Sequeira v. Lincoln Nat’l Life Ins. Co., No. A139639 (Cal. Ct. App. Aug. 31, 2015)

The California Court of Appeal recently reiterated the importance of careful drafting to insurers when it reversed a trial court’s granting of an insurer’s motion for summary adjudication, holding (1) an insurer’s policy was ambiguous; and (2) therefore, an interpretation consistent with the insured’s reasonable expectations prevailed.

In late 2009, Sequeira applied for life insurance his employer planned to offer through a policy Lincoln would issue on January 1, 2010. A tragic series of events followed: Sequeira paid premiums twice in 2009, did not work the January 1 paid holiday, was suddenly hospitalized on January 2, and died January 6 before returning to work. Lincoln denied benefits because of a policy provision stating, “[y]our insurance is effective on … the day you resume Active Work, if you are not Actively at Work on the day you become eligible,” taking the position the policy never became effective as to Sequeira because he did not return to work after the policy was issued. The trial court agreed and granted Lincoln’s motion for summary adjudication. The Court of Appeal, however, reversed after reasoning through three steps:

First, the court recited the canon of contract interpretation that ambiguities should be interpreted against the drafter to protect the insured’s reasonable expectations.

Second, the court held that the “Active Work or Actively at Work” provision was ambiguous. The court agreed with Plaintiff’s argument that a reasonable insured could interpret the policy’s effective date to be tied to employment status, rather than whether an employee was actuallyworking on a certain date, particularly when the latter interpretation would lead to bizarre results elsewhere in the policy. The court noted Lincoln’s argument that Plaintiff’s interpretation could lead to similarly bizarre results. But that argument, the court held, showed only that the provision was open to two interpretations and, therefore, ambiguous.

Third, the court held that because of the canon of contract interpretation, the ambiguous “Active Work or Actively at Work” provision must be interpreted consistently with the reasonable expectations of the insured. And Sequeira—who paid premiums for a policy to be issued on January 1, 2010—could reasonably expect the policy to become effective as to him on January 1, 2010.

The court’s opinion, available here, reinforces the rule that ambiguous policies will be interpreted against the insurer and the need for clear, unambiguous policy language.