Principles of interpretation of insurance contracts

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Determining how an insurance policy applies to a situation not foreseen by the policy writers often results in disputes between an insurer and an insured. It is therefore not surprising that the COVID-19 pandemic, which is unprecedented in many ways, has resulted in many differences of opinion as to the extent to which various types of insurance cover a wide range of related losses. to COVID-19. And while the first court rulings on this subject were issued recently, those rulings have reached different conclusions and are largely motivated by the specific facts alleged and the political language involved (as well as the oversight law), leaving some Wider disagreements on the scope of coverage largely unresolved.[1] In other words, seven months after policyholders began submitting claims, uncertainty continues to loom over a wide range of coverage issues related to COVID-19.

In view of this uncertainty, policyholders assessing potential coverage for losses due to COVID-19 should keep in mind a central principle of insurance coverage law: the interpretation of insurance policies weighs heavily in favor of coverage in the event of uncertainty. From this basic precept flow some well-established principles of insurance contract interpretation that all policyholders should keep in mind and which can play a valuable role for those seeking coverage due to COVID-19.

First, courts nationwide generally agree that insurance policies should be interpreted in favor of coverage and that any ambiguity should be read in favor of the insured. A sample of decisions taken across the country illustrates how this rule works to provide broad coverage to policyholders in situations that may appear uncertain. For example, the courts have held that: (1) a policy that covered the actions of a truck driver while he was “on duty” included events that occurred while the driver slept in the passenger bunk of the truck[2]; (2) a policy that covered the “collapse” of a structure could include the collapse of that structure[3]; and (3) a policy that covered “functions incidental to [an auto dealership’s] garage ”included an informal gathering of a few employees after work to drink beer at the dealership.[4] While these cases all differ significantly in their specifics, they each illustrate the general way in which the courts will interpret the scope of coverage under an insurance policy, particularly where some uncertainty is present.[5]

Second, when an insurer seeks to deny coverage on the basis of an exclusion clause, that exclusion must be interpreted restrictively and the insurer bears the burden of proof. Coverage decisions from various courts demonstrate the narrow interpretation courts will apply to exclusions when their application is challenged. For example, the courts have rejected attempts by insurers to exclude coverage by narrowly interpreting exclusions such as: (1) an exclusion applying to a “contractor” included only contractors retained by the insured, rather than any contractor carrying out work that benefits the insured[6]; (2) an exclusion for “owned property” did not apply to groundwater located on an insured’s property[7]; and (3) an exclusion for injuries resulting “from or in the course of the business activities of an insured” did not apply to the posting by an insured of allegedly defamatory posters about a colleague in his workplace.[8] Courts will often apply this principle not only to provisions explicitly marked as an “exclusion”, but also to other limitations of coverage.

Third, some courts will resolve disputes in favor of coverage where a policyholder can demonstrate that they had a reasonable expectation of coverage, even though that expectation is arguably inconsistent with certain terms of the policy. In one illustrative example, a court refused to ban coverage of a brawl under a nightclub policy with an “assault and battery” exclusion because the nightclub alleged it was unaware of the exclusion and believed the physical altercations were covered by the policy.[9]

Fourth, when it comes to liability insurance policies, insurers generally have a very broad duty of defense and often have to defend the whole of a lawsuit when an allegation raised in a complaint could potentially fall under coverage. To illustrate how this rule can apply, an insurer under a policy covering a landlord’s “property manager” has been found to have a duty to provide a full defense to a tenant watering a few plants as a remedy. favor to the owner.[10]

Of course, these principles alone will not determine whether a particular claim is covered by a particular policy, and policyholders requesting coverage should be prepared to detail the specific facts and laws in support of their request for coverage. For example, a policyholder seeking business interruption coverage under a property insurance policy that requires “direct physical loss” will not only want to cite these favorable general principles, but should also consider provide any available evidence regarding the potential presence of COVID-19 in the property. . The policyholder should further seek to draw analogies with cases where a similar policy requirement has been satisfied by the existence of a condition which has impacted the property but has not resulted in permanent damage. to property, such as bacteria, ammonia or power failure.[11] But, regardless of the specific facts and policy provisions under which an insured seeks coverage, the key principles of insurance coverage law that put the thumbs up in their favor should play a key role. in analyzing their coverage in these uncertain times.


[1] See Social Life Magazine v. Sentinel Ins. Co., n ° 1: 20-cv-03311-VEC (SDNY May 14, 2020); Gavrilide Mgmt. Co. v. Mich. Ins. Co., n ° 20-000258-CB (Cir. Cir. Mich. July 1, 2020); Rose’s 1, LLC v Erie Ins. Ex., No. 2020-CA-002424-B (DC Super. Ct. August 6, 2020); Studio 417, Inc. v The Cincinnati Ins. Co., n ° 20-cv-03127-SRB (WD Mo. August 12, 2020); Optical Services United States / JC1 c. Franklin Mut. Ins. Co., n ° BER-L-3681-20, (NJ Super. Ct. Bergen Cty. August 13, 2020).

[2] Torres v. Transguard Ins. Co. of America Inc., 2014 WL 3362124, n ° CV-13-01578 (D. Ariz. June 20, 2014).

[3] Key Biscayne Ambassador Condominium Association Inc. v. Aspen Specialty Insurance Co., 2018 WL 1863741 n ° 16-24564, (SD Fla. 5 February 2018).

[4] Sentry Select Insurance Company v. Ruiz, 324 F. Supp. 3d 874 (WD Tex. 2018).

[5] Further, not only should insurers read policies broadly in favor of coverage, but they also have a duty to investigate a claim before denying coverage, and failure to investigate may result in extra-contractual liability. Given the haste with which many insurers have denied coverage for COVID-19 claims, it is no surprise that a number of lawsuits have already been filed alleging that an insurer failed to conduct an proper investigation before refusing coverage of a COVID-19 issue. Claim.

[6] United States Liability Insurance Co. v. Benchmark Insurance Services, 797 F.3d 116 (1st Cir. 2015); Atain Specialty Inc. Co. v. Lusa Construction, Inc., 2016 WL 3452750, n ° 14-4356 (DNJ 21 June 2016).

[7] Reliance Inc. v. Armstrong World Industries, 678 A.2d 1152 (NJ App. Div. 1996).

[8] Illinois Farmers Ins. Cie c. Modory, 2019 IL App (1er) 180721-U, ¶ 42 (App. Ct. Ill. March 15, 2019).

[9] Fall v. First Mercury Ins. Co., 225 F. Supp. 3d 842, 849 (D. Arizona 2016).

[10] Dove v. State farm, 399 P.3d 400 (NM Ct. App. 2017).

[11] Motorists Mutual Ins. Co. vs. Hardinger, 131 Fed. NS. 823 (3d. Cir 2005); Gregory Packaging, Inc. v. Travelers Property Casualty Co. of America, Civ. # 2: 12-CV-04418, 2014 WL 6675934 (DNJ November 25, 2014); Wakefern Food Corp. vs. Liberty Mutual Fire Insurance Co., 968 A.2d 724 (NJ App. Div. 2009).


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