Insurers rarely sure of victory

Retired Judge Charles Blackmar once joked that he only read insurance policies carefully “if somebody is paying me to read them.”

“I don’t read my own policy all that carefully because I know it wouldn’t do any good,” Blackmar said during a 2006 Missouri Supreme Court argument in which he served as a special judge. “The insurance company would say, ‘This is just the way we write it — you want our insurance, do it this way.’”

Judges, it seems, read insurance contracts closer than anyone — and when they do, it’s rarely to insurance companies’ liking.

According to an analysis by Missouri Lawyers Weekly, the Supreme Court resolved 20 insurance coverage cases between 2001 and 2012. Of those, only four were decided in favor of the insurance company. The last time the high court resolved a case in favor of an insurer was in 2008.

The odds are better for insurers in the appellate courts. Of 63 coverage rulings in the Eastern, Southern and Western districts over the last three years, 34 cases were decided in favor of the insurer, versus 25 cases in favor of the insured. The remaining four cases favored each side in part.

Still, it’s not lost on insurance defense lawyers that some 80 percent of cases decided in the Supreme Court, and nearly half of those in the lower appellate courts, find that insurer’s contracts didn’t say what insurers thought they said.

“Probably the prevailing view among the defense bar is we realize that chances of success on the appellate level are not that good,” said Warren Harris, of Taylor, Stafford, Clithero, FitzGerald & Harris in Springfield.

Ambiguity

In many ways, the law stacks the deck against insurers. One long-standing rule is that courts are supposed to read contracts the way that an “ordinary person of average understanding” would. Any ambiguity is construed against the contract’s drafter.

Also, courts don’t read the contract’s provisions in isolation — and if the contract appears to offer the policyholder something in one place but takes it away in another, it is automatically ambiguous.

In other words, if the insurance contract — a lengthy, ever-evolving document consisting of multiple forms — isn’t airtight, there’s a good chance that the insurance company will wind up paying for claims it hadn’t meant to cover.

Even those who aren’t terribly happy with the courts’ rulings understand why they occur.

“If you construe it against the drafter, it sometimes gives the appearance that you’re bending over backwards to find coverage,” said Brent Butler, a lawyer and a lobbyist for the Missouri Insurance Coalition. “It’s a bias, but it’s a bias of well-founded legal principle. It’s not a personal bias.”

Mark Stahlhuth, of counsel with Armstrong Teasdale in Jefferson City and, until last year, a 27-year veteran of the Missouri Department of Insurance, noted that there’s also some selection bias involved.

“These are the tip of the iceberg,” he said. “Most of the cases where everybody knows what the coverage means don’t get litigated all the way up to the appeals courts.”

Plaintiffs’ appeals

Of the 20 cases, 13 were transferred to the Supreme Court at the plaintiff’s request. That effort nearly always paid off: In 11 of those cases, the plaintiffs did better at the Supreme Court than they had at the appellate district court that first considered the matter.

In contrast, insurance companies lost three of the five cases they asked the Supreme Court to review.

In two other instances, the appellate court tentatively ruled in favor of the plaintiff but then transferred the case to the Supreme Court for a final decision. Both times, the high court also ruled for the plaintiff.

Harris, the insurance defense lawyer, has a hard time believing that so many contracts — which often are adapted from language written at the national level and used in multiple states — are actually ambiguous. He wonders if the courts’ decisions have fed the fire.

“Ambiguity begets ambiguity,” he said. When the courts find contracts to be unclear, the insurance companies address it by attempting to rewrite or clarify the language. “It causes policies to become more voluminous and more difficult to read.”

Harris pointed to a ruling last month in which the Supreme Court held that a contract was ambiguous because it contained no specific definition for the word “owned.”

“If you have get down to defining words like ‘owned,’ it’s going to make the policy that much more voluminous and hard to understand,” Harris said.

The case, Manner v. Schiermeier, involved a man injured in a motorcycle wreck. Because the other driver’s insurance didn’t come close to covering his damages, Nathaniel Manner sought to recover from the underinsured motorist policies that he and his family had on other vehicles. The policies contained “owned-vehicle” exclusions that barred coverage of vehicles that Manner owned and that were already insured elsewhere.

Manner, however, was in the process of buying the bike from his uncle but didn’t yet have the title. Because it wasn’t clear that Manner fell under the exclusion, the court resolved coverage in his favor 5-0.

Underinsured

It’s not the first time the court has found fault with an underinsured motorist policy. Leland Dempsey, of Dempsey & Kingsland in Kansas City, said that’s no accident.

Missouri’s current liability coverage minimum of $25,000 hasn’t changed in decades, he said, so more and more people are seeking additional coverage through their own policies.

The problem is underinsured motorist coverage — often referred to as UIM coverage — appears to be an area where insureds and insurers have very different conceptions of what such policies are meant to do in the first place.

Dempsey wrote several amicus briefs on behalf of the Missouri Association of Trial Attorneys in the Supreme Court’s recent UIM cases. He said the association typically gets involved when the insurer’s interpretation appears to provide “illusory coverage.”

“Sometimes, some insurance companies will get overly aggressive and they’ll put a clause in there that really serves to defeat coverage in a situation where people really have that expectation of coverage,” he said.

Insureds will argue that a policy of, say, $100,000 is meant to give them supplemental coverage. That is, if they suffer major damages that the other guy’s insurance doesn’t cover, they can count on getting $100,000 from their own insurer to soften the blow.

The insurer, on the other hand, will argue that such a policy is meant to provide $100,000 of coverage, period. So if the tortfeasor is only insured for $25,000, the UIM coverage would chip in just $75,000 — even if the policyholder’s damages are well beyond $100,000.

Neither interpretation is inherently problematic. Missouri motorists aren’t required to have UIM coverage at all, so the generousness of the policy entirely depends on the language of the contract. Of course, what the contract actually says can sometimes be a surprise.

A shift

A landmark decision came in 2007’s Seeck v. Geico — the very case where Judge Blackmar quipped about the impenetrability of insurance contracts. Blackmar died at age 84, shortly before the case was decided, but his concerns about the contract’s ambiguousness were apparently shared by the rest of the court. The resulting opinion indeed found the contract to be ambiguous and said the plaintiff could recover from her own underinsured motorist policy after she’d already collected a payment from the other driver.

Seeck — like all insurance cases — hinged on the language of a particular contract. But one judge later said the case signaled a shift in the way the court was interpreting contracts involving UIM coverage.

In a 2009 case, Ritchie v. Allied Property & Casualty Insurance Co., the Supreme Court said that, due to a contractual ambiguity, the parents of a girl killed in a car accident could “stack” the proceeds of the family’s three $100,000 UIM policies, resulting in a $300,000 payment.

The insurance company had argued it only owed $40,000 — the difference between one policy’s limits and the $60,000 paid out by the drivers who were actually at fault.

In a section titled “other insurance,” the contract promised that coverage for “a vehicle you do not own shall be excess over any other collectible underinsured motorist coverage.” The plaintiffs’ daughter was riding in a friend’s car at the time of her death, so that provision applied — even though another section of the insurance contract said policies couldn’t be stacked.

Rare dissent

Judge William Ray Price Jr. dissented from Ritchie, offering the lone act of push-back during a string of plaintiff victories in 2009 and 2010. In those two years, the Supreme Court considered eight coverage cases and ruled against the insurance company in all of them. Only Ritchie was not unanimous.

Price wrote that his colleagues were, in essence, making too much of that “other insurance” clause. Such clauses had traditionally been used to resolve conflicts between multiple insurers over the order in which they had to pay, he said. But the Seeck case, from which Price was recused, “turned these outward-looking provisions inward toward the internal operation of a single policy’s language.” In doing so, Price added in a footnote, Seeck had “departed from established Missouri law.”

Price added that “if insurance companies cannot write their policies with confidence that our courts will enforce their plain language, that risk will also have to be priced into our policies.”

Price retired from the court last year and is now in private practice with Armstrong Teasdale in St. Louis. He declined to comment on his prior decisions.

Other courts have not always reached the same conclusions as Missouri has. In its brief in Ritchie, Allied Property & Casualty had pointed to a 2004 federal case in which the 7th U.S. Circuit Court of Appeals had interpreted “the same language” used in Allied’s policy and upheld an anti-stacking provision. (The decision was a prediction of Illinois law, but apparently a successful one; in 2005, the Illinois Supreme Court looked at a similar clause and found it to be unambiguous.)

‘Plainly’ stated

A few months before it decided Ritchie in 2009, the Supreme Court made a similar ruling in Jones v. Mid-Century Insurance Co., which also dealt with UIM coverage. The two injured plaintiffs each sought the proceeds of a UIM policy with a $100,000-per-person limit. The insurer paid them, but reduced the awards by the $50,000 that each plaintiff had already recovered from the driver who caused the accident.

Judge Laura Denvir Stith, writing for the unanimous court, refused to allow the insurance company to take the set-off. Under the insurer’s interpretation, Stith wrote in a sweeping, liberally italicized passage, it would never have to pay its liability limits.

“In the case of underinsured motorist coverage, some amount always will have been received from the tortfeasor — that is why the insured is seeking to collect underinsured rather than uninsured motorist coverage,” Stith wrote.

But the court was not making a policy pronouncement about all UIM coverage; it was merely interpreting the language of a particular and, as it turned out, poorly worded contract. At one point, the contract promised to pay the “limits of liability of this coverage,” indicating that it was possible to recover the entire $100,000. Had the insurer meant to restrict the recovery, it should have added “minus the amount already paid to that insured person,” the court said.

“This Court does not rewrite insurance policies to add language,” Stith wrote. In a footnote, she added that a contract that deducts the money paid by the other driver from the policy limits is enforceable, so long as the contract “plainly states” what it is doing.

‘Approaches a fiction’

Still, the Supreme Court’s rulings have raised questions among some judges about how aggressive they should be in interpreting such contracts. In early 2011, a panel of the Southern District issued Shelter Mutual Insurance Co. v. Straw, where the parties were once again fighting over how much UIM coverage was owed. The majority reversed a trial judge who, relying on Ritchie and Jones, had let the plaintiff collect all $100,000.

In large part, the decision rested on a ruling that a different Southern District panel had made three months prior that enforced a “nearly identical set-off provision” in a contract from the same insurance company.

Judge Daniel Scott wrote a dissent, saying he couldn’t “square” the majority’s decision with Supreme Court precedent. Scott’s opinion, however, was less an argument against the result than a commentary on the bewildering state of the law.

He noted that, to reach its result, the majority had constructed charts to compare the language of policy at issue in the case with the language the court had upheld in its earlier case. “It approaches a fiction,” Scott wrote, to expect ordinary people to read their policies that way.

“As things now stand, even legally sophisticated persons may find it practically impossible to know their UIM coverage for such scenarios, which cannot be a desirable situation,” Scott wrote.