As I review cases to supplement my various publications I come across some cases that I would characterize as being “must reads.” The Minnesota Court of Appeals decision in Economy Premier Assur. Co. v. Western National Mut. Ins. Co., 839 N.W.2d 749 (Minn. Ct. App. 2013) is one of those cases.
The Minnesota Court of Appeals in Economy Premier provides an excellent historical tour through the evolution of the ambiguity doctrine of contra proferentem.
The court in Economy Premier began its discussion of the contra proferentem doctrine in terms of its usual application. “In the typical coverage contest between an insurer and its insured, ambiguous terms in the insurance policy are construed in favor of the insured.”
At the heart of the contra proferentem doctrine is a judicial recognition that a disparity in bargaining power generally exists between the insurer and the insured due to the adhesive nature of the insurance contract and the insurance transaction.
The court noted that the contra proferentem doctrine has been recognized since the days of Sir Francis Bacon (“[a] man’s deeds and his words shall be taken strongliest against himself.”) and Sir Edward Coke (“[i]t is a maxim in law, that every man’s grant shall be taken by construction of law most forcefully against himself”). Id. at 754 citing Francis Bacon, A Collection Of Some Practical Rules Of Maxims Of The Common Laws Of England, With Their Latitude And Extent, Regula III (1636); II Edward Coke, The First Part Of The Institutions Of The Law Of England, Or, A Commentary Upon Littleton, 183(a) (1853).
The court also cited to William Blackstone’s Commentaries where William Blackstone explained the contra proferentem doctrine as it applied to property deeds: “[T]he principle of self-preservation will make men sufficiently careful, not too prejudice their own interest by the two extensive meaning of their words: and hereby all men are of deceit … is avoided; from men would always effect ambiguous affect ambiguous and intricate expression provided they were afterwards at liberty to put their own construction upon them.”
The contra proferentem doctrine is predicated upon the rationale that the proponent of a particular term is more likely aware of its possible ambiguities, which is especially true when dealing with standard form contracts.
Historically, in the general context of contract law, the doctrine of contra proferentem was regarded as a doctrine of last resort and was only used when other interpretive methods failed to reveal the parties intent. Id. citing Corbin on Contracts, §24.27 (1998); see, e.g., Yeaton v. Fry, 9 U.S. 335, 341-42, 5 Cranch, 335, 3 Lawyers Edition 117 (1809) (applying the doctrine when no other means of ascertaining intent were available); Varnum v. Thruston, 17 Md. 470, 496, 1861 WL 2156 (1861) (describing the doctrine as one of “strictness and rigor, and not to be resorted to but where other rules of exposition fail”).
However, the doctrine of contra proferentem assumed a prominent role in American insurance law such that it is now the analytical starting point, instead of the end point, for courts interpreting ambiguous insurance language. Id. at 754-55, citing by way of example, First National Bank v. Hartford Fire Ins. Co., 95 U.S. 673, 679, 5 Otto 673, 24 L.Ed. 563 (1877) (applying the rule without first ascertaining the parties’ intent; Mutual Life Ins. Co. of New York v. Hurni Packing Co., 263 U.S. 167, 174, 44 S.Ct. 90, 91, 68 L.Ed. 235 (1923) (“The rule is settled that in case of ambiguity that construction of the policy will be adopted which is most favorable to the insured.”).
The court in Economy Premier discussed the rationale which supports the contra proferentem doctrine: [C]ontra proferentem … interpret[s] ambiguities in insurance contracts against the drafter and in favor of finding coverage [citation omitted] it does so because insurance policies are often contracts of adhesion, consisting largely of boilerplate terms that are proffered by sophisticated commercial entities and ordinarily accepted by professional unsophisticated consumers [citations omitted]. The rule protects the insured who is usually at a disadvantage in terms of knowledge, expertise and bargaining power relative to her insurer, but the rule applies even to disputes involving a sophisticated insured with equal bargaining power. [citation omitted]. Contra proferentem applied in these cases holds parties to the terms they offered in negotiation and provides an incentive, especially for insurance companies who are in a better position to prevent misunderstandings to avoid including ambiguities.
The issue before the court in Economy Premier was whether the doctrine of contra proferentem, which interpreted ambiguous insurance policy language against the policy drafter was a doctrine which should be applied with the same force in situations where the contract dispute did not involve the two contracting parties but, instead, involved one contracting party and another (stranger) entity.
Specifically, in the Economy Premier case, two insurers were arguing over the interpretation of one of the insurer’s policies. The insurance company that did not draft the policy (the “stranger”) could utilize the doctrine of contra proferentem and hold any policy ambiguity against the insurer that issued the policy.
The Minnesota Court of Appeals held that applying the doctrine of contra proferentem in the context presented would substantially remove it from its primary rationale.
Therefore, the court held that ambiguous contract terms were not to be held against the insurer in favor of a different insurer who was a stranger to the contract.
The court in Economy Premier bolstered its conclusion by indicating that most of the jurisdictions agreed with that conclusion.
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