• Policyholders Try To Swim Against the Flow in New Jersey Case
  • November 28, 2013 | Author: Collin J. Hite
  • Law Firm: Hirschler Fleischer A Professional Corporation - Richmond Office
  • Nowhere is the English language more important in the legal world than in insurance contracts. The policies are written in an archaic manner using numerous terms that are specially defined in the contract. On top of that, insurers usually tack on numerous endorsements to the policy that alter the terms of the original contract. In some instances a policyholder will even see one endorsement modify the terms of another one. Finally, court opinions also play a significant role in how insurance terms in policies are to be understood.

    A recent opinion from the appellate court in New Jersey confirms the point: insurance policies must be carefully reviewed and understood. In William B. Kessler Memorial Hospital v. North River Insurance Co., 2013 WL 6036678 (N.J. App. Nov. 15, 2013), the court sets out some general rules of insurance contract interpretation that are always worth reviewing. In this case the Internal Revenue Service sought fines and payments from the trustees of the hospital for failure to pay employment taxes. The trustees sought a defense from North River Insurance with respect to the demand from the IRS. North River denied coverage and any duty to defend, which surely came as a surprise to these individuals and the hospital.

    The trial court dismissed the case and the appellate court agreed with the decision. Some pointers in interpreting insurance contracts are set forth in the court’s decision and are generally applicable as rules throughout courts in the United States. These rules are:

    • The plain and clear language of an insurance policy are to be interpreted according to the plain and ordinary meaning.
    • Insurance contracts should be interpreted in a manner to fulfill the expectations of the parties to the agreement.
    • Courts will interpret the policy as written and not attempt to re-write a better policy than the one purchased by the policyholder.
    • The policy will be read as a whole and not to read sections in isolation in a manner that renders another section meaningless.

    In the Kessler Hospital case the insureds were seeking a defense even though the policy clearly excluded any coverage for fines, penalties and taxes. They attempted to obtain a defense by violating the general rule of construction that sections cannot be read in isolation from other parts of the policy. In this instance, the trustees were attempting to convert the insurance policy into one for unlimited legal services regardless of the exclusions and duty to indemnify.

    It is vital for business policyholders of all sizes to understand the true nature of their insurance coverage. Simply understanding that you have liability insurance that should defend and indemnify you from lawsuits, for example, is not enough. The only method to truly comprehend the scope of insurance coverage is to wade into the language of the contract. Whatever the coverage grant in the policy extends to the insured the exclusions, definitions and conditions sprinkled throughout the rest of the contract surely will limit.