Language of Insurance Policy Governs Even When Flatly Contradicted by Clear and Overwhelming Proof of the Parties’ Intent

It is a truth universally acknowledged (by judges and lawyers, anyway), that unambiguous contract language must be interpreted according to its plain terms, without resort to extrinsic evidence. But what if that extrinsic evidence shows, without dispute, that both parties meant something else entirely? That court answered that question in Shiloh Christian Center v. Aspen Specialty Insurance Co., 65 F.4th 623 (April 13, 2023), holding that an insurance policy covered hurricane damage even though both the insurance company and the policyholder had clearly intended that such coverage be excluded.

Shiloh Christian Center, a church in Melbourne, Florida, sustained substantial damage in successive years from two “named windstorms”—Hurricane Matthew in 2016 and Hurricane Irma in 2017. Shiloh’s building was insured under a policy issued by Aspen Specialty Insurance. Up until 2015, Shiloh’s policy with Aspen covered losses resulting from named windstorms. In 2015, however, Shiloh specifically asked Aspen to remove this coverage from the policy. Aspen did so, issuing an endorsement stating that “effective 7/16/2015, the following change is made to this policy: Named Windstorm coverage is removed from this policy.” Aspen also refunded Shiloh a portion of the premium it has paid for the 2015 policy.

The trouble started when Shiloh renewed its policy for 2016. Shiloh was given a quote for the same coverage it had post-endorsement—i.e., without hurricane coverage—and indicated as such my noting “EX wind” on its application. The binder also described the scope of coverage as “excluding … Named Windstorm” coverage. As to the policy itself, the cover page called it a “renewal” of the 2015 policy (although it was $10,000 cheaper than the 2015 policy). But the policy did not actually contain any reference to named windstorms in the section listing exclusions from coverage. The same thing happened in 2017: the application and the binder indicated that named windstorms would be excluded, but the policy itself contained no such exclusion.

After each of the hurricanes in 2016 and 2017, Shiloh filed a claim with Aspen for losses caused by the storms. Aspen denied coverage both times, listing as one of the bases the named-windstorm exclusion. Shiloh then sued Aspen for breach of contract and sought a declaration that the 2016 and 2017 policies covered losses cause by Hurricanes Matthew and Irma. The parties filed cross-motions for summary judgment.

The district court granted summary judgment to Aspen. The court noted that the policies did not say anything explicit about named-windstorm coverage, and the parties’ interactions and the various communications and documents exchanged at the time made clear their joint intention that such coverage was excluded.

The Eleventh Circuit disagreed, strictly enforcing two established rules governing the interpretation of contracts of insurance in Florida. First, the text of the contract is primary, and extrinsic evidence of intent is not relevant in the face of unambiguous contract language. Second, where there is an ambiguity in an insurance policy, that ambiguity must be construed in favor of coverage, again without resort to extrinsic evidence. Rules are rules, and they cannot be bent just because the parties clearly intended something else.

As to the 2017 policy, the court concluded that it unambiguously covered losses from named windstorms. The policy states that it covers “risks of direct physical loss,” and then it has a section with “Exclusions,” listing a number of losses that are not covered. This list did not include named windstorms, as the court explained, “either as a defined category of claim or in any other way, shape, form or fashion.”

This interpretation was confirmed by the rule that “insurance coverage must be interpreted broadly and exclusions narrowly,” as well as the rule of expressio unius est exclusio alterius, meaning the expression of one thing implies the exclusion of others. The court rejected the argument that the application—which noted “EX Wind”—should control, noting that the policy of insurance governs over the application.

The analysis of the 2016 policy was a little trickier, because Shiloh had conceded that the policy was ambiguous. Although the court seemed to disagree with that assessment, it held that, even assuming the language was ambiguous, it still must be construed in favor of coverage. This is because the Florida Supreme court has made clear that ambiguities in insurance contracts must be resolved by contra proferentem rather than extrinsic evidence of the parties’ intent. Under that rule, “any ambiguity which remains after reading each policy as a whole and endeavoring to give every provision its full meaning and operative effect must be liberally construed in favor of coverage and strictly against the insurer.” That means named-windstorm losses are covered, and the evidence that the parties intended otherwise is not relevant.

Posted by Stacey Mohr.

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