At the heart of many coverage cases is whether a term in an insurance policy has more than one meaning. You know how it goes. Everyone knows what a word means – until it’s the difference between a claim being covered or not. Now the word has two meanings, three or maybe even six.

This exercise plays out in coverage litigation far and wide on account of the oft-cited principle (albeit sometimes with some variation) that if a term in an insurance policy has more than one reasonable meaning, it is ambiguous. And if it’s ambiguous a court will be bound to interpret it in the manner that favors the policyholder. Another way to say this is in Latin -- contra proferentem. But, no matter which language you choose, the outcome is the same – the policyholder is likely going to win.

But the ambiguity dance can also appear on another stage in coverage litigation. Consider an insurer claiming that a policyholder’s answer on its application for coverage was incorrect. On account of this alleged misrepresentation, a claim should not be covered or a policy rescinded.

In these situations, the policyholder’s answer to the question often goes under a microscope. But not always. Here too lawyers-cum-linguists can play the ambiguity card, arguing that the answer was accurate – it’s the question that has more than one meaning. In other words, when you read the question this way, there is no misrepresentation.

And just as policyholders sometimes secure coverage by arguing contra proferentem when there is a dispute over the meaning of a term in an insurance policy, policyholders also speak the language of the Romans when addressing the meaning of a term in an insurance application. And as the following cases demonstrate, when it comes to insurers’ ability to prevent alleged ambiguity in their application questions, the task can be more difficult than with their policy language.

This scenario was recently on display in Schultz v. Tilley, 2017 Mass. App. LEXIS 62 (Mass. Ct. App. May 18, 2017).

Christopher Tilley obtained a homeowner’s policy for his residence in Peabody, Massachusetts. With the assistance of a customer service representative at an insurance agency, Tilley completed an application for a policy with Vermont Mutual. Tilley responded “Yes” to the question, “Are there any animals or exotic pets kept on premises?” The application then stated “Note breed and bite history.” The employee of the agency noted, “American bull dog — no biting incidents.”

Edith Schultz was walking her two Yorkshire Terriers near Tilley’s home. Tilley’s dog, Bocephus, ran out and attacked and injured Schultz’s dogs. Schultz suffered a broken arm, a laceration to her face, and scrapes to her knees, elbows, and ankles. Tilley sought coverage from Vermont Mutual.

Vermont Mutual investigated and learned that Bocephus, on prior occasions, had bitten two other dogs prior to Tilley’s completion of the application. Bocephus bit a dog named Buddy who was walking near Tilley’s house. Bocephus also bit Bruno who was walking near Tilley’s house.

In a suit filed by Schultz, Vermont Mutual sought to void the policy on the basis that Tilley made a misrepresentation in his response to the “bite history” question on the application. The trial judge, after chewing on the issue, agreed, concluding that “biting history” is “unambiguous, with the general understanding of the word [biting] read to mean biting anything or anybody.”

On appeal, Schultz argued that there was no material misrepresentation because the “bite history” question on the application was ambiguous.

While most ambiguity determinations center around policy language, the court noted that it could also extend to policy applications: “[W]here a question on an application lends itself to more than one reasonable interpretation, an honest answer to one of those reasonable interpretations cannot be labeled a misrepresentation.”

So was there more than one reasonable interpretation of the “bite history” question and was Tilley’s answer to one of them honest? Yes and Yes the court concluded.

Tilley testified that he understood the question, as the agency employee asked it, to mean whether the animal has a history of biting humans. His negative response to that question was honest. The agency employee testified that her custom and practice was to inquire whether the animal was “aggressive” or had “had a biting incident” in responding to the question. An underwriting manager at Vermont Mutual testified that she interpreted the term to mean “bodily injury or property damage to someone else’s pet.” The judge “adopted a broad meaning advanced by none of the witnesses at the trial, namely that it should be read to mean a history of biting “anything or anybody.”

So four people weighed-in on the meaning of “bite history” and there were four different answers. With all these meanings being offered, the appeals court had no problem concluding that “bite history” was ambiguous: “Although we agree with the judge that a fair meaning of the language could be read to mean, literally, anything the animal has ever bitten, that view hardly seems reasonable in the context of insurance given the strong propensity of dogs to chew toys and other inanimate objects of little or no value. We understand the judge to have meant any living thing. However, we conclude that the language remains subject to multiple reasonable interpretations, as the trial testimony demonstrates. . . . [I]n our view, all of those interpretations are reasonable, in that they each would afford the insurer an assessment, at some level, of the risk associated with a given animal. . . . Because the language is ambiguous, we must afford the Tilleys, as the insureds, the benefit of the reasonable interpretation that is most favorable to them; namely, the one that limits the biting history to humans only. Because Christopher answered that question honestly, as it is undisputed that Bocephus had only bitten other dogs, Christopher’s response cannot be labeled a misrepresentation by Vermont Mutual.”

Graham v. Lloyd’s Underwriters at London, 964 So. 2d 269 (Fla. Dist. Ct. App. 2007)

In June 2014, Delores Graham applied for a homeowner’s policy for her Florida residence. The application included an entry that indicated her home was three miles from the “gulf.” Graham was issued a policy which included windstorm coverage. Subsequently, an inspector reported to the insurer that the home was “one and one-quarter miles from the gulf.”

On August 13, 2004, Hurricane Charley hit the gulf coast of Florida. Graham’s home sustained damage as a result of the intense winds. Three days after the storm, Graham’s insurer sent a change endorsement deleting wind damage coverage from her policy. Graham’s claim for wind damage was denied.

Litigation ensued. The insurer argued that Graham’s answer on her application, that she was three miles from the gulf, was a misrepresentation. The trial court granted the insurer’s motion for summary judgment.

But Graham would not let the insurer crack her. She appealed, arguing that she had no way of knowing the significance of the question of the application referring to “distance to the gulf” nor could she have reasonably known how to properly measure this distance. She believed that using her own experience, of walking or driving to the shore, was a reasonable means of calculating the distance. The insurer argued that the distance is properly measured “as the crow flies.”

The court found that the question, referring to “distance to the gulf,” was “ambiguous and susceptible to differing interpretations.” “It is undisputed,” the court noted, “that there is no direct route of travel from Ms. Graham’s home to the shoreline. We question whether the average person in Ms. Graham’s position should know that she must measure the distance to the shoreline ‘as the crow flies’ or even know how to accomplish such a measurement, as opposed to simply relying on her experience traveling the shortest route thereto or estimating that distance.” Because reasonable people could disagree as to the meaning of the distance question, summary judgment for the insurer had been inappropriate.

Unionamerica Ins. Co. v. Fort Miller Group, Inc., 590 F. Supp. 2d 1254 (N.D. Cal. 2008)

Fort Miller Group manufactured access platforms that allowed construction workers to reach high structures. It obtained a general liability policy from Unionamerica. The policy was renewed twice. Fort Miller was asked to disclose the largest value and average value of the products it manufactured. In all three applications, Fort Miller answered $100,000 and less than $1,000 respectively.

Unionamerica sought to rescind the policy, claiming that Fort Miller made a material misrepresentation in its application, by undervaluing the products it manufactured. As Unionamerica saw it, the value of the products was based on their selling price. And since Fort Miller set retail prices for some of its products in excess of $100,000, there was a misrepresentation.

Fort Miller, however, said not so fast. It argued that the term “manufacture” only relates to the creation of the product from raw materials. It made a distinction between the value of something that is “manufactured” and something that is “sold.”

The court concluded that, because the term “manufacture” was not defined within the application and based on Fort Miler’s “evidence that it interpreted ‘manufacture’ to mean creating a product from raw materials,” the company “honestly, even conservatively, answered the questions as it understood them.” The insurer’s motion for summary judgment, that it was entitled to rescission, was denied.

Ocean’s 11 Bar & Grill v. Indem. Ins. Corp. RRG, 2012 U.S. Dist. LEXIS 157585 (S.D. Fla. Nov. 2, 2012)

Ocean’s 11 Bar and Grill sought coverage under its general liability policy for injuries arising out of assault and battery. Its insurer, Indemnity Insurance Corporation, rescinded the policy based on several purported misrepresentations in the application, including the square footage of the premises.

Ocean’s 11 argued that the information supplied in its policy applications were not misrepresentations, but, rather, were the results of ambiguity in the language of the applications. As Ocean’s 11 saw it, “square footage” encompassed only publically accessible space. To the insurer, the term encompassed the entire area of the premises.
The court concluded that the question regarding square footage (as well as several others) was ambiguous and ruled in favor of the insured.

Conclusion

In each of these cases the court found a term on an insurance policy application to be subject to more than one meaning. Yet none of the terms are technical. To the contrary, “bite” and “history,” “distance,” “manufacture” and “square footage” are all run of the mill words used in everyday conversation. It is likely that, in none of these situations, the insurer ever imagined that litigation would someday arise over their meaning.

These cases demonstrate the challenge that insurers face when drafting questions on their applications. When drafting an insurance policy, insurers anticipate that efforts may be made to ascribe more than one meaning to certain terms. Their radar is turned on. Insurers can address this by defining terms in their policies, as well as using their knowledge, of the meaning of terms, that has been gained through past judicial decisions.

But it is not likely the same situation when it comes to drafting application questions. First, such questions may be drafted by underwriters, who may not be as experienced with, and sensitive to, the efforts made in litigation to find multiple meanings of terms – even those that look unambiguous. In addition, while an application can define terms used in its questions, and some do, it is unusual to see this or for more than a couple of terms to be defined. Terms in insurance policies can be drafted in conjunction with their context, which can make it easier to establish their meaning. Application questions do not likely offer a contextual setting. And the meaning of terms in applications do not offer nearly the same extent of historical guidance from judicial decisions that comes with insurance policies.

Insurers would be well-served to draft insurance applications with the same expectations that exist when drafting policies – at some point efforts may be made to ascribe more than one meaning to the questions.