An ambiguity in an insurance policy–after reading and interpreting the policy as a whole–will be construed against an insurer. This means an ambiguity will be construed in favor of insurance coverage (for the benefit of the insured) as opposed to against insurance coverage. This does not mean that every insurance policy contains an ambiguity. This also does not mean a court will interpret plain and ordinary words contrary to their conventional meaning or definition. But, as we all know, insurance policies are not the easiest of documents to decipher and ambiguities do exist relating to a particular issue or circumstance to the benefit of an insured. An insured that is dealing with specific insurance coverage issues should make sure they are working with counsel that looks to maximize insurance coverage, even if that means exploring ambiguities that will benefit an insured based on a particular issue or circumstance.
An example of an ambiguity in an insurance policy relating to a particular issue that benefitted an insured can be found in the Florida Supreme Court decision of Government Employees Insurance Co. v. Macedo, 42 Fla. L. Weekly S731a (Fla. 2017). This case involved an automobile accident and the interpretation of an automobile liability policy.
In this case, after an accident, a plaintiff sued the defendant that caused the accident. The defendant’s insurer GEICO provided a defense in accordance with the defendant’s automobile liability policy. During the litigation, the plaintiff served a proposal for settlement for $50,000, which is a procedural vehicle to create the argument for attorney’s fees if the defendant does not accept the proposal. The defendant—again, being defended by its insurer GEICO—did not accept the proposal. The case proceeded to trial and the plaintiff obtained a jury verdict of approximately $243,000. This meant the plaintiff had a basis to recover attorney’s fees since the defendant did not accept the proposal for settlement. The plaintiff moved to bind GEICO to a judgment, and the underlying issue was whether the defendant’s insurer GEICO was liable under the policy for attorney’s fees. If GEICO was not liable, then that meant the defendant was individually liable for the plaintiff’s incurred attorney’s fees.
This is a significant issue because by the defendant’s counsel not accepting the proposal for settlement, the defendant, individually, was exposed to substantial attorney’s fees incurred by the plaintiff. The defendant’s counsel was hired by GEICO and GEICO controlled any settlement of the case and the defendant was required to cooperate with GEICO.
The applicable language of the insurance policy as relied upon by the Florida Supreme Court was as follows:
ADDITIONAL PAYMENTS WE WILL MAKE UNDER THE LIABILITY COVERAGES
1. All investigative and legal costs incurred by us.
. . . .
4. We will upon request by an insured, provide reimbursement for the following items:
. . . .
(c) All reasonable costs incurred by an insured at our request.
. . . .
Additionally, the index of the policy lists “Legal Expenses And Court Costs” as items that are covered under the Additional Payments section.
The Florida Supreme Court, interpreting the policy as a whole, found this language to be ambiguous relating to the insurer’s obligation to cover attorney’s fees incurred by the plaintiff due to GEICO’s defense counsel not accepting the proposal for settlement. This ambiguity was a big “W” for both the defendant-insured and the plaintiff because it meant that GEICO was liable for the plaintiff’s attorney’s fees.
First, the Court explained that the terms “Legal Expenses” and “Court Courts” signify that legal expenses in addition to court costs would be covered under the policy; otherwise, there would have been no reason to separately include the language “Legal Expenses” in the index of the policy.
Second, the Court explained that there are numerous reasonable interpretations that attorney’s fees are encompassed by the terms “costs” and expenses” as used in the policy.
And, third, the Court explained that the legal expenses (attorney’s fees) incurred by the insured were the product of GEICO electing not to accept the proposal for settlement, and thus, were incurred by the defendant-insured at GEICO’s direct request. GEICO had complete discretion under the policy to settle the case with the insured being required to cooperate with its insurer. “It follows that any cost or fee incurred as a result of GEICO exercising its authority and control is something that it intended to pay.” See Macedo, supra
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.
There is exclusionary language in all insurance policies (as you know) that can operate to bar coverage. In a recent case example, a company performed maintenance and construction services and had a company automobile liability insurance policy. The policy, however, excluded from coverage automobiles where there was OTHER INSURANCE available that afforded SIMILAR COVERAGE. One of the company’s members got into an automobile accident with his personal vehicle which resulted in the company being sued in a personal injury action. The member had a personal automobile liability insurance policy that insured the vehicle. The company’s policy had significantly higher limits of insurance than the member’s policy. 