwood v Asteron Life Ltd [2022] NZHC 3296 [Judgment under appeal].2 We use "not yet" because the policy is still in force and, provided it is maintained byMr Catherwood, Asteron will become liable to pay the sum insured when Mr Catherwood dies orbecomes terminally ill.Factual background[6] There was no dispute at trial, nor before us, as to the relevant factualbackground. It was summarised by the Judge. We gratefully adopt her analysis.The events which gave rise to the claim[5] Mr Catherwood is a senior lawyer in Christchurch. He has maintaineda life insurance policy since 1976. In 2009, at the recommendation of his theninsurance broker, Mr Richard Abbot, he terminated his life insurance policywith AMP and entered into a life insurance policy with Asteron. While hedoes not recall the specific reasons for the change, he assumes there was anadvantage over his existing policy when looking at the cover provided and thepremium payable.[6] The policy was called a "SmartLife Policy". It provided a deathbenefit which would be paid should Mr Catherwood die. At the time of takingout the policy this was [$940,070]. The policy also promised to pay the deathbenefit if Mr Catherwood became terminally ill.[7] The policy also offered a range of optional benefits. Mr Catherwoodselected the Trauma Cover option. It provided that if he was diagnosed ashaving one of a range of serious medical conditions listed in the policy, orunderwent major surgery, and survived at least 14 days from the date ofdiagnosis or surgery, he would be paid the sum insured under this option. Thesum for Trauma Cover which Mr Catherwood initially agreed to was$117,508.[8] In 2012, Asteron offered a new enhanced Trauma Recovery optionand, while Mr Catherwood did not recall it, Asteron's records show he electedto take up the new Trauma Recovery option, and he increased the amount ofcover to $500,000. By this time, the death benefit had been increased to$1,200,020 as a consequence of inflation adjustments. The monthly premiumfor life cover at that point was $506, while the Trauma Recovery monthlypremium was $795.[9] Sadly, in July 2018 Mr Catherwood's wife passed away after aprolonged struggle with breast cancer. Another family member was alsodiagnosed with a serious health issue. This prompted Mr Catherwood to checkthat he did not have any serious health issues looming. On therecommendation of his GP, he undertook an MRI scan for his head and a CTscan for his torso in December 2018. To Mr Catherwood's surprise, given hehad no previous symptoms, he was found to have a tumour at the top of hisstomach in close proximity to the oesophagus and diaphragm.[10] The formal diagnosis which he received in January 2019 was that itwas an oesophageal adenocarcinoma. He very quickly developed symptomsand, by the end of January 2019, the tumour caused difficulties withswallowing. He came under the medical care of a general surgeon,Mr Coulter, and an oncologist, Dr Edwards. His treatment involved eightweeks of chemotherapy followed by surgery in May 2019 to remove the toppart of his stomach and the lower portion of his oesophagus. That was thenfollowed by a further eight weeks of chemotherapy once he had healed fromthe surgery.The claims process[11] Shortly after he was diagnosed in January 2019, Mr Catherwood madecontact with his insurance broker, Mr Eru Manuera, about the possibility ofmaking a claim. He made a claim under the Trauma Recovery option of thepolicy in January 2019, and he was paid $564,185.23 on 4 February 2019.[12] He also discussed with Mr Manuera the possibility of making a claimin respect of the life cover. Mr Manuera's advice was to wait until Asteronhad paid out under the Trauma Recovery option before making a claim inrespect of life cover if, in fact, the medical advice was that he met the criteriain the policy for the payment of life cover prior to death.[13] Mr Catherwood says he had already been told by Mr Coulter that ifhe did not have treatment then he would die within 12 months, but if he hadboth surgery and chemotherapy, his chances of survival would improve,although at that point it was still considered he had less than a 50 per centchance of being alive in five years.[14] At Mr Catherwood's request, his broker obtained the claim form forearly payment of life cover from Asteron. Asteron also advised Mr Manuerathat to consider an early payment of life cover under the policy, it required"supporting medical information in the form of copies of all reports, testresults, specialist referrals and any other relevant information [as well as] thelatest specialist letter with information regarding prognosis". The claimform itself sought a range of information, including contact details for theclaimant's doctor and details of all treatment being received for the condition.It also required the insured to provide an authority to release to Asteron allinformation with respect to "any sickness or injury, medical history,consultations, prescriptions, or treatment and copies of all hospital or medicalrecords".[15] Mr Manuera forwarded the completed claim form through to Asteronon 20 February 2019. Ms Christina Brown, a claims specialist with Asteron,acknowledged receipt of the claim form but queried whether Mr Catherwoodwas going to provide the supporting medical notes including the latestspecialist review outlining his prognosis.[16] When this email was forwarded to Mr Catherwood, his brokersuggested that Mr Catherwood direct Ms Brown to Mr Catherwood'soncologist. On 26 February 2019, Mr Catherwood provided Ms Brown withcontact details for Dr Edwards.[17] On 28 February 2019, Ms Brown emailed Dr Edwards explaining thatAsteron was currently assessing Mr Catherwood's claim and asked him toprovide the following information:(a) What is the prognosis?(b) In his opinion, would the life expectancy be 12 months orless?(c) Are there any factors specifically related to this case that givea life expectancy poorer than the medial survival? If so, pleaseoutline these.(d) If there is any further treatment available to Mr Catherwoodthat could have a positive effect on his prognosis or lifeexpectancy?(e) If so, what is Mr Catherwood's treatment plan?[18] In due course, Dr Edwards provided Asteron with his advice onMr Catherwood's prognosis. That advice was succinct. He said:The aim of the treatment is cure. Obviously it doesn't always workout that way but I think the chances of [Mr Catherwood] dying in thenext 12 months is low ie less than 10%. He is currently having neo-adjuvant chemotherapy prior to planned curative surgery. We plan toreassess his disease with CT scan within a month. This may changethe prognosis. From there he would go to surgery. The results ofwhich will determine the prognosis.[19] Dr Edwards' response was provided to Mr Catherwood, and, on19 March 2019, Mr Catherwood emailed Ms Brown directly. It was at thispoint the diverging views emerged regarding how the definition of "terminalillness" should be read. In his email Mr Catherwood said:It appears that there is some misunderstanding.My surgeon, Mr Coulter, has advised me that if I don't have surgerythe cancer will kill me within 12 months. If I have treatment, surgeryand chemo, those odds will change considerably.Mr Edwards response to you sets out the prognosis if I have treatment.The definition of "Terminal Illness" in the policy contemplates mysituation without any treatment, and that prognosis is as indicated byMr Coulter above.Mr Edwards has also confirmed to me verbally that without treatmentI'll be dead inside 12 months.[20] This view was provided to Dr Edwards, who queried whether Asteronwanted to know the prognosis without treatment or with treatment, but in anyevent said:[Mr Catherwood] is correct in saying that if he didn't have treatmenthis survival would be limited. In that case I would expect the majorityof patients in his situation would die within 12 months. On the otherhand his disease is potentially curable if we treat it (which we are). Iexpect the chance of cure [is] approximately 50%.The decision to decline the claim[21] There followed further email communications in which Ms Brownindicated that Mr Catherwood did not meet the terminal illness criteria of thepolicy. This culminated in an email from Asteron on 29 April 2019, decliningthe claim. In it, Ms Brown said:The terminal illness definition under the policy requires your lifeexpectancy not to be greater than 12 months. This timeframe takes intoaccount any treatment that you may be undergoing for your illness.Based on the current information we have received from Dr Edwards andon the basis you are undergoing chemotherapy, it is expected that yourlife expectancy is more than 12 months.At present your condition does not meet the definition of "terminalillness" and must decline your claim for early payment of Life Cover.However, should your situation change and chemotherapy is stopped dueto low tolerance, please get in touch with us and provide us with yourlatest Medical Oncology report so we can re-assess your claim.[22] That decision was followed up by a formal letter sent on 10 May 2019.The letter advised that Asteron's chief medical officer had reviewed the claimand he "confirms that there is no evidence that you meet the Terminal Illnesscriteria and is hopeful that you are on your way to being cured of your illness".[23] Mr Catherwood promptly sought a review of the claim, againasserting that the words "regardless of any treatment" meant that Asteronshould have no regard to any treatment he may be having. Asteron's claimsreview committee reconsidered Mr Catherwood's claim and, on 12 June 2019,confirmed the decision to decline the claim.[24] Mr Catherwood then requested that the matter be referred to Asteron'scustomer relationship management team in accordance with Asteron's disputeresolution procedure. That occurred, and on 3 July 2019, Asteron wrote toMr Catherwood advising that the customer relationship management teamconfirmed the earlier decision on the claim, which was that he did not meetthe definition of terminal illness.[25] Mr Catherwood completed treatment. It has been successful.Mr Catherwood understands that there is currently no sign of cancer in hisbody and Dr Edwards, the oncologist, confirms this.[26] Despite that, Mr Catherwood maintains that he met the policydefinition of terminally ill when he made his claim in February [2019] andthat he was, and remains, entitled to payment of the sum insured under his lifepolicy. ...The High Court decision[7] The Judge noted that the issue before her was "very confined".3 Afterrecording the factual background (and referring to a procedural issue regarding theadmissibility of a brief of evidence tendered by Asteron — see below at [12]), she3 Judgment under appeal, above n 1, at [4].summarised the respective cases for the parties. She then turned to analyse thecompeting arguments.[8] The Judge started by observing that the idea that someone can be described asterminally ill when there is an available cure, is contradictory.4 She considered thatthe interpretation advanced by Mr Catherwood was not the most logical way to readthe definition in the policy and that there would need to be strong indications in thepolicy and in any other background circumstances, to suggest that an insurancecompany intended to adopt a definition of terminally ill which included individualswho are able to be cured by accepting available treatment. She did not consider thatthere were any such indications in this case. 5[9] The Judge looked at the policy and at various factors which she consideredsupported Asteron's interpretation of the definition of the words terminally ill. Shenoted the following:(a) The terminally ill benefit was "part and parcel" of the life cover offered,which was only intended to be payable on death.6 The benefitaccelerated payment of the life cover and that it was more logical thatpayment would be made only in circumstances when death is expectedto occur within 12 months rather than also in circumstances when deathis possible but could be delayed or avoided by treatment.7(b) Asteron's interpretation was supported by the fact that the policyterminates on payment of the death or terminal illness benefit. Thisposition can be contrasted with the ability to choose the traumareinstatement option under the policy, where, despite receiving aninsurance payment under that option, new cover can be obtained underone of the trauma options.8 The trauma reinstatement option recognisesthat people can suffer more than one trauma event as defined in their4 At [58].5 At [58].6 At [59].7 At [59].8 Clause 6.3.4 provides that the policy owner can request "new cover" in certain definedcircumstances including that the policy owner is still alive.lifetimes and so makes provision for reinstatement of that cover optionon specified terms. No such provision applies to the terminally illbenefit and the logical reason for this is that the terminal illness benefitsimply accelerates payment of the death benefit; therefore there is noneed to make provision for reinstatement.9(c) The policy offered optional benefits which an insured could choose totake, at additional cost, including a trauma option. The trauma(recovery) benefit10 was payable upon diagnosis of a number of listedillnesses or on the occurrence of listed surgical events. It wascomplementary to the death benefit. The Judge observed that while thesame event could trigger both the trauma benefit and the death benefit,the terminal illness benefit had an additional requirement — a lifeexpectancy of less than 12 months. There would be a considerable, andin her view illogical, overlap between the terminal illness benefit andthe trauma option if Mr Catherwood's interpretation was accepted.11[10] The Judge also referred to two Australian cases, both of which she consideredillustrated "the reasonableness of taking into account the likely outcome of availabletreatment when deciding whether someone is terminally ill."12[11] The Judge considered that it was clear that the definition of the words "terminalillness" and "terminally ill", construed objectively, was intended to take account ofavailable medical treatment and that this was the only reasonable interpretationavailable. She considered that it was highly strained and artificial to suggest that aninsured was entitled to a terminal illness benefit when treatment was available whichmeant the insured was not likely to die within 12 months.13 Accordingly the Judge9 At [61].10 The Judge used the words trauma recovery benefit. We could not find provision for such apayment by Asteron. Rather the policy refers to a trauma benefit.11 At [60].12 At [63]–[69], citing Tower Australia Ltd v Farkas [2005] NSWCA 363, (2005) 64 NSWLR 253at [34]; and Galaxy Homes Pty Ltd v National Mutual Life of Australasia Ltd [2013] SASCFC 34,(2013) 116 SASR 41.13 Judgment under appeal, above n 1, at [69].ruled that Mr Catherwood's claim must fail, and that Asteron had not breached theterms of the contract of insurance.14[12] In addition, the Judge held that the challenged evidence — a brief of evidencefrom Mr Russell Hutchinson tendered by Asteron — was admissible. She recordedthat she had reached her conclusion as to the interpretation of the policy withoutexpress reference to, or reliance on, Mr Hutchinson's brief.15 She nevertheless notedas follows:(a) Mr Hutchinson gave evidence about a number of life insurance policieswith accelerated death benefit clauses in the event of terminal illness.He said that it was common for life insurance policies to have a terminalillness benefit, using a definition of terminal illness that focused onprognosis taking into account medical treatment.(b) The evidence supported Asteron's assertion that, if the terminal illnessbenefit was intended to be paid notwithstanding an insured's prognosiswith treatment, this would have been a notable difference which wouldhave distinguished Asteron's SmartLife policy from other policies.(c) There was no evidence to suggest that Asteron, Mr Catherwood, or hisbroker, understood the terminal illness benefit to be payable toMr Catherwood notwithstanding a positive prognosis with appropriatetreatment.She ruled that because the evidence supported the assertion that there was a commonapproach to terminal illness benefits, which was not displaced in Mr Catherwood'scase, it was therefore admissible. She considered that Mr Hutchinson had not offeredan opinion on how a life insurance company should conduct itself in considering aclaim by an insured, or on the circumstances surrounding Mr Catherwood's contractof life insurance. She did not consider that Mr Hutchinson had strayed into areasbeyond his expertise.1614 At [71].15 At [72].16 At [73]–[74].Submissions on appeal[13] Mr Holderness for Mr Catherwood argued that Judge erred when she acceptedthat the words "regardless of" in the definition of the words "terminal illness" and'terminally ill" could mean either disregarding or despite. He said that, viewed incontext, the words meant disregarding and that this is their ordinary meaning. Hefurther submitted that the context was critical and that there was nothing in theterminally ill definition which suggested that the words were intended to mean withoutbeing affected/prevented by, or despite. He submitted that the Judge should haveconcluded that the ordinary meaning of the words "regardless of" in the definition ofterminally ill required that the life expectancy assessment had to be carried outdisregarding or ignoring the effect of any available treatment. He put it to us that suchan approach was not necessarily contrary to common sense, contradictory orunreasonable.[14] Mr Holderness also argued that the Judge erred in taking into account thetrauma benefit option as an aid to interpretation and in finding that Asteron'sinterpretation was supported by the fact that the policy ends on payment of the deathor terminal illness benefit. He criticised the Judge's reliance on the Australianauthorities, pointing to differences in the contractual context. He referred to otherprovisions in the policy, including cl 1.1, and to the use of the words "regardless of"in other provisions, particularly cls 3.2 and 7.7. He argued that there was nothing inthe policy to displace the ordinary and natural meaning of the words "regardless of"and that the interpretation contended for by Mr Catherwood was the correctinterpretation. He also referred to the contra proferentem rule and argued that, as atool of last resort, it should, if necessary, be applied in Mr Catherwood's favour.[15] Ms Meechan KC, for Asteron, emphasised that the approach to be taken to theinterpretation of an insurance policy is no different to that taken in interpreting anyother contract. She submitted that the Judge applied commonly accepted principles inan entirely conventional way in concluding that an insured who was unlikely to die inthe next 12 months did not meet the definition of being terminally ill. She argued thatthe Judge did no more than state the obvious when she observed that the words"regardless of" in the definition of terminally ill can mean two things. She argued thatthere could not be any serious challenge to this starting point, and that the whole pointof the subsequent analysis undertaken by the Judge was to determine which of the twoavailable interpretations was correct.[16] Similarly, Ms Meechan argued that the Judge's observations as to commonsense were non-controversial and raised the rhetorical question — why would aninsurer commit to paying the death benefit to an insured suffering from a conditionthat was treatable and who was unlikely to die from the condition? She argued thatthe Judge was entitled to take into account the trauma benefit provisions in the policyand that it was open to the Judge to look at the insurance contract as a whole.[17] She referred to the contra proferentem rule, arguing that it should not beapplied merely because the language of the provision was ambiguous; rather it fell tobe used only if competing constructions were strongly supported by augmentation andif dictionaries and logic alone could not readily carry the day for either construction.She submitted that the Judge's analysis of the terminally ill provision wasconventional, that it yielded a reasonable interpretation of the policy and that therewas no need to engage the rule.AnalysisThe SmartLife policy[18] Mr Catherwood's SmartLife policy with Asteron was a life insurance policywith a number of related options. Primarily it provided for the payment by Asteron ofthe sum insured to Mr Catherwood if he died while covered under the policy. It alsoprovided as follows:5.2 Terminal Illness BenefitIf you become terminally ill while covered under this policy, we will pay thesum insured for the SmartLife cover.The effect of the terminal illness benefit was to accelerate payment of the sum insuredwhen an insured was terminally ill, presumably so that the insured could ease his orher final months and better arrange his or her affairs.[19] Clause 9.4 set out Asteron's requirements where a claim was made for aterminal illness payment. Mr Catherwood was required to provide a number of things,including proof of the diagnosis, recommendation or prognosis giving rise to the claimby a registered doctor who was an appropriate specialist medical practitioner, andcopies of all investigations performed which could include, but was not limited to,clinical, radiological, histological and laboratory evidence. The clause provided thatpayment was to be made once Asteron had confirmed that Mr Catherwood was eligiblefor the same.[20] Clause 10 defined a number of words or expressions found in the policy.Relevantly it provided as follows:terminal illness and terminally ill means• in the opinion of a specialist medical practitioner; and• if we require, in the opinion of one of our approved specialist medicalpractitioners; and• in our assessment, having considered medical or other evidence we mayrequire,your life expectancy is, due to sickness and regardless of any availabletreatment, not greater than 12 months.The relevant principles of construction[21] A policy of insurance is a contract between the insurer and the insured. Assuch, it is subject to the rules of construction which apply to any contract (althoughthere are also certain rules which have evolved to deal with the particular problemsinsurance law can pose).17[22] Traditionally, the courts in New Zealand applied the "plain meaning" rule —if the words of the contract were plain and unambiguous as they stood, they weretreated as speaking for themselves and evidence of context was not admitted to show17 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at[60]-[63]; Robert Merkin KC and Chris Nicoll (eds) Colinvaux's Law of Insurance in New Zealand(2nd ed, Thomson Reuters, 2017) at [2.1.1]; David Kelly and Michael Ball (eds) Kelly and BallPrinciples of Insurance Law (2nd ed, Butterworths, Chatswood (NSW), 2001) at [5.0280] et seq;and John Birds and Katie Richards (eds) Birds' Modern Insurance Law (12th ed, Sweet &Maxwell, Croydon, 2022) at [13-09].that the parties intended something different.18 More recently, the courts have becomemore willing to receive evidence of surrounding circumstances for the purpose ofinterpreting written contracts.19 Such evidence can sometimes have the effect that,what prima facie seems the most obvious meaning of the words used is displaced bya secondary, less obvious meaning.20 The courts have held that evidence of the contextin which a contract was entered into can be admitted, because it is always possible thatwhat appears to be the plain meaning of the document may, on further examination,turn out not to be.21[23] The more modern approach was encapsulated in the seminal judgment ofLord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich BuildingSociety.22 He said as follows:23 I do not think that the fundamental change which has overtaken thisbranch of the law is always sufficiently appreciated. The result hasbeen, subject to one important exception, to assimilate the way in whichsuch documents are interpreted by judges to the common sense principlesby which any serious utterance would be interpreted in ordinary life.Almost all the old intellectual baggage of "legal" interpretation has beendiscarded. The principles may be summarised as follows:(1) Interpretation is the ascertainment of the meaning which thedocument would convey to a reasonable person having all thebackground knowledge which would reasonably have beenavailable to the parties in the situation in which they were atthe time of the contract.(2) The background was famously referred to byLord Wilberforce as the 'matrix of fact', but this phrase is, ifanything, an understated description of what the backgroundmay include. Subject to the requirement that it should havebeen reasonably available to the parties and to the exceptionto be mentioned next, it includes absolutely anything whichwould have affected the way in which the language of thedocument would have been understood by a reasonable man.18 See generally Matthew Barber "Contents of the Contract" in Stephen Todd and Matthew BarberBurrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington,2022) 173 at [6.3.1].19 At [6.3.4]. See, for example, Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC85, [2021] 1 NZLR 696.20 At [6.3.2]; and Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 17, at [60].21 At [6.3.3].22 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; seealso Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 3 WLR 267 at [14].23 At [912]–[913] (citations omitted).(3) The law excludes from the admissible background theprevious negotiations of the parties and their declarations ofsubjective intent. They are admissible only in an action forrectification. The law makes this distinction for reasons ofpractical policy and, in this respect only, legal interpretationdiffers from the way we would interpret utterances in ordinarylife. (4) The meaning which a document (or any other utterance)would convey to a reasonable man is not the same thing as themeaning of its words. The meaning of words is a matter ofdictionaries and grammars; the meaning of the document iswhat the parties using those words against the relevantbackground would reasonably have been understood to mean.The background may not merely enable the reasonable manto choose between the possible meanings of words which areambiguous but even (as occasionally happens in ordinary life)to conclude that the parties must, for whatever reason, haveused the wrong words or syntax (5) The "rule" that words should be given their "natural andordinary meaning" reflects the common sense proposition thatwe do not easily accept that people have made linguisticmistakes, particularly in formal documents. On the otherhand, if one would nevertheless conclude from thebackground that something must have gone wrong with thelanguage, the law does not require judges to attribute to theparties an intention which they plainly could not have had. [24] While there has been some criticism of Lord Hoffmann's approach,24 hisstatement of the law has been adopted in New Zealand, initially in this Court inBoat Park Ltd v Hutchinson.25 It has been followed in numerous contractualinterpretation cases since. In Firm PI 1 Ltd v Zurich Australian Insurance Ltd (a caseconcerning an insurance contract), the Supreme Court declined to reconsider theprinciples of contractual interpretation and reiterated that Lord Hoffmann's approachrepresents the position in this country.26 This was more recently confirmed, also bythe Supreme Court, in Bathurst Resources Ltd v L & M Coal Holdings Ltd.27[25] It follows that, in interpreting a contractual provision, the courts will endeavourto identify what the parties meant through the eyes of a reasonable reader. That24 Jonathan Sumption "A Question of Taste: The Supreme Court and the Interpretation of Contracts"in Law in a Time of Crisis (Profile Books Ltd, London, 2021) 142. See also Vector Gas Ltd v Bayof Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [64].25 Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81–82.26 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 17, at [60].27 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [43].meaning is most likely to be gleaned from the language used,28 but the courts will alsolook at the contract as a whole and in context, because the words used by the partiesare set in that context. The context of the contract will usually operate as across-check, but the plain meaning of a word or term is provisional, and is alwayssusceptible to being altered by context.29 The courts are also prepared to look at thefactual matrix, even if the words of the contract seem clear at first sight.30Pre-contractual negotiations, if they shed an objective light on meaning, can berelevant and admissible, but not if they are simply evidence of subjective intention.31Evidence as to a party's subjective intent is not admissible if it was not communicatedbefore the contract was formed. However, evidence of a common mutualunderstanding will be admissible.32The interpretation of Mr Catherwood's SmartLife policy[26] As already noted, the dispute between the parties turns on the words"regardless of" in the phrase "and regardless of any available treatment" found in thedefinition of the words "terminal illness" and "terminally ill".[27] The SmartLife policy is not well worded. The definition of the words "terminalillness" and "terminally ill" is ambiguous because the words "regardless of" can beartwo different meanings.[28] It is noted in most major dictionaries that the word "regardless" is normallyfollowed by the word "of". The meaning of the words "regardless" and/or "regardlessof" are given as follows:(a) In the Shorter Oxford English Dictionary on Historical Principles, themeaning of the word regardless, is said to be, "heedless, indifferent,careless; without consideration of without regard to or considerationof something; despite the consequences, nonetheless".3328 Arnold v Britton [2015] UKSC 36, [2015] 2 WLR 1593 at [17].29 Vector Gas, above n 24, at [24] per Tipping J.30 At [4] per Blanchard J, at [22] per Tipping J, at [64] per McGrath J.31 At [20] per Tipping J.32 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 27, at [75]–[76].33 John Kendall Shorter Oxford Dictionary on Historical Principles (6th ed, Oxford UniversityPress, United Kingdom) at 2511.(b) In the Concise Oxford English Dictionary, "regardless of", is said tomean "without regard for".34(c) In Chambers 21st Century Dictionary, the meaning of the word"regardless" is said to be as follows, "1. not thinking or caring aboutproblems, dangers, etc. 2. nevertheless; in spite of everything" andwith the word "of", "taking no notice of [something]".35(d) In The New Zealand Oxford Dictionary, it is suggested that the word"regardless" followed by the word "of" means "without regard orconsideration for".36[29] While a number of the dictionary definitions favour the interpretationcontended for by Mr Catherwood, namely that the words "regardless of" meandisregarding or ignoring, it cannot be said that the words "regardless of" cannot mean"despite" or "in spite of". As Mr Holderness properly acknowledged, to an extent thewords "regardless of" and "despite" or "in spite of" can be used interchangeably.While he sought to qualify his concession by asserting that it was not because theycarry the same ordinary meaning, we do not accept that argument. It is in our viewclear that the words "regardless of" and "despite" can, in many contexts, be usedinterchangeably. Consequently, we do not consider that it can be said the Judge erredwhen she observed that the interpretation advanced for Mr Catherwood was not theonly interpretation available.37 The Judge's view that the words "regardless of" canalso mean "despite the consequences of", and that as a result there were two availableinterpretations which could be given to the definition of the words terminal illness inthe SmartLife policy, was in our view, correct.38 Accordingly, we reject the submissionadvanced for Mr Catherwood that the words "regardless of" used in the terminally illdefinition have the ordinary and natural meaning of "disregarding". Rather, we agreewith Ms Meechan that the words "regardless of" are capable of two meanings,34 Concise Oxford English Dictionary (11th ed, Oxford University Press, United Kingdom) at 1210.35 Mairi Robinson and George Davidson (eds) Chambers 21st Century Dictionary Chambers(Chambers Harrap Publishers Ltd, Edinburgh, 1999) at 1173.36 Tony Deverson and Graeme Kennedy (eds) The New Zealand Oxford Dictionary (OxfordUniversity Press, Melbourne, 2008) at 945.37 Judgment under appeal, above n 1, at [57].38 At [57]."disregarding" and "despite", and that it is necessary to examine the context in whichthe words are used to ascertain their meaning in the definition of terminally ill.[30] In this regard we note the following:(a) As we have already noted, the SmartLife policy was primarily a lifeinsurance policy. Any payment by Asteron under the terminally illprovision was, in effect, an early payment of the sum insured — thedeath benefit.39 We agree with the Judge that the idea that an insuredcan be described as terminally ill and claim an accelerated deathbenefit, when there is an available cure and the insured is likely tosurvive, is contradictory.40 An interpretation which permitted thatresult could result in the payment of the death benefit to someone whois alive, in good health, and with no adverse health conditions likely toresult in his or her death. It would ignore the words "terminal" and"terminally". An insured could be paid out the death benefit, take outanother life insurance policy, ultimately die and be paid out a deathbenefit twice in respect of different events, only one of them beingdeath. To us, this makes little sense, and it would be an unlikely result.(b) There are a number of optional benefits which an insured could elect totake out under the policy.41 Payment of the amount insured for manyof these options is triggered by diagnoses of certain health conditions.There is no other precondition for payment. It is only the sum insured(the death benefit) set out in section 5 of the policy which requires, asa precondition of payment, either death or a prognosis of death withinno more than 12 months. The policy distinguishes between the corelife insurance provisions, which are dependent on death or imminent39 That a payment, in the event of terminal illness, simply accelerated the payment of the insuredsum clear from the policy. The insurer's obligation to pay the sum insured was subject to anypayments that the insurer had already made for terminal illness (cl 5.1). The policy ceased on fullpayment of the sum insured, or when the sum insured reduced to nil and the insured died (cl 4).40 Judgment under appeal, above n 1, at [58].41 The policy included optional benefits, such as the accidental death option, the trauma option, thetotal and permanent disablement option, the mortgage repayment option, the cancer cover option,and the needlestick option.death, and the add on options, which are dependent on health-relatedconditions falling short of death.(c) The insurer's liability to pay out under some of the optional provisions,for example the trauma option, the total and permanent disabilityoption, the cancer cover option and the needlestick option) ceases on,inter alia, payment being made for terminal illness. If payment inrespect of an optional benefit is linked to the imminence of death, thisis readily understandable. There is, however, little or no logic in thecessation of the payment provisions for optional cover ifMr Catherwood's interpretation is preferred.(d) The optional cover available under the policy responds to specifichealth-related circumstances. There would be little or no need for theoptional cover provisions if the terminal illness benefit did not requireconsideration of the impact of medical treatment on the imminence ofdeath.[31] Mr Holderness pointed to cl 1.1 in the policy. That clause dealt with how aninsured should understand the policy document. Inter alia, it noted that words orexpressions used that had a particular meaning were shown in italic type and that theywere explained in either the section in which they appeared, in section 10, or in theschedule to the policy. Although Mr Holderness submitted to the contrary, we cannotsee that this clause favours the interpretation contended for on behalf ofMr Catherwood. It appears to us that the clause is neutral.[32] Similarly, the fact that the words "regardless of" are used in two other clausesin the policy does not affect the position. Clause 3.2 records that Asteron will continueto renew the policy each year, "regardless of" the number of claims made, or anychanges to the insured's health, occupation, or pastimes. Clause 7.7 deals with theamounts payable under a partially disabled benefit option; it provides thatarrangements entered into with the purpose or effect of altering other income whiledisabled are void for the purposes of the policy and that where the arrangement hastwo or more purposes and effects, one of which is to alter other income while disabled,then "regardless of" whether the other purpose(s) or effect(s) relates to ordinarybusiness or family dealings, the arrangement is to be void for the purposes of thepolicy. It can be assumed that the same words are used consistently throughout thepolicy. It seems to us that the meaning of both clauses is clear and that the words"regardless of" mean, in context, "despite" or "in spite of". This argument does notassist Mr Catherwood.[33] We also consider that the Judge did not err when she took into account theAustralian cases. She acknowledged that neither of the cases was "on all fours" withMr Catherwood's circumstances.42 Rather she considered that they illustrate thereasonableness of taking into account the likely outcome of available treatment whendeciding whether someone is terminally ill. We agree.[34] The first case was Tower Australia Ltd v Farkas.43 As Dunningham J noted, inthat case the policy provided both life cover and a critical illness benefit. The insuredwas diagnosed with cancer. He underwent extensive chemotherapy and stem cellreplacement and as a result, the disease went into remission. He claimed that he wasentitled to both benefits. The policy provided that the critical illness benefit waspayable if the insured was suffering from "an illness or condition which is highly likelyto result in death within 12 months".44 The medical experts agreed that, if Mr Farkashad not undertaken any treatment, he would have died within 12 months of diagnosis.He argued that on a proper construction of the policy, all he had to establish was aprognosis of death within 12 months as being highly likely, without taking into accounttreatment that was then available. Mason P, in the New South Wales Court of Appeal,rejected the proposition that a proper construction of the definition of the policyprovision required the insurer to ignore the likely outcome of treatment. He noted asfollows:45 The history of medicine is replete with instances of life-threateningdiseases that have ceased to be such due to the progress of medical science.Illnesses or conditions like tetanus and snake bite[s] are no longer generallyregarded as fatal, because of the ready availability of relief save in exceptionalcases. To refuse to take account of available treatment in any and every case42 Judgment under appeal, above n 1, at [63].43 Tower Australia Ltd v Farkas, above n 12, at [34].44 Tower Australia Ltd v Farkas, above n 12, at [7].45 At [34]. would be to convert the Policy into a lottery ticket without textualjustification and contrary to a fair, commercial and reasonable reading of it. Aperson with an accidentally cut finger who (without reason) declined all offersof assistance, choosing to bleed to death for want of staunching the wound,would be regarded as the cause of his or her own demise. It would in thecircumstances be absurd to regard that person as having suffered an illness orcondition highly likely to result in death within 12 months, or any time. As Dunningham J noted, while the policy in issue in Farkas did not use the words"regardless of any treatment", the decision supports the reasonableness of adopting aninterpretation which takes into account available medical treatment where this is anavailable reading of the definition in issue.46[35] The second case was Galaxy Homes Pty Ltd v National Mutual Life ofAustralia Ltd.47 In that case, the full Court of the Supreme Court of South Australiaconsidered an insured's entitlement to a terminal illness benefit following the insured'sdiagnosis with a recurring metastatic melanoma. The policy defined terminal illnessas follows:48Terminal illness means any illness which, will result in the death of theperson insured within 12 months, regardless of any treatment that might beundertaken. Again, the matter at issue in Galaxy Homes did not turn on the interpretation of thewords "regardless of any treatment". Rather it turned on whether the insured wasterminally ill, as defined. However, as Dunningham J noted,49 the Court inGalaxy Homes took into account the effect of available medical treatment in decidingwhether the threshold of being terminally ill was reached. It noted as follows:[50] It is not simply a question of whether a person will die within12 months, the insured must prove that this outcome will occur "regardless ofany treatment that might be undertaken". That whole sentence and theconnection between "will" and "regardless of any treatment" is important andsupportive of the interpretation of the judge. It shows in our view that even atheoretical recovery from the most expensive and rare treatment is to be takeninto account.[51] It is our view that the construction is also based on the commercialsetting of the insurance contract. As his Honour says it is not a claim forthe "life benefit" but for an acceleration of a payment for that benefit. [T]he46 Judgment under appeal, above n 1, at [66].47 Galaxy Homes Pty Ltd v National Mutual Life of Australasia Ltd, above n 12.48 At [3].49 Judgment under appeal, above n 1, at [68].insurer has used the word "will" to confine the insured's entitlement. It isintended to be a benefit available only on a restricted basis.[36] We agree with the Judge that these decisions were broadly helpful and that theysupported the conclusion she ultimately reached that the definition of terminal illnessand terminally ill, construed objectively, was intended to take account of availablemedical treatment and that this was the only reasonable interpretation available.50[37] For completeness, we briefly turn to the contra proferentem rule. This providesthat "where a policy is ambiguous, it must be construed against the party who hasdrafted it".51 Mr Holderness contended that as a tool of last resort, contra proferentemshould be used to find an interpretation in Mr Catherwood's favour. Ms Meechansubmitted there is no need to engage with this rule as the Judge's analysis yielded areasonable interpretation of the definition of terminal illness. We accept that the contraproferentem rule for resolving ambiguity can be of use in the interpretation ofinsurance contracts.52 However, the rule does not assist us in this case. There is noambiguity as to the proper interpretation of the definition.[38] For all of the above reasons, we uphold the judgment in relation to thesubstantive issue — the interpretation of the policy — and dismiss the appeal inrelation to that issue.The disputed evidence[39] As we have noted above, Mr Catherwood argued that Mr Hutchinson'sevidence was inadmissible before the Judge. Mr Hutchinson's evidence focused onlife insurance policies generally, highlighting that it is common for such policies tohave a terminal illness benefit that takes into account any available medical treatment.At trial, it was argued that the evidence was inadmissible because it could notsubstantially help the Court in interpreting Mr Catherwood's policy and because50 At [69].51 Robert Merkin, Laura Hodgson and Peter Tyldesley (eds) Colinvaux's Law of Insurance (13th ed,Thomson Reuters, 2022) at [3-027].52 Firm PI 1 Ltd, above n 17, at [66], citing D A Constable Syndicate 386 v Auckland District LawSociety Inc [2010] NZCA 237, [2010] 3 NZLR 23 at [69]. See also Robert Merkin, Laura Hodgsonand Peter Tyldesley, above n 51, at [3-027].Mr Hutchinson had no expertise on how a life insurance company should conductitself when considering a claim.[40] As noted above at [12], the Judge ruled that Mr Hutchinson's evidence wasadmissible. She expressly recorded that she had reached her conclusion on theappropriate interpretation of the policy without taking into account Mr Hutchinson'sevidence.53 On appeal, Mr Holderness nevertheless submitted that the Judge erred inholding the evidence admissible.[41] It does not seem to us that anything turns on this aspect of the appeal, giventhe Judge's express reference to the fact that she did not take Mr Hutchinson'sevidence into account in reaching her substantive conclusion. Nevertheless, wecomment on the issue briefly.[42] The appropriate approach to the admissibility of extrinsic evidence wheninterpreting a contract was outlined in Bathurst Resources Ltd v L & M Coal HoldingsLtd.54 In that case, the Supreme Court rejected the exclusionary rule against oralevidence of a party's intentions and the course of negotiations, and held that priornegotiations can be admissible background where relevant to the search for objectiveshared meaning.55 The Court held that the admissibility of extrinsic evidence "is to beregarded as an evidential issue, to be determined in accordance with the law ofevidence".56[43] It follows that the Evidence Act 2006 applies to Mr Hutchinson's evidence. Itmust be relevant under s 7, which, in the context of contract interpretation, means thatthe:57 evidence is prima facie admissible if it has a tendency to prove or disproveanything of consequence to determining the meaning the contractualdocument would convey to a reasonable person having all the backgroundknowledge reasonably available to the parties in the situation in which theywere at the time of the contract. 53 Judgment under appeal, above n 1, at [72].54 Bathurst Resources Ltd, above n 27.55 Bathurst Resources Ltd, above n 27, at [44], [48], [70] and [76]; see also Future SustainableDevelopment Ltd v Liu [2022] NZCA 249 at [34].56 Bathurst Resources Ltd, above n 27, at [57].57 At [62].[44] Mr Hutchinson's evidence does not go to either Mr Catherwood's or Asteron'ssubjective intent. Rather it is evidence of general practice within the insuranceindustry. The evidence speaks to the general context within which Mr Catherwood'scontract was entered into, and to insurance contracts dealing with terminal illness moregenerally. The evidence was relevant to Asteron's argument that its policy was not outof step with other policies and that had it been, this would have been a point ofdistinction between it and other providers of life insurance. In our view, informationabout life insurance policies generally was relevant and there was no reason why itshould have been excluded under s 8 of the Evidence Act. It was likely that the Judge,as fact finder, might obtain substantial help from it. It was properly admissible unders 25 of the Act. Accordingly, we do not consider that the Judge erred in accepting thatMr Hutchinson's evidence was admissible.Result[45] For the reasons we have set out, the appeal is dismissed.[46] Counsel were agreed that costs should be fixed for a standard appeal on a bandA basis. Mr Holderness also accepted that in the event the appeal was dismissed, weshould certify for second counsel.[47] The appellant must pay costs to the respondent for a standard appeal on aband A basis with usual disbursements. We certify for second counsel.Solicitors:Meares Williams, Christchurch for AppellantSuncorp, Auckland for Respondent