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Is Dutch contract interpretation aligning with the English?

The Court of Appeal in Amsterdam has dismissed ABN AMRO’s claim for coverage under the Bankers Blanket Bond insurance for loss incurred as a result of the Madoff fraud –In doing so, the Court of appeal extends the scope of the limited objective interpretation of policies.


On 25 November 2014, the Amsterdam Court of Appeal ruled in favour of the insurers behind the 2008 Bankers Blanket Bond, Computer Crime and Professional Indemnity Insurance taken out by Fortis Bank (now ABN AMRO).[1] This decision could shed a new light on the interpretation criteria formulated by the Supreme Court in Chubb/Dagenstaed as it extends the Chubb/Dagenstaed's literal linguistic reading of bourse policies to insurance broker negotiated policies. Both the District Court and the Court of Appeal interpret the disputed policy clause based on the literal text read in conjunction with the policy text as a whole. This interpretation method is notably narrow in view of the established way of interpreting a contract under Dutch law, which provides that a court will not solely look at the linguistic meaning of the text but also to the intentions of parties and their reasonable expectations about the intentions of the other party (Supreme Court 13 March 1981, NJ 1981, 635
(Haviltex)). Unlike in common law jurisdictions, a court in the Netherlands has to look at a number of potentially relevant circumstances for the interpretation of a contract. However, with regard to bourse policies, the Supreme Court has previously ruled that, if no negotiations on the conditions took place between insurer and insured, the interpretation is mainly dependent on objective factors like the text of the relevant clause read in conjunction with the policy as a whole and, insofar as applicable, explanatory notes on the policy (HR 16 May 2008, NJ 2008/284 (Chubb/Dagenstaed)).This case is notable because, even though insurers had negotiated with the banks broker on the terms of the policy, the Court of Appeal interpreted the meaning of the relevant clause based on the literal text read in conjunction with the policy text as a whole. In the course of the proceedings, the insurers confirmed some changes made to the Bankers Blanket Bond and their knowledge of the
intentions of the bank to amend the policy in light of the dematerializing of securities transactions. Although the Court of Appeal acknowledged that they would have to take this intention into account, they deemed the intention not relevant for the interpretation of the relevant clause.

Background of the case

ABN AMRO argued with the insurers over the question of whether the insurers were required to provide coverage for ABN AMRO's damage resulting from the securities fraud committed by Bernard Madoff. One of Fortis' subsidiaries provided a loan facility of USD 500 million to an investment fund, who in turn invested the money in Harley International Cayman Limited, the investment fund of Bernard Madoff. ABN AMRO claimed that a substantial part of the loan had been lost as a result of Madoff's Ponzi scheme. ABN AMRO claimed this loss under the 2008 Bankers Blanket Bond taken out by Fortis Bank (Nederland) Holding N.V. for itself and the relevant subsidiaries which had an insured limit of EUR 175 million divided over the primary, first and second excess layers.

The policy, governed by Dutch law, provides in short

"By reason of:

(...) The Assured (...), having, in good faith and in the course of business, whether for its own account or the account of others, in any capacity, paid or delivered any funds (...) or established any credit (...), on the faith of or otherwise acted upon, any Securities, Documents or Similar Written Instruments, which prove to be:

1. A. Counterfeit
Actual physical possession of such Securities, Documents or Similar Written Instruments by the Assured, (...), is a condition precedent to the assured having relied on the faith of or otherwise acted upon such Securities, Documents or Similar Written Instruments (...)"

"20. Counterfeit shall be deemed to mean a reproduction of an authentic instrument, which is intended to deceive and to be taken for the authentic original."

The Insurers claim that the bank’s decision to provide a credit facility of USD 500 million was not made "on the faith of or otherwise acted upon" the trade tickets and account statements, which had been provided to the bank by Madoff over the course of many years ( also including the years before the loan was granted). It was undisputed that these trade tickets and account statements contained false information.

The Court of Appeal interprets the clause in a way that there needs to be a close connection between the act of providing the facility and the counterfeit material. It considers (informal shortened translation): "considering the wording and the system of the policy,(...) it must be possible to establish that the decision of the bank to provide the facility, found its basis directly in the specific counterfeit written material" (the trade tickets and account statements). Subsequently, it summarizes the coverage provided by the policy by stating that (informal translation): "the policy does not cover the consequences of fraud consisting of a trade based on false information but the policy requires that the insured acted upon a specific document, a reproduction of a genuine document and that has been counterfeited to pass as the original." The Court of Appeal found the link between the decision to provide the facility and the reliance on the trading tickets and account
statements insufficient to establish coverage under the policy. The fact that the policy had been altered with the intention to address the dematerialization of securities transactions did not justify a broader interpretation of the clause.

Whether ABN AMRO will appeal against this decision at the Supreme Court is unknown at this stage.


[1] ABN AMRO's appeal followed a decision of the District Court of Amsterdam equally denying coverage under the policy offering coverage for damage due to certain fraudulent acts.


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