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Presenting a live 90-minute webinar with interactive Q&A
Construing Insurance Policy Language:
Doctrine of Reasonable Expectations,
Illusory Coverage and More Leveraging Policy Interpretation Arguments for Insurers and Policyholders
Today’s faculty features:
WEDNESDAY, AUGUST 12, 2015
Robert Friedman, Principal, Friedman, Palm Beach, Fla.
Verne A. Pedro, Lead Litigation Counsel, Ellis Ged & Bodden, Point Pleasant, N.J.
David L. Plaut, Partner, Hanna & Plaut, Austin, Texas
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
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© Copyright 2015. Friedman P.A. All Rights Reserved.
KEY INSURANCE POLICY INTERPRETATION RULES
Strafford Publications August 12, 2015
Robert H. Friedman Friedman P.A. Palm Beach, FL rob@friedmanpa.com
© Copyright 2015. Friedman P.A. All Rights Reserved. 6
ANATOMY OF AN INSURANCE POLICY
• Declarations Page
• Insuring Agreement
• Definitions
• Conditions
• Exclusions
• Endorsements
© Copyright 2015. Friedman P.A. All Rights Reserved. 7
DECLARATIONS PAGE
© Copyright 2015. Friedman P.A. All Rights Reserved. 8
INSURING AGREEMENT
© Copyright 2015. Friedman P.A. All Rights Reserved. 9
DEFINITIONS
© Copyright 2015. Friedman P.A. All Rights Reserved. 10
CONDITIONS
© Copyright 2015. Friedman P.A. All Rights Reserved. 11
EXCLUSIONS
© Copyright 2015. Friedman P.A. All Rights Reserved. 12
ENDORSEMENTS
© Copyright 2015. Friedman P.A. All Rights Reserved. 13
GENERAL RULES OF CONTRACT INTERPRETATION
• Read as a Whole
• Plain Meaning
• Defer to Definitions
• Consider the Context
• Ejusdem Generis
• Expression of One Thing is to the Exclusion of Another
• Contra Proferentem
© Copyright 2015. Friedman P.A. All Rights Reserved. 14
THEORIES OF INSURANCE POLICY INTERPRETATION
Corbin Williston
Reasonable Expectations Strict Constructionist
Contextual Plain Meaning
“Interpretation” “Construction”
“Liberal” “Conservative”
© Copyright 2015. Friedman P.A. All Rights Reserved. 15
RESOLVING AMBIGUOUS POLICY LANGUAGE
• What is Ambiguity?
• Use of Extrinsic Evidence
• Contra Proferentem
• Reasonable Expectations
© Copyright 2015. Friedman P.A. All Rights Reserved. 16
USE OF EXTRINSIC EVIDENCE: DUTY TO DEFEND
• “Four Corners” (“Eight Corners”) Rule
• Alleged Facts v. “True” Facts
• Who Can Use “True” Facts?
© Copyright 2015. Friedman P.A. All Rights Reserved. 17
WILLISTON APPROACH
• Strict Four Corners: Wisconsin
Fernandez v. Strand, 63 F. Supp.2d 949
(E.D. Wis. 1999)
• Four Corners With Exceptions: Florida
Victoria Select Ins. Co. v. Vrchota Corp.,
805 F. Supp.2d 1337 (S.D. Fla. 2011)
© Copyright 2015. Friedman P.A. All Rights Reserved. 18
CORBIN APPROACH
• All Extrinsic Evidence Allowed: California
Montrose Chem. Corp. v. Superior Court,
861 P.2d 1153 (Cal. 1993)
• Only Policyholder’s Extrinsic Evidence Allowed: New York
Fitzpatrick v. American Honda Motor Co., Inc.,
78 N.Y.2d 61 (N.Y. 1991)
© Copyright 2015. Friedman P.A. All Rights Reserved. 19
CONTRA PROFERENTEM
• Rule of Last Resort?
• Sophisticated Policyholders
• Policyholder-Drafted Language
© Copyright 2015. Friedman P.A. All Rights Reserved. 20
DOCTRINE OF REASONABLE EXPECTATIONS
“The objectively reasonable expectations of applicants and intended beneficiaries of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.”
Robert E. Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 HARV. L. REV. 961, 967 (1970)
© Copyright 2015. Friedman P.A. All Rights Reserved. 21
REASONABLE EXPECTATIONS SPLIT OF AUTHORITY
• Corbin Camp: Alaska, Hawaii, Iowa, Massachusetts, Missouri, New Jersey, New York, North Carolina, Pennsylvania, Tennessee, U.S. Virgin Islands
• Williston Camp: Florida, Idaho, Illinois, Michigan, North Dakota, Ohio, South Carolina, South Dakota, Vermont, Washington
• “Ambiguity” Camp: Everywhere else
© Copyright 2015. Friedman P.A. All Rights Reserved. 22
“ABSOLUTE” POLLUTION EXCLUSION
© Copyright 2015. Friedman P.A. All Rights Reserved. 23
POLLUTION EXCLUSION & REASONABLE EXPECTATIONS
• Corbin Camp: Arizona, Arkansas, California, Illinois, Indiana, Louisiana, Maine, Maryland, Massachusetts, Missouri, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, South Carolina, Utah, and Wyoming
• Williston Camp: Alaska, Florida, Kansas, Minnesota, Mississippi, Nebraska, Oklahoma, Pennsylvania, South Dakota, Texas, U.S. Virgin Islands, Virginia, West Virginia, and Wisconsin
• Hamlet Camp: Alabama, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Iowa, Kentucky, Michigan, Montana, New Mexico, North Dakota, Oregon, Rhode Island, Tennessee, Vermont, and Washington
© Copyright 2015. Friedman P.A. All Rights Reserved. 24
PRACTICE TIPS
Forum Shopping
Know Your Judge
Getting to a Jury
Know Where You Stand
Insurance Policy Interpretation: Key Rules for Insurers and Insureds Verne A. Pedro 732-892-5161 vpedro@egblaw.com
A Florida professional corporation with offices in New Jersey and New York. Managing attorney, C. Glen Ged. NJ offices: 1101 Richmond Ave., Suite 201, Pt Pleasant Beach, NJ 08742 97 Lackawanna Ave., Suite 301, Totowa, NJ 07512 | 201 Sumner Ave., Seaside Heights, NJ 08751 NY office: 591 Midland Ave., Staten Island, NY 10303
I. Regulatory Estoppel
A Florida professional corporation with offices in New Jersey and New York. Managing attorney, C. Glen Ged. NJ offices: 1101 Richmond Ave., Suite 201, Pt Pleasant Beach, NJ 08742 97 Lackawanna Ave., Suite 301, Totowa, NJ 07512 | 201 Sumner Ave., Seaside Heights, NJ 08751 NY office: 591 Midland Ave., Staten Island, NY 10303
Form of judicial estoppel Prohibits insurers from making representations to regulators then switching position when policyholders make claims.
26
Regulatory Estoppel
• When applied, the doctrine bars insurers’ reliance on particular policy provisions, such as exclusions.
A Florida professional corporation with offices in New Jersey and New York. Managing attorney, C. Glen Ged. NJ offices: 1101 Richmond Ave., Suite 201, Pt Pleasant Beach, NJ 08742 97 Lackawanna Ave., Suite 301, Totowa, NJ 07512 | 201 Sumner Ave., Seaside Heights, NJ 08751 NY office: 591 Midland Ave., Staten Island, NY 10303
27
Regulatory Estoppel
Statement to a regulatory agency
Taken opposite position in litigation from that previously presented to the agency.
Hussey Copper v. Royal Ins. Co., 2009 U.S. Dist. LEXIS 81830 (W.D. Pa. 2009)
28
Regulatory Estoppel
• Most regulatory estoppel cases involve applicability of pollution exclusion
A Florida professional corporation with offices in New Jersey and New York. Managing attorney, C. Glen Ged. NJ offices: 1101 Richmond Ave., Suite 201, Pt Pleasant Beach, NJ 08742 97 Lackawanna Ave., Suite 301, Totowa, NJ 07512 | 201 Sumner Ave., Seaside Heights, NJ 08751 NY office: 591 Midland Ave., Staten Island, NY 10303
29
Regulatory Estoppel
Simon Wrecking Co., Inc. v. AIU Ins. Co., 541 F. Supp.2d 714, 717 (E.D. Pa. 2008)
Nav-Its, Inc. v. Selective Insurance Co., 183 N.J. 110, 119, 869 A.2d 929 (2005)
A Florida professional corporation with offices in New Jersey and New York. Managing attorney, C. Glen Ged. NJ offices: 1101 Richmond Ave., Suite 201, Pt Pleasant Beach, NJ 08742 97 Lackawanna Ave., Suite 301, Totowa, NJ 07512 | 201 Sumner Ave., Seaside Heights, NJ 08751 NY office: 591 Midland Ave., Staten Island, NY 10303
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II. Illusory Coverage
•Means that the policy, when read as a whole provides no coverage at all. Only where there is no possibility under any set of facts for coverage is the policy deemed illusory
•The fact that claim is outside scope of coverage does not, without more, render the policy illusory.
A Florida professional corporation with offices in New Jersey and New York. Managing attorney, C. Glen Ged. NJ offices: 1101 Richmond Ave., Suite 201, Pt Pleasant Beach, NJ 08742 97 Lackawanna Ave., Suite 301, Totowa, NJ 07512 | 201 Sumner Ave., Seaside Heights, NJ 08751 NY office: 591 Midland Ave., Staten Island, NY 10303
31
Illusory Coverage
The concept of illusory coverage has been viewed "as an independent means to avoid an unreasonable result when a literal reading of a policy unfairly denies coverage." Jostens, Inc. v. Northfield Ins. Co., 527 N.W.2d 116, 118 (Minn. Ct. App. 1995).
A Florida professional corporation with offices in New Jersey and New York. Managing attorney, C. Glen Ged. NJ offices: 1101 Richmond Ave., Suite 201, Pt Pleasant Beach, NJ 08742 97 Lackawanna Ave., Suite 301, Totowa, NJ 07512 | 201 Sumner Ave., Seaside Heights, NJ 08751 NY office: 591 Midland Ave., Staten Island, NY 10303
32
Illusory Coverage
• The doctrine of illusory coverage is best applied where a part of the premium is specifically allocated to a type or period of coverage that turns out to be functionally non-existent.
A Florida professional corporation with offices in New Jersey and New York. Managing attorney, C. Glen Ged. NJ offices: 1101 Richmond Ave., Suite 201, Pt Pleasant Beach, NJ 08742 97 Lackawanna Ave., Suite 301, Totowa, NJ 07512 | 201 Sumner Ave., Seaside Heights, NJ 08751 NY office: 591 Midland Ave., Staten Island, NY 10303
33
Illusory Coverage
• When policy provisions, limitations, or exclusions completely contradict the insuring provisions, insurance coverage becomes illusory.
34
Illusory Coverage
Narrow coverage is not illusory coverage.
Coverage is not illusory unless benefits would not be paid under any circumstances.
35
III. Unconscionability
• Doctrine allows courts to render unenforceable a contract that is unreasonably favorable to one party while precluding a meaningful choice of the other party.
36
Unconscionability
Insured has burden of proving contract term is unconscionable.
37
Unconscionability
Procedural unconscionability - pertains to the facts surrounding the formation of the contract.
Substantive unconscionability -
pertains to the legality and fairness of the contract terms.
A Florida professional corporation with offices in New Jersey and New York. Managing attorney, C. Glen Ged. NJ offices: 1101 Richmond Ave., Suite 201, Pt Pleasant Beach, NJ 08742 97 Lackawanna Ave., Suite 301, Totowa, NJ 07512 | 201 Sumner Ave., Seaside Heights, NJ 08751 NY office: 591 Midland Ave., Staten Island, NY 10303
38
Unconscionability
Inquiry involves:
(a) whether terms are commercially reasonable and fair,
(b) purpose and effect of terms,
(c) one-sidedness of terms, and
(d) other similar public policy concerns.
A Florida professional corporation with offices in New Jersey and New York. Managing attorney, C. Glen Ged. NJ offices: 1101 Richmond Ave., Suite 201, Pt Pleasant Beach, NJ 08742 97 Lackawanna Ave., Suite 301, Totowa, NJ 07512 | 201 Sumner Ave., Seaside Heights, NJ 08751 NY office: 591 Midland Ave., Staten Island, NY 10303
39
Questions
40 Verne A. Pedro
vpedro@egblaw.com
© 2015 Hanna & Plaut, LLP. All Rights Reserved.
INSURANCE POLICY
CONSTRUCTION AND THE
"PLAIN LANGUAGE" VIEW David L. Plaut
dplaut@hannaplaut.com
Hanna & Plaut, LLP
(512) 472-7700
© 2015 Hanna & Plaut, LLP. All Rights Reserved.
The “Plain Language” view of policy construction
favors freedom of contract
● Insurance policies are contracts.
● The rights and duties they create and the rules
governing their interpretation are those generally pertaining
to contracts.
● Court’s primary concern in construing written contract
(policies) is to ascertain the true intent of the parties as
expressed in the instrument.
42
© 2015 Hanna & Plaut, LLP. All Rights Reserved.
Policy language is paramount
● The court must examine the policy as a whole, seeking
to harmonize all provisions and render none meaningless.
● In construing a policy, the court may not rewrite the
policy or add to its language.
43
© 2015 Hanna & Plaut, LLP. All Rights Reserved.
Policies should be enforced as written
● Policy language given its plain, ordinary meaning unless
something else in the policy shows the parties intended a
different, technical meaning.
● If an insurance contract uses unambiguous language,
the courts must enforce it as written.
44
© 2015 Hanna & Plaut, LLP. All Rights Reserved.
Ambiguity is a question of law
● Whether a contract is ambiguous is a question of law for the court.
● If a contract as written “can be given a definite or certain legal
meaning,” then it is unambiguous as a matter of law and rules of
construction related to resolving questions of ambiguity cannot be
used.
● Only if an insurance policy remains ambiguous despite these
canons of interpretation should courts construe its language against the
insurer in a manner that favors coverage.
45
© 2015 Hanna & Plaut, LLP. All Rights Reserved.
Intent and subjective expectations irrelevant
● Neither evidence of the parties’ intent with regard to
coverage nor argument that the policy could have been
drafted more clearly can create an ambiguity
● No ambiguity simply because a policy could have been
drafted to resemble other policies.
46
© 2015 Hanna & Plaut, LLP. All Rights Reserved.
Extrinsic evidence not allowed to create an ambiguity
● Extrinsic evidence may not be used to create an
ambiguity.
● “Parol evidence is not admissible for the purpose of
creating an ambiguity.”
● Many courts allow extrinsic evidence only to resolve an
ambiguity.
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© 2015 Hanna & Plaut, LLP. All Rights Reserved.
Patent v. Latent Ambiguity
● A patent ambiguity is evident on the face of the contract.
● A latent ambiguity arises when a contract which is
unambiguous on its face is applied to the subject matter with
which it deals and an ambiguity appears by reason of some
collateral matter.
● If a latent ambiguity arises from this application, parol
evidence is admissible for the purpose of ascertaining the true
intention of the parties as expressed in the agreement.
48
© 2015 Hanna & Plaut, LLP. All Rights Reserved.
Patent v. Latent Ambiguity in Ongoing Litigation:
49
© 2015 Hanna & Plaut, LLP. All Rights Reserved.
Contra Preferentum doctrine
● An ambiguous contract will be interpreted against its author.
● In the insurance context, it operates so that ambiguous policy
provisions are construed against the insurer and in favor of
coverage.
● If the policy interpretation offered by the insured of an
ambiguous provision is reasonable, it will be adopted even if the
insurer's interpretation is objectively more sensible, “as long as
that [the insured's] construction is not unreasonable.”
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© 2015 Hanna & Plaut, LLP. All Rights Reserved.
Sophisticated Insureds Rule
● Should contra-preferentum rule apply to insurance-
coverage disputes between sophisticated parties?
● In the commercial insurance field the insured is not an
innocent but a corporation of immense size, carrying insurance
with annual premiums in six figures, managed by sophisticated
business people and represented by counsel on the same
professional level as the counsel for insurers.
● In substance the authorship of the policy is attributable to both
parties alike.
51
© 2015 Hanna & Plaut, LLP. All Rights Reserved.
Questions?
Thank you!
David L. Plaut dplaut@hannaplaut.com
Hanna & Plaut, LLP (512) 472-7700
52
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