The general rule holds that when a policy provision is susceptible to more than one interpretation courts should construe the ambiguity against the insurer and liberally in favor of the insured. This principle is often asserted by policyholders seeking coverage but is not without limitation. The interpretive device favors coverage but courts will not impose an unreasonable interpretation or an absurd result.
In the recent case of Sauer v. Crews, 2014-Ohio-3655, an insurance company asked the Ohio Supreme Court to affirm that when determining whether a policy provision is ambiguous, courts must consider the context of the provision and should not isolate the provision or weigh ambiguity in the abstract. The court agreed with the insurer and ruled that “courts must look at the provision in the overall context of the policy in determining whether the provision is ambiguous.” The opinion offers a restrained but important affirmation from the court that the intention of the parties to the insurance contract is of primary importance, and interpretive devices used by courts should not be detached legal abstractions, but should be utilized to interpret policy provisions in light of the policy as a whole.
The case arose after a paving company illegally parked its flatbed trailer on the roadway while completing work. Another driver crashed into the trailer and died as a result of the accident. When the driver’s family sued the paving company, the company did not think it had coverage for the parked trailer under its commercial auto policy and waived its rights of recovery. Instead, the company pursued coverage under its commercial general liability policy provided by a different insurer. The CGL insurer denied coverage.
The CGL policy at issue excluded coverage for injury arising out of the ownership or use of an “auto,” which it defined as a “land motor vehicle, trailer or semitrailer…” But the policy did provide coverage for accidents arising from the use of “mobile equipment,” which the policy defined to include things like bulldozers, farm machinery, forklifts, cranes, and other vehicles not described in the list but that were “maintained primarily for purposes other than the transportation of persons or cargo.”
Seizing upon the word “cargo,” the insured argued that “cargo” was subject to multiple meanings and therefore the policy was unclear as to whether “cargo” included the trailer carrying paving equipment. Given the ambiguity of the term “cargo,” the insured argued that it could not be determined if the trailer was “mobile equipment” and that the ambiguity should be construed against the insurer and in favor of coverage. Both the trial court and court of appeals agreed that “cargo” was ambiguous and ruled in favor of coverage for the insured.
The court of appeals focused on the various dictionary definitions of “cargo” and found that the term could either mean any items being transported or, more specifically, goods or merchandise in the stream of commerce. While the paving equipment would fit the broad definition of “cargo,” it may not fit the narrower definition and therefore, the court of appeals concluded that the ambiguity precluded a clear result and the provision must be construed in favor of the insured.
Recognizing the implications of this result and seeking to curb the expansive use of ambiguity arguments, the insurer sought review from the Ohio Supreme Court. The insurer argued that the lower courts unfairly isolated the term “cargo” and failed to consider the broader context of the policy provision which the insurer thought informed the singular interpretation that the trailer was an auto, not mobile equipment.
Beyond interpreting the specific language of the policy at issue, the insurer stressed at oral argument that the case carried significant implications because of the “the way the interpretive device – the use of the dictionary definition – was used in this case [by the lower courts].” The insurer suggested that detaching language from its context can almost always produce an ambiguity, and not grounding the interpretive rules within a reasonable context of the policy as a whole could result in the use of “legal abstractions to invent ambiguities that don’t really exist under the circumstances.”
Such limits on the use of interpretive devices are not new law, but the insurer sought a firm statement on the issue to guide lower courts and to elicit some certainty and stability on the issue. In its amicus brief, the Ohio Insurance Institute supported the insurer and likewise sought clarity, fearing that while courts frequently recite the legal principles, they have sometimes strayed from the fundamentals and “failed to recognize the primacy of the parties’ intentions when words used in an insurance policy have more than one dictionary meaning.”
The Ohio Supreme Court agreed with these positions. It reiterated the basic rules of insurance policy interpretation, stating that policies are not to be read in an “overly circumscribed fashion” and that “the intention of the parties must be derived instead from the instrument as a whole, and not from detached or isolated parts thereof…” The court concluded that when determining whether a word or phrase of the policy is ambiguous, courts “must consider the context in which the provision is used.”
While the decision provides important guidance on the use of “interpretive devices” and restricts broad-based arguments asserting ambiguity, the full implications of the decision remain to be seen. The practical implications and usefulness of the decision may be limited by the court’s treatment of the issue and its focus on the language within the policy itself. The court did not look to how the CGL policy interacted with the commercial auto policy or consider other extrinsic evidence, but rather looked simply at the construction of the policy, the definition of auto, the definition of mobile equipment, and concluded that within the context of the policy as a whole, coverage did not extend to the trailer.
The decision affirmed the Ohio Supreme Court’s preference for using interpretive devices within the context of the policy as a whole and with an eye towards the parties’ intentions, not as legal abstractions or mechanical rules applied automatically. The ruling should provide additional clarity for insurers and insureds in coverage disputes and will likely foreclose some of the more ambitious arguments claiming ambiguity.
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