Policy Words Overrule Unwritten Intent

Barry Zalma

Apr 28, 2023

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The Eleventh Circuit Court of Appeal was asked to resolve what a court is to do when all the surest proof of contracting parties’ subjective intentions and expectations flatly contradict the clear words of the issued policies of insurance. In Shiloh Christian Center v. Aspen Specialty Insurance Company, No. 22-11776, United States Court of Appeals, Eleventh Circuit (April 13, 2023) the Eleventh Circuit followed the generally accepted rules of insurance contract interpretation.

SUBJECTIVE INTENT v. POLICY WORDING

Aspen Specialty Insurance Company, a billion-dollar insurance conglomerate, had essentially all of the subjective-intent evidence on its side. The policyholder-Shiloh Christian Center, a small Florida church-had the policy text.

The district court found the evidence of the parties’ subjective intent overwhelming and granted summary judgment to Aspen.

FACTS

In 2016 and 2017, respectively, Hurricanes Matthew and Irma tore through Melbourne, Florida, pummeling Shiloh Christian Center. On both occasions, the storms peeled back the church’s roof, allowing rain to soak the exposed structure.

In 2015, the year before Matthew hit, Shiloh’s property-insurance policy with Aspen Specialty Insurance Company covered losses resulting from hurricanes. In the middle of that year, though, Shiloh specifically asked Aspen to stop covering named-windstorm-related losses. Aspen agreed and issued an endorsement implementing the requested change: “THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY…. It is understood and agreed effective 7/16/2015, the following change is made to this policy: Named Windstorm coverage is removed from this policy.”

Reflecting the amendment, Aspen reduced Shiloh’s premium and even refunded its past payments for named-windstorm coverage.

In early 2016, Shiloh began negotiations to renew its policy with Aspen. The binder described the agreed-to scope of coverage this way: “All Risks of Direct Physical Loss or Damage excluding Flood, Earthquake and Named Windstorm.”

Aspen then issued the 2016 policy. The cover page described the 2016 policy as a “renewal of” its 2015 predecessor. But the two policies’ terms differed in material respects. For one thing, the 2016 policy was about $10,000 cheaper per year than the amended 2015 policy. Far more significantly the 2016 policy contained no exclusion for losses caused by named windstorms. A “Named Windstorms” exclusion was conspicuously absent from the policy as issued.

In October 2016, a named windstorm-Hurricane Matthew-blew through Melbourne, ripping the roof off Shiloh’s building. Aspen denied the claim because Shiloh’s policy excluded coverage for losses caused by named windstorms. The following year was basically a carbon copy. Aspen formally issued a policy that described itself as a “renewal” of the 2016 policy, but, again, whose “Exclusions” provision, while expressly carving out losses resulting from all manner of contingencies, said nothing about named windstorms.

Like clockwork, in September 2017, a named windstorm- Hurricane Irma-blew through town and tore the roof off of Shiloh’s building. Just as it had in Hurricane Matthew, water poured in, exacerbating the damage. Shiloh sued Aspen for breach of contract and sought a declaration that its 2016 and 2017 policies-which we’ll call the Matthew and Irma Policies-covered damages caused by named windstorms.

The district court granted summary judgment to Aspen. It held that “no reasonable jury” could find that the parties intended the policies at issue to cover named windstorms.

ANALYSIS

The Irma Policy unambiguously covers named windstorms and the Matthew Policy, although ambiguous, covers them by dint of the traditional contra proferentem canon of insurance-contract interpretation.

The general rules governing the interpretation of insurance policies under Florida law are clear that the cardinal principle is that a policy’s text is paramount.

INTERPRETATION OF THE POLICIES

First, the Irma Policy unambiguously covers named windstorms. The expressio unius canon applies with particular force because the Irma Policy’s catalogue of exclusions is so detailed. On its face the Irma Policy clearly doesn’t exclude- and thus covers-losses resulting from named windstorms.

Florida law is clear that when an insurance policy is facially ambiguous, the ambiguity is resolved in favor of coverage and against the insurer, without regard to extrinsic evidence of the parties’ supposed intentions or expectations. Accordingly, the Matthew Policy, like the Irma Policy, covers damage that results from named windstorms.

The court concluded:

1 Whatever the evidence of the contracting parties’ subjective intentions and expectations, the Irma Policy’s plain language unambiguously covers losses caused by named windstorms.

2 Although potentially ambiguous, the Matthew Policy likewise-and, again, whatever the evidence of the parties’ subjective intentions and expectations-covers losses caused by named windstorms pursuant to the contra proferentem canon, according to which ambiguous insurance contracts are construed in favor of coverage and against the insurer.

ZALMA OPINION

Aspen failed to properly underwrite and issue the two relevant policies to Shiloh by not incorporating the named windstorm exclusion it had originally issued in 2015. There was no question that the parties intended to exclude windstorms, the premium was reduced as a result of the intent, but Aspen left the exclusion out of the two policies in effect at the time of the two hurricanes. For reasons not described in the opinion Aspen failed to move to reform the two policies to provide the coverages the parties agreed to issue and was compelled to pay the claims neither party expected to cover Shiloh’s property.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]

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