An inadvertent ambiguity in an insurance policy can be costly as Federal Insurance Co. learned in Tyll v. Stanley Black & Decker Life Insurance Program, 2019 WL 3081061 (D. Conn. July 12, 2019). There, the court resolved a motion for summary judgment seeking a determination as to the amount of business travel accident insurance owed when Michael Tyll died while on a commercial airline flight from Paris to New York.

At the time of his death, Tyll was employed by Stanley and was receiving a salary of more than $1 million per year. For persons in Tyll’s classification, the policy provided coverage in a principal sum of “Five (5) times [s]alary subject to a [m]inimum of $100,000 and a [m]aximum of $1,000,000.”

The plan’s insurer, Federal Insurance, accepted liability and stated it would pay $1 million. However, the beneficiary asserted an entitlement to $5 million plus interest. The court ruled for the beneficiary.

Although the defendant maintained the plan unambiguously capped benefits at $1 million, the plaintiff asserted the provision was ambiguous and could reasonably be interpreted to provide a benefit equal to five times salary, or $5 million.

Where such an ambiguity exists, under the insurance law doctrine of contra proferentem, ambiguities in insurance contracts are construed in favor of the insured and against the insurer.

In order to construe the policy, the court pointed out, “The issue in this case is ‘whether the limiting clause “subject to a [m]inimum of $100,000 and a [m]aximum of $1,000,000’ modifies the noun … Salary (by placing a floor and cap on salary) … or whether the limiting clause places a floor and cap on the benefits overall, as [the defendants] argue[ ].”

Plaintiff argued the words “minimum” and “maximum” can reasonably be interpreted as modifying the word “salary” as opposed to “principal sum.” The court agreed that the phrase “principal sum” “is unambiguously the maximum amount of benefits payable under the [p]olicy for a [l]oss of [l]ife. However, that does not resolve the question of whether the maximum principal sum is unambiguously $1 million, or if the [p]olicy language could reasonably be understood to have more than one meaning.”

The court further explained:

“Viewed objectively, the language at issue – “Five (5) times [s]alary subject to a [m]inimum of $100,000 and a [m]aximum of $1,000,000″ – could reasonably be read to have more than one meaning. The sentence could be read to mean that the [p]rincipal [s]um was equal to five times an employee’s salary, but that in no event would the [p]rincipal [s]um equal less than $100,000 or greater than $1,000,000. Just as easily, the sentence can be read to mean that the [p]rincipal [s]um was equal to five times a person’s salary, but that in no event would the salary amount equal less than $100,000 or greater than $1,000,000.”

An unpublished appellate court ruling found similar terminology ambiguous. In Bauer ex rel. the Craig E. Bauer Insurance TrustDated Dec. 29, 2003 v. Reliance Standard Life Insurance Co., 421 F. App’x 226, 227 (3d Cir. 2011), the plain defined a principal sum as “5 times [b]ase [a]nnual [e]arnings to a maximum of $250,000.”

The parties made the same argument as in this case and the court agreed the term was ambiguous and susceptible to two different readings. However, the standard of judicial review in Bauer was deferential, while in this case it was de novo.

Under the deferential standard, the court was compelled to defer to the plan administrator’s reading after deeming such an interpretation reasonable.

Under the de novo standard, though, in interpreting an ambiguous plan provision, because the court determined the plaintiff’s interpretation was reasonable, it ruled:

“Mrs. Tyll has presented a reasonable interpretation of the ambiguous principal sum clause at issue in this litigation. Reading the clause as Mrs. Tyll suggests – so that the words “minimum” and “maximum” modify the word salary – is no more or less reasonable than reading the same words to modify [p]rincipal [s]um, as the defendants contend. Indeed, it is the most reasonable reading given that the phrase “subject to …” is immediately preceded by, and thus grammatically speaking modifies, the word salary. Because the court concludes that Mrs. Tyll’s interpretation of an ambiguous phrase is reasonable, it construes the phrase in her favor. Summary judgment is granted in her favor as to her claim for $4 million in additional benefits under the [p]lan.”

The insurer could have easily cleared up the ambiguity with more careful drafting that would have unambiguously capped the payout at $1 million. Because the policy left it unclear as to whether the “subject to” language referred to salary or principal sum, and because a grammatical construction rule known as the last-antecedent canon favored the plaintiff’s interpretation, Tyll successfully demonstrated and argued the reasonableness of a reading that permitted the recovery of an additional $4 million.

The issue is somewhat reminiscent of a recent case in Maine involving an absent Oxford comma that resulted in a $5 million award – “Oxford Comma Dispute is Settled as Maine Drivers Get $5 Million,” New York Times Feb. 9, 2018, but this is a different issue. According to Antonin G. Scalia and Bryan A. Garner, “Reading Law: The Interpretation of Legal Texts” (West 2012), the issue in this ruling falls within a heading titled the “Subordinting/Superordinating Canon.”

The authors summarize the concept as follows: “Subordinating language (signaled by subject to) or superordinating language (signaled by notwithstanding or despite) merely shows which provision prevails in the event of a clash but does not necessarily denote a clash of provisions.”

Thus, since there is no contrary rule or construction canon that would point to a different result, the ruling finding the clause in question ambiguous proved to be an expensive grammar lesson for the insurance company.

This article was initially published in the Chicago Daily Law Bulletin. 

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