No Ifs, Ands, or Buts: An Ambiguous Insurance Policy Will Be Strictly Construed Against the Insurer

07.18.2013

When an insurance policy provision is ambiguous, is it always interpreted liberally in favor of the insured and strictly against the drafter of the policy?  The Florida Supreme Court definitively answered this question in Washington National Insurance Corporation v. Ruderman, 2013 WL 3333059 (Fla. July 3, 2013) when it held that an ambiguous insurance contract is to be liberally construed in favor of coverage, without regard for extrinsic evidence that could potentially clarify the ambiguity.  Ruderman thus reaffirms Florida’s longstanding rules of construction of insurance contracts and clarifies that the consideration of extrinsic evidence is unnecessary.

Ruderman came before the Florida Supreme Court on a certified question from the United States Court of Appeals for the Eleventh Circuit that required the Florida court to answer three questions: (1)  Does an ambiguity exist regarding the Policy’s coverage?; (2)  If an ambiguity in the insurance Policy exists, should courts first attempt to resolve the ambiguity by examining available extrinsic evidence?; and (3) Applying Florida law, does the Policy’s “Automatic Benefit Increase Percentage” apply to only certain benefits, and not others?  For the reasons explained below, the court answered questions 1 and 3 in the affirmative, and question 2 in the negative.

Sydelle Ruderman and other Florida insureds initiated this case by filing a class action in the United States District Court for the Southern District of Florida against Pioneer Life Insurance Company, which was later succeeded by Washington National Insurance Corporation (“Washington National”), concerning insurance policies that provide for reimbursement of certain home health care expenses.  Specifically, the controversy concerned the application of the “Automatic Benefit Increase Percentage” provision contained in the insureds’ limited benefit home health care coverage insurance policies.  After reviewing the various provisions, the district court concluded that there were two reasonable interpretations of the Policy: the Automatic Benefit Increase Percentage could be read to apply solely to the “Home Health Care Daily Benefit” or the Automatic Benefit Increase Percentage could be read to apply to all amounts listed within the Policy’s “Benefits” section, which would include the “Per Occurrence Maximum Benefit” and the “Lifetime Maximum Benefit.” Because of the ambiguity in the Policy, the district court granted summary judgment for the insured.

On appeal, the Eleventh Circuit also agreed that the Policy was unclear with regard to which benefits increased each year.  Although the Eleventh Circuit acknowledged that Florida law requires an ambiguous policy to be construed in favor of coverage, the Court of Appeals was unsure of the correct approach to take under Florida law to resolve the ambiguity.  The basis for this perceived lack of clarity was the decision in Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So.2d 938 (Fla. 1979), in which the court stated, “[o]nly when a genuine inconsistency, uncertainty, or ambiguity in meaning remains after resort to the ordinary rules of construction is the rule apposite.”  The Eleventh Circuit was uncertain whether this language required courts to consider extrinsic evidence concerning the terms of the policy before construing the contract against the drafter.

Ruderman clarified that Excelsior did not alter the rule that ambiguous insurance policies must be construed against the insured.  Further, the court explained that Excelsior did not require the court to consider extrinsic evidence before an insurance policy could be found to be ambiguous.  As a result, the court found that the Automatic Benefit Increase Percentage applied to all the benefit categories set forth on the certificate schedule in the Policy.

The decision in Ruderman reinforces the principle that although insurance companies have the right to limit their liability, they must do so clearly and unambiguously.  The insurance company will not have an opportunity to attempt to clarify potential ambiguity by offering extrinsic evidence.  This rule of insurance contract interpretation is followed in many states.  Instead, an insurer must suffer the consequences of its ambiguous policy, which will be construed against it. 

Jaime Wisegarver is an associate in the Litigation Section, where she handles a variety of civil and commercial matters, including insurance recovery litigation and counseling. For more information, please contact Jaime at (804) 771-5634 or jwisegarver@hf-law.com.