High Court Confirms Insurer Cannot Escape Its Own Policy Language After what appears to be a spate of anti-consumer rulings in US Supreme Court, on July 3, 2013, the Florida Supreme Court issued its opinion in Washington National Insurance Corporation, etc. v. Sydelle Ruderman, et al. Case No. SC12-323, — So.3d —- 2013 WL 3333059 (July 3, 2013), confirming that Florida law requires insurance carriers to draft insurance policies clearly, and if they do not, they, not their policyholders, are responsible.
Farmer Jaffe Weissing attorney and former Fourth DCA Judge, Gary Farmer, Sr. briefed and argued the case for the insureds. Amici on both sides of the case also submitted briefs.
Justice Labarga writing for the four-justice majority rejected the defense’s allusions to uncertainties in Florida’s law and confirmed the Court’s previous holdings, unequivocally stating “we…hold that where a contract of insurance is ambiguous, it is to be liberally construed in favor of coverage and strictly against the insurer…without resort to the consideration of extrinsic evidence.”
The Ruderman opinion constitutes not so much of a departure from established precedent as an apparent much-needed reaffirmation of it. The defendant, Washington National, had had success in creating some doubt about Florida law, which culminated in the Eleventh Circuit’s certifying to the Florida Supreme Court questions about rules of policy interpretation and the role of extrinsic evidence in construing policies containing ambiguities. Ruderman ex rel. Schwartz v. Washington National Insurance Corp., 671 F.3d 1208 (11th Cir. 2012). The Florida Supreme Court’s decision resolves any ambiguities in the Florida law on construing ambiguous insurance policies.
Justice LaBarga underscored the Court’s adherence to its prior precedents:
“As we stated in Berkshire Life Insurance Co. v. Adelberg, 698 So. 2d 828 (Fla. 1997), “[i]t has long been a tenet of Florida insurance law that an insurer, as the writer of an insurance policy, is bound by the language of the policy, which is to be construed liberally in favor of the insured and strictly against the insurer.” Id. at 830. Thus where, as here, one reasonable interpretation of the policy provisions would provide coverage, that is the construction which must be adopted.”
The importance of the Ruderman opinion however lies not entirely in the Court’s reiteration of long-standing rules of policy interpretation. Though not emphasized in the Supreme Court’s opinion, the ruling helps secure a class-action ruling in the US District Court where the case originated and re-affirms the public policy embodied in the “against-the-drafter” rule of interpretation, known by the Latin phrase “contra proferentem.”
The Ruderman Class Action
Ruderman was/is a class action filed in 2008, in the US District Court, Southern District of Florida. See Ruderman ex rel. Schwartz, et al. v. Washington Nat. Ins. Co., Case No. 08-23401-CIV. Farmer Jaffe Weissing attorneys Steve Jaffe, Mark Fistos and Seth Lehrman litigated the case with co-counsel. The hundreds of class members in Ruderman were mostly if not all over age 85 and suffering from various ailments necessitating home health services to assist them with their activities of daily living. Their care was to be paid for by their long-term care insurance policies issued or maintained by the defendant, Washington National.
The insurance policies at issue contained per occurrence and daily maximum benefit amounts and maximum benefit amounts for the lifetimes of Class Members. The policies also contained an “annual benefit rider” that increased benefit amounts 8% annually. Representing two classes of insureds, the Plaintiffs in Ruderman believed the annual percentage increase applied to all policy benefit amounts. Washington National contended conversely that the annual benefit increase only applied to the maximum daily benefit under the policy.
Washington National argued that class treatment of the case was impossible because “mountains of individualized proof…would be necessary to resolve each class member’s claims” and a class action would thus be unmanageable. According to Washington National, the need to introduce extrinsic evidence to resolve any potential ambiguity would render class-wide treatment impossible. Rejecting Washington National’s argument, the US District Court found the policy to be ambiguous and construed it against Washington National without consulting extrinsic evidence. In large part as a result of this finding, Plaintiffs won a highly contested ruling on class certification of both their damage claims and claims for injunctive relief. See Ruderman ex rel. Schwartz v. Washington Nat. Ins. Co., 263 F.R.D. 670 (S.D. Fla. 2010).
Later, the parties settled the damage claims, and under the settlement Washington National agreed to immediately put Class Members back on claim and agreed to reimburse them based on a $8,000,000 Settlement Fund.
The injunctive relief portion of the case didn’t settle however, and Plaintiffs later prevailed on summary judgment on the injunctive portion of the case under which the trial court enjoined Washington National from not applying the annual benefit increase to all benefit amounts. Ruderman ex rel. Schwartz v. Washington Nat. Ins. Co., 08-230401-CIV, 2010 WL 3522136 (S.D. Fla. 2010). Washington National appealed the summary judgment order to the Eleventh Circuit, which in turn certified questions on policy interpretation to the Florida Supreme Court.
In the Eleventh Circuit, Washington National once again argued that the policy was not ambiguous and if it were extrinsic evidence should be admitted for each insured thus making class certification impossible. Because of the Florida Supreme Court’s decision, the Eleventh Circuit will likely let the US District Court’s class-wide injunction stand, and Washington National will have to continue to apply the 8% increase in benefits for very elderly and infirm Class Members.
Insurers Remain Responsible for Their Policy Terms and Language
Ruderman is also noteworthy for what it re-confirms about the onus of insurers to draft policies clearly or suffer the consequences. A sister state Supreme Court summed up the rationale for the “against-the-drafter” rule of policy interpretation this way:
“It is the obligation of the insurer to state clearly the terms of the policy, just as it is the obligation of the issuer of securities to make the terms of the operative document understandable to a reasonable investor whose rights are affected by the document. Thus, if the contract in such a setting is ambiguous, the principle of contra proferentem dictates that the contract must be construed against the drafter.
The policy behind this principle is that the insurer or the issuer, as the case may be, is the entity in control of the process of articulating the terms. The other party, whether it be the ordinary insured or the investor, usually has very little say about those terms except to take them or leave them or to select from limited options offered by the insurer or issuer. Therefore, it is incumbent upon the dominant party to make terms clear. Convoluted or confusing terms are the problem of the insurer or issuer-not the insured or investor.”
Penn. Mut. Life Ins. Co. v. Oglesby, 695 A.2d 1146, 1149-50 (Del. 1997).
Ruderman confirms once again that insurers must own up to the language of policies and terms they create. To hold otherwise, could create a host of problems for courts, regulators, and insureds, especially when the insured “has very little say about those terms except to take them or leave them or to select from limited options offered by the insurer or issuer.” There’s a certain irony in an insurer’s assertion that its own policy whose language it entirely controlled is ambiguous and then its capitalization on the ambiguity by attempting to introduce evidence to explain it in its favor. This approach risks ultimately rewriting the insurance policy in favor of the insurer when the insurer did not draft the policy in its favor in the first place. The holding in Ruderman should keep this perverse circumstance from occurring.