Friday, July 17, 2009

Insurance Policy Only Interpreted Against the Drafter When Term Actually Ambiguous

The recent decision of Dewsnup v. Farmers Ins. Co. of Oregon (A136394) which can be found here is discussed by Diane Polscer on the Insurance Law Forum and is copied below:
Insurers should welcome the Oregon Court of Appeals’ recent decision in Dewsnup v. Farmers Ins. Co. of Oregon, A136394 (July 1, 2009), because it signals the Court’s reluctance to accept insureds’ arguments that ordinary words are ambiguous -- and must be construed in their favor -- if they are not defined by the policy. In the process of rejecting a water damage claim under a homeowners policy, the Dewsnup Court reiterated in favorable language Oregon law regarding the interpretation of insurance policies.

Using New Jersey as an example of a state that might interpret the insurance policy before it differently due to that state’s rules favoring “broad reading of coverage provisions,” the Dewsnup Court wrote that “the Oregon rules of interpretation, of course, are different, requiring construction against the insurer only in the case of unresolvable ambiguity.” While this statement is helpful because it clarifies that ambiguity, by itself, does not require interpretation against the insured, the Dewsnup case is even more helpful for the fact that the court did not even reach an ambiguity analysis. Instead, the Court held that the undefined policy term “roof” is unambiguous in the first place.

In relevant part, the policy at issue in Dewsnup excluded from coverage water damage to the interior of a dwelling or personal property unless the water damage occurred as a result of damage to the “roof” caused by a windstorm or a falling object. As part of a roof repair, the insureds had removed the roof’s wood shakes and physically attached to the roof several sheets of plastic as a temporary cover. After a storm ripped off one sheet of plastic, the insured went on the roof to replace it. However, the insured “lost his footing and fell off the roof, ripping off all the sheets of plastic as he fell.” As a result, the rain from the storm entered the home through the joints in the plywood sheathing “causing considerable damage to the interior of the house and to plaintiffs’ personal property.”

The insureds argued that their loss should be covered because the plastic sheets, which were a part of the roof, were damaged by a windstorm and/or a falling object (the insured). The Court consulted a dictionary and rejected this argument, concluding “that the term ‘roof’ has an unambiguous meaning, and that it does not include the tarps that plaintiffs placed over the house while the shakes were being replaced.” Most refreshing was the Court’s resort to old-fashioned common-sense, writing: “If someone attempted to sell a house that was covered by such a plastic sheet, we doubt that any reasonable buyer would believe that he or she was buying a house that had a ‘roof.’ Most likely, the buyer would say, ‘Where’s the roof?’” The Court’s use of common-sense reasoning should lend some support to insurers using the same tactic in face of insureds’ arguments that undefined policy terms are unambiguous.


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