Ambiguity

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A fundamental canon of construction used to interpret statutes and contracts is noscitur a sociis, which translates to “it is known by the company it keeps.”  In Virginia v. Tennessee, 148 U.S. 503, 519 (1893), the United States Supreme Court explained that “the meaning of a term may be enlarged or restrained by reference to the object of the whole clause in which it is used.”  In other words, context is key.

Noscitur a sociis is often utilized when terms are used in a list, allowing words to draw meaning from the common elements of the list.  To take a simple example, the word “mustang” could have a different intended meaning when used with “ranger” and “explorer” (vehicles manufactured by Ford) than if used with “filly” and “mare” (horses).  Finding the common connection between words in a list is helpful in discerning meaning.

Insurance policies have special interpretive rules

An insurance policy is a special kind of contract, one where ambiguous insurance policy language must be interpreted in favor of insurance coverage for the policyholder.  Provisions that grant insurance coverage are read broadly, and exclusions to insurance coverage are construed narrowly.  In insurance law, noscitur a sociis is most often used to narrow the reach of exclusions, resolving contextual ambiguities in favor of finding coverage.  It can also be used appropriately to construe insuring agreements broadly and to identify multiple reasonable meanings of insurance policy language.  Noscitur a sociis should never be used to narrow insuring agreements or to expand exclusions by interpretation.

A provision can be ambiguous in context

Because insurance policies must be read as a whole, the doctrine of noscitur a sociis is an appropriate tool to identify an ambiguity in insurance policy language where a plain-meaning reading of isolated provisions could appear, at first blush, to lack ambiguity.

In Flagship Credit Corp. v. Indian Harbor Ins. Co., 481 F. App’x 907, 910-12 (5th Cir. 2012), the Fifth Circuit considered whether statutory damages for violations of the Texas Business and Commercial Code constituted a “penalty” that fell within an exclusion of “fines, penalties or taxes imposed by law.”  The court determined that the word “penalties” gained meaning from the words “fines” and “taxes,” which are paid to the government.  While the definition of “penalty” could possibly extend to private settlements for civil wrongs of the type prohibited by the Texas Business and Commercial Code, in context, the terms “fines” and “taxes” made clear that the term “penalties” should be limited to payments to the government.

Likewise, in Hunters Ridge Condo. Ass’n v. Sherwood Crossing, LLC, 395 P.3d 892 (Or. Ct. App. 2017), the court used the doctrine of noscitur a sociis to determine that the word “condominium” was ambiguous in the context of a building being used for both residential and commercial purposes.  The other listed structures in the policy definition of “condominium”—“apartment” and “townhouse”—were residential in character, shedding “considerable light” on how a purchaser of insurance would interpret the term “condominium.”  Accordingly, the court limited the exclusion to wholly residential structures.Continue Reading Reading insurance policies: context is key

Reviewing philosopher Mark Rowlands’ 2012 work Can Animals Be Moral?, Jessica Pierce wrote in the Notre Dame Philosophical Reviews, “The question, ‘Can animals be moral?’ has suffered the worst kind of philosophical denial: an almost complete lack of interest by ‘serious’ philosophers.”

No longer.  In an effort to apply “general canon[s] of contract interpretation,” the U.S. District Court for the Western District of Pennsylvania – in a recent insurance-coverage opinion of all places – implicitly (if not explicitly) considered this timeless, vexing question and concluded that “[a]nimals do not have conscious agency and are not subject to human law.”

In the honorable pursuit of robust coverage law – really, is there a more noble pursuit? – the court rendered raccoons and their woodland “companions” as nothing more than legal roadkill.  Their demise, however, was not in vain.  The court’s decision serves as a good reminder to all that just because a term used in an insurance policy is not defined does not mean that it is ambiguous.Continue Reading Raccoons as legal roadkill: The Western District of Pennsylvania denies coverage for damage caused by masked bandits

Confronted with an ambiguity in its own insurance policy, an insurance company will sometimes attempt to rewrite its policy long after it first issued that policy.  Last week, the Pennsylvania Superior Court again rejected such gamesmanship, emphasizing that, when interpreting an insurance policy, a court “must examine and construe the policy as it exists, not the way [the insurer] wishes it had drafted it with the benefit of hindsight.”  In Rourke v. Pennsylvania National Mutual Casualty Insurance Company, 2015 PA Super 100 (Pa. Super. Ct. 2015), the Superior Court reaffirmed the long-standing principle that a court cannot rewrite a policy to include terms an insurer omitted.

In Rourke, a 19-year-old (former) foster child was severely injured in an auto accident.  Seeking coverage pursuant to their personal auto policy, the (former) foster parents argued that that policy afforded coverage because the 19-year-old was a “family member.”  “Family member” was defined in their policy to mean “a person related to you by blood, marriage or adoption who is a resident of your household.  This includes a ward or foster child.”  The policy, however, failed to define the terms “foster child” or “ward.”  In relevant part, the Court’s analysis focused only on whether the 19-year-old was a “ward.”  The insurer claimed that the 19-year-old was not a “ward” because he was not a minor at the time of the accident.  The Pennsylvania Superior Court soundly rejected this argument:Continue Reading Read Insurance Policy as Drafted, Not as Insurance Company “Wishes It Had Drafted It”

On October 14th, Vice Chancellor Leo E. Strine, Jr. of the Delaware Court of Chancery blew some much needed fresh air into New York allocation jurisprudence. The Viking Pump consolidated cases, C.A. 1465-VCS, have already yielded very interesting and thoughtful rulings on the transfer of insurance in connection with complicated corporate transactions. Viking Pump, Inc. v. Liberty Mutual Insurance Company and Warren Pumps LLC, 2007 WL 2752912 (Del. Ch. Apr. 2, 2007 (unpublished opinion).

The latest decision, the first nearly fifty pages of which is also devoted to corporate transaction issues, then spends the next 40 pages [yes, it is 88 pages long] delving into the arcana of allocation law.

Continue Reading Delaware Chancery Court Opens the Door to “All Sums” Allocation in New York

Recently, the Court of Appeals for the Third Circuit decided Nationwide Mutual Insurance v. CPB International, Docket No. 07-4772 (April 14, 2009). CPB supplied chondroitin to Rexall for use in compounding tablets, including chondroitin and glucosamine. CPB supplied two batches of chondroitin that turned out to fall short of contractual specifications and to contain impurities. By the time these defects were discovered, Rexall had already compounded the CPB-supplied material with glucosamine, so that both compounds had become useless.

In the lawsuit that ensued, Rexall brought a claim for breach of contract against CPB seeking return of the purchase price it had paid for the first batch, and also seeking consequential damages for the damage to the glucosamine and economic losses. CPB tendered that claim to its CGL carrier, Nationwide, which defended under a reservation of rights and also brought a declaratory judgment action to avoid any duty to defend or indemnify.

The Third Circuit held in favor of Nationwide and discharged it from any coverage obligations.Continue Reading Third Circuit Misses the Mark in CPB International