A Lesson in Policy Drafting: Don’t Forget the Headings

A Lesson in Policy Drafting: Don’t Forget the Headings

When it comes to policy drafting the provisions get all the glory. And that’s not surprising. But Burlington Insurance Co. v. Eden Cryogenics, LLC, No. 14-66 (S.D. Ohio), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], demonstrates that headings in the policy also can’t be overlooked. Here an insurer did that and paid the price.

At issue in Eden Cryogenics was coverage for an intellectual property claim involving technical products about which I have zero comprehension. But none is required to understand the coverage issues. Eden sought coverage from Burlington Insurance. Burlington denied coverage based on, among other reasons, an Intellectual Property exclusion (via endorsement). The underlying action went to trial and Eden was found liable by a jury. Coverage litigation ensued. There were several issues in play, but only the IP exclusion is addressed here.

The Intellectual Property exclusion in Burlington’s policy was very broad. In fact, Eden surely knew that, based on its language, it was game over. After all, Eden argued that the exclusion did not apply on account of language in the exclusion’s heading. The IP exclusion (endorsement) had the following heading:

This endorsement modifies insurance provided under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART
PRODUCTS/COMPLETED OPERATIONS LIABILITY COVERAGE PART

The competing arguments went like this.

The Defendant-insured argued that “[t]he first capitalized line identifies the entire contract (Commercial General Liability Coverage Part), while the second identifies a subsection to Coverage A. This should be read as a header and a sub-header, Defendants assert, such that the modification only applies to the narrower identified subheading (Product/Completed Operations Liability Coverage Part). Therefore, Defendants reason, the IP Endorsement does not apply to Coverage B for ‘Personal and Advertising Injury Liability’—the coverage applicable to Defendants in this case.”

Burlington countered that “the two lines should be read in conjunction with one another, instead of the second line being read as a sub-header that modifies the header. In that case, Burlington argues, the IP Endorsement modifies the entire contract and takes care to also explicitly modify the subpart to Coverage A.”

The court was not persuaded by Burlington’s argument, using the following example of a contract term:

The following rule applies on:

WEEKEND DAYS

SUNDAY

As the court analogized it, Burlington’s argument was that the rule applied on both Saturday and Sunday. But this, the court concluded, would render Sunday superfluous, as Weekend Days is inclusive of Sunday.

The court found in favor of Eden, not necessarily because it’s interpretation was correct, but because it was “not persuaded that the only reasonable reading of a contract would render language superfluous. Given the stringent standard of law directing interpretation of ambiguity in favor of the insured, the Court finds in favor of the Defendants that reading the IP Endorsement to only modify the Product/Completed Operations Liability Coverage Part is at least a reasonable interpretation of the contract language.”

The court also rejected Burlington’s argument that, because the Listing of Forms and Endorsements in the policy listed the IP Endorsement under the heading “Commercial General Liability Policy,” it was “indicative of its applicability to the entire Commercial General Liability Coverage Part—in other words the entire Policy.” However, the court responded that “many exclusions and endorsements that explicitly apply to only specific parts of the Policy (for example, the “Med Pay” Exclusion to Coverage C) are listed under the same heading.”

There is little doubt that Burlington intended for the IP exclusion to apply to the entire CGL policy. And I suspect that the policyholder knew that too. But simply on account of a few unnecessary words added to the header of an endorsement, an exclusion, surely otherwise applicable, was lost.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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