Foran Glennon Palandech Ponzi & Rudloff

December 2013

Bye, Bye Extrinsic Evidence: Florida Supreme Court Unambiguously Tells Insurers: Don’t be Ambiguous.

By Charles Rocco and Sarah Oline

The Florida Supreme Court recently held that ambiguous insurance policies must be construed against the drafter-insurer, and in favor of coverage, without consideration of extrinsic evidence.  Throughout the United States, courts uniformly apply the plain reading of the terms and conditions of an insurance policy.  However, a court will declare a policy ambiguous if it finds the language is susceptible to multiple reasonable interpretations, one providing coverage and another limiting coverage.  Whether a contract is ambiguous is a question of law.  If a court declares a policy ambiguous, the vast majority of states allow the insurer to present extrinsic evidence in an attempt to resolve the ambiguity before turning to the “last resort” rule of construing ambiguous terms against the drafter.  Florida has now rejected the majority view and will no longer allow insurers to introduce extrinsic evidence to resolve ambiguous policy wording.

The U.S. Court of Appeals recently sought guidance from the Florida Supreme Court on the following question: “If an ambiguity exists in this insurance policy – as we understand it does – should courts first attempt to resolve the ambiguity by examining available extrinsic evidence?”  Washington Nat’l Ins. Corp. v. Ruderman, No. SC12-323, 2013 WL 3333059 (Fla. Jul. 3, 2013).  In a 4-3 decision, the majority held that “under Florida law applicable to construction of insurance policies, because the policy is ambiguous it must be construed against the insurer and in favor of coverage without resort to consideration of extrinsic evidence.”  In a strongly-worded dissent, three justices rejected this holding, finding it overturns Florida precedent and traditional analysis.  The dissent firmly stated that the rule that an ambiguous insurance policy is to be construed against its drafter should only be applied as a last resort, i.e., after attempting to resolve an ambiguity through extrinsic evidence.  Notwithstanding the dissent, the Court’s majority opinion unambiguously tells insurers that ambiguous provisions will be construed against them without review of extrinsic evidence to resolve the ambiguity.

There are several steps insurers can take to avoid the negative consequences of the Washington National decision.  While it is undoubtedly important to write clear insurance policies, insurers cannot predict every factual situation which may cause a policy dispute.  In light of this decision, insurers must consider alternative methods for preserving the parties’ intent.  For policies yet to be written, companies insuring people, places, or property in Florida should include a choice of law provision in their policies identifying a state which follows the majority view allowing use of extrinsic evidence to resolve any ambiguity before construing the policy against the drafter-insurer.  For policies currently in effect, insurers should consider the following arguments in response to the Washington National decision.  First, insurers may be able to distinguish Washington National based on different policies and facts.  For example, the Court’s decision leaves open the question of whether a dispute involving a sophisticated insured or a broker-drafted policy would create an exception to its holding, potentially allowing extrinsic evidence to resolve an ambiguity in such cases.  Second, insurers should consider bringing a cause of action for reformation of the policy against any insured claiming the policy is ambiguous.  Thus, to the extent a court deems the policy ambiguous, it must be rewritten to properly reflect the parties’ intent.  The foregoing alternatives will help insurers protect the intent of their policies insuring people, places, and property in Florida.