The Florida Supreme Court recently issued an important decision on the use of extrinsic evidence to resolve ambiguities in policy language. In Wash. Nat’l Ins. Co. v. Ruderman, No. SC12-323 (Fla. Jul. 3, 2013), the Florida Supreme Court answered a certified question from the U.S. Court of Appeals for the Eleventh Circuit, and held that ambiguities must be strictly construed against the insurer and in favor of coverage, without resort to extrinsic evidence. The decision is an important clarification of an unsettled issue and is favorable to policyholders in the state.
After a class action lawsuit by policyholders reached the Eleventh Circuit, the Circuit Court sought clarification on how to resolve an ambiguity within the policy at issue. Generally, contract law prohibits the use of outside evidence to alter or supplement the terms of an agreement, preferring to resolve disputes by looking within the document itself. However, if terms of the agreement are ambiguous, courts often permit the use of extrinsic evidence to explain the intent of the parties and resolve the ambiguity. Some courts have not been as lenient to insurers and have found that where an insurer drafts ambiguous policies, such ambiguities will be automatically construed against the insurer and in favor of coverage.
The Eleventh Circuit was concerned that Florida law was unsettled on the issue. One Florida Supreme Court case held that “ambiguous policy provisions are interpreted liberally in favor of the insured and strictly against the drafter who prepared the policy.” Auto-Owners Ins. Co. v. Anderson, 756 So.2d 29, 34 (Fla. 2000). But an earlier ruling appeared to qualify this rule by suggesting that the ambiguity should be construed against the insurer only if the ambiguity cannot be resolved after considering extrinsic evidence. Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So.2d 938 (Fla. 1979). In Excelsior, the Florida Supreme Court said courts should interpret the ambiguity against the drafter, “Only when a genuine inconsistency, uncertainty, or ambiguity in meaning remains after resort to the ordinary rules of construction.” The Eleventh Circuit questioned whether ambiguous policy language should be automatically construed against the insurer or if the ordinary rules of construction enabled the court to review extrinsic evidence to clarify the intent of the parties.
The Florida Supreme Court held that the decision in Excelsior did not require the consideration of extrinsic evidence to resolve ambiguities but that ambiguities are to be strictly construed against the insurer. According to the court, the insurer has a duty to draft clear and unambiguous terms and is bound by the language it drafts. If a provision is susceptible to more than one reasonable interpretation, the policy must be construed in favor of coverage for the policyholder and against the drafter who muddled the language. The majority concluded that Florida insurance law supports a strict rule against insurers that precludes the use of extrinsic evidence to clarify ambiguous policy language.
A strong dissent, however, thought that construing ambiguities against the insurer should be a last resort and that the court should first undertake efforts to determine the true intent of the parties and resolve the ambiguities. The dissent noted that, “Determining the parties’ intent is the central concern of the law of contracts even in the realm of insurance,” and it saw no reason to alter traditional rules of construction, which allow the use of extrinsic evidence to clarify ambiguities. “If extrinsic evidence resolves the ambiguity, the policy is enforced pursuant to its clarified meaning.” Only if the ambiguity cannot be resolved, should courts apply the “last-resort” rule of construction against the drafter. According to the dissent, the majority ruling “recedes from precedent and prematurely abandons the search for the parties’ intent” in favor of aiding the policyholder and enforcing coverage.
As the dissenting justices acknowledged, a number of states including New Jersey, Indiana, and Texas have strictly construed ambiguous insurance contracts against the insurer without considering extrinsic evidence, but, until this case, Florida had not definitively supported that position.
The decision by the Florida Supreme Court to preclude the use of extrinsic evidence marks a significant victory for policyholders and sets forth a strict rule for insurers. Insurers may limit their liability and define the terms of coverage, but they must do so clearly and unambiguously within the policy.
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