The Florida Supreme Court held that lower courts and federal district courts in the state had erred by allowing insurers to introduce extrinsic evidence to explain an ambiguity in their contract language. Instead, when an insurance policy is ambiguous, the policy must be interpreted in the policyholder’s favor without consideration of extrinsic evidence, the court declared in a 4-3 decision.
The court answered a certified question from the 11th Circuit in a dispute, arising from less than clear policy language, as to whether certain home health care benefits automatically increased in certain situations.
A federal district court found the policy ambiguous, and the 11th Circuit agreed. But the federal appellate panel then struggled with the legal consequences of a policy ambiguity. Finding that Florida law was unclear, the 11th Circuit certified a series of questions to the state’s highest court.
The majority of the Florida Supreme Court concurred that the policy was ambiguous, with each party’s argument constituting a reasonable interpretation of the language. Faced with such an ambiguity, the court held that courts must resolve the ambiguity in favor of the policyholder and against the insurer that drafted the ambiguous language:
“[W]here the provisions of an insurance policy are at issue, 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.”
Further, extrinsic evidence should not be considered, the court clarified, notwithstanding prior state and federal case law to the contrary. “Under Florida law, because the policy is ambiguous it must be construed against the insurer and in favor of coverage without resort to consideration of extrinsic evidence,” the court held.
To read the decision in Washington National Insurance Corp. v. Ruderman, click here.
Why it matters: Policyholders in Florida received a valuable boost with the court’s decision in Washington National. Insurers must use clear policy terms, and if they don’t policyholders are entitled to a favorable construction of the ambiguous terms without incurring the expense of discovery into extrinsic evidence and its incumbent risks. This certainty creates appropriate incentives for insurers to be more careful in policy drafting and, when disputes arise, provides the parties with greater certainty so that a resolution can be reached more efficiently.