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By Barry Zalma, Attorney and Consultant
The most difficult task faced by an underwriter, and those representing underwriters, is to write insurance policy provisions in clear and unambiguous language. It has become even more difficult when the underwriter is required to use language that is "easy to read" for a person with only a fourth grade education. People who write insurance policy wordings must be precise. Sesame Street English is, by its very nature, imprecise. Underwriters when writing an insurance policy should limit their writing to simple declarative statements. The use of multiple commas, semi-colons, conjunctions and contractions will not assist the insurer in its effort to convey clear meaning. Such use will cause the insurer nothing but trouble.
In North Pointe Casualty Insurance Company v. M & S Tractor Services, Inc., 36 Fla. L. Weekly D1365a (Fla. 2d DCA June 24, 2011), the Court of Appeals of Florida found that the failure to use precise language that was understandable was fatal to an attempt to exclude a loss. In fact, the court found that it could not understand how to accurately apply an exclusionary provision at all. Since the provision was ambiguous the court also found that coverage was not excluded even though it appeared to the Court of Appeal that it was the intent of the insurer to exclude the loss.
The critical endorsement, entitled "Exclusion of Injury to Employees, Contractors and Employees of Contractors," is identified as NP-08-16-02-06 and was different from the exclusion in the Insurance Service Office Commercial General Liability Policy (CGL).
(Lexis.com subscribers can access the Lexis enhanced version of the North Pointe Casualty Insurance Company v. M & S Tractor Services, Inc., 36 Fla. L. Weekly D1365a (Fla. 2d DCA June 24, 2011) decision with summary, headnotes, and Shepard's. Non subscribers can access the free unenhanced version of the North Pointe Casualty Insurance Company v. M & S Tractor Services, Inc., 36 Fla. L. Weekly D1365a (Fla. 2d DCA June 24, 2011) decision available from lexisONE Free Case law.)
North Pointe Casualty Insurance Company (North Pointe) appealed a declaratory judgment determining that its liability insurance policy issued to M & S Tractor Services, Inc. (M & S), provides coverage for an accident in which the young son of Glenn and Aimee Hines was severely injured. Mr. Hines is the president of M & S and was operating a farm tractor in the course and scope of his employment with the corporation when his son sustained these injuries by falling off the tractor. The Court of Appeal noted that although North Pointe undoubtedly intended to exclude coverage for this claim it concluded that the liability policy's exclusion for injuries to children of employees of the named insured was not effective to exclude North Pointe's coverage for the claim.
In June 2007, Mr. Hines allowed his seven-year-old son to ride on a John Deere tractor operated by Mr. Hines in the course and scope of his employment with M & S. M & S is apparently a small, family corporation. Mr. Hines is both president of the corporation and an employee. The young boy fell from the tractor, and one of the tractor's wheels hit him. He sustained serious injuries.
Aimee Hines, as parent and natural guardian, filed a lawsuit against M & S alleging that the tractor's operator, her husband, had been negligent and that his negligence resulted in these injuries. The parties to this appeal agreed to stay that lawsuit while they determined whether North Pointe provided coverage for this occurrence.
It was undisputed that North Pointe issued a comprehensive liability insurance policy (CGL) to M & S for the period in which this accident happened. The policy provides coverage and a duty of defense for claims involving bodily injury and property damage as defined within the policy.
There is no dispute that the primary policy provides coverage for a bodily injury of the sort sustained by this young boy. The main body of North Pointe's policy contains a standard exclusion for bodily injury to a child of an employee of the insured when the injury was a consequence of the employment. If that language applied in this case, it would appear to exclude coverage for this claim. But in this particular policy, a special endorsement has replaced the standard exclusion language. This case concerns primarily provision III of the endorsement.
This insurance does not apply to:* * * III. "Bodily injury" sustained by the spouse, child, parent, brother or sister of any employee of any insured, or of a contractor, or of an employee of a contractor of any insured as a consequence of "bodily injury" to such employee, contractor, or employee of such contractor, arising out of and in the course of such employment or retention by or for any insured. (Emphasis added)
The controversy in this case centers on the restrictive clause "as a consequence of 'bodily injury' to such employee, contractor, or employee of such contractor." There are eight commas in the critical sentence that make it difficult to determine the subject that this clause restricts.
North Pointe asserts that the plain language of this sentence means "[t]his insurance does not apply to . . . [b]odily injury sustained by the . . . child . . . of an employee of any insured . . . arising out of and in the course of employment or retention by or for any insured." This is essentially the same language contained in the standard policy before the special endorsement superseded it. This reading of the exclusion requires that the restrictive clause apply only to the phrase, "of an employee of a contractor of any insured."
This interpretation arguably excludes coverage for the claim in this lawsuit, but it would exclude coverage for the children of employees of contractors only if those injuries were the consequence of injuries to "such employee, contractor, or employee of such contractor." This interpretation would result in better coverage for the children of employees of contractors of the insured than for those of employees of the insured for no apparent reason. The Plaintiffs, on the other hand, argued that the exclusion should be read as follows: "This insurance does not apply to . . . '[b]odily injury' sustained by the . . . child . . . of any employee of any insured . . . as a consequence of 'bodily injury' to such employee . . ., arising out of and in the course of such employment or retention by or for any insured."
Consequently, the Court of Appeal found, because the young boy's injuries were not the result of an injury to an employee of an insured, the exclusion does not apply to his injuries. The Court of Appeal concluded that the exclusion is unlikely to address the underwriting concerns of the drafter. Nevertheless, the court found that it could not ignore the restrictive clause. The drafter included it, and so the court was required to give it meaning. After grappling with the cumbersome critical sentence, the Court of Appeal concluded that the exclusion at issue was ambiguous. It commented that "the plethora of commas that punctuate this provision, along with the placement of the restrictive clauses, probably allows for no interpretation that has a clear meaning, and the provision is susceptible to more than one debatable meaning."
Insurers should not tinker with standard policy language unless they can write more succinctly and clearly than the ISO drafters. In this case the drafters of the policy wording in issue was so ambiguous that the court concluded that there was "no interpretation that has a clear meaning." I have written policy wordings. It is the most difficult writing I have ever done. It is essential, when writing a policy or endorsement to a policy must use simple language without complexity. Each term that is used that is not clear on its face should be clarified by a definition that gives it a special meaning. Each sentence in the provision should be limited to a single verb. There should be no contractions, no conjunctions, and as little punctuation as possible. Failure to create a policy wording without simple declarative sentences will find insurers like North Pointe paying claims they had no intention of covering.
Reprinted with Permission from Zalma on Insurance, (c) 2011, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He recently published the e-books, "Heads I Win, Tails You Lose - 2011," "Zalma on Rescission in California," "Zalma on Diminution in Value Damages," "Arson for Profit" and "Zalma on California Claims Regulations," "Murder and Insurance Fraud Don't Mix" and others that are available at Zalma Books.
Mr. Zalma can be contacted at Barry Zalma, firstname.lastname@example.org and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma's Insurance Fraud Letter.
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