Dwain Clifford | The Policyholder Report | April 11, 2019
Earlier this week, the Washington Court of Appeals affirmed the bedrock principle in insurance-coverage cases that insurers will always lose when a genuine ambiguity controls whether an insurer will have to pay a claim. The ambiguity in this case arose both from lexicographers’ habit of capturing nuances in writing dictionary definitions of “decay,” and the insurer’s own choice to use different words for supposedly the same meaning.
In Feenix Parkside LLC v. Berkley North Pacific, the insured’s roof had collapsed after the building’s trusses failed, but without any evidence of dry rot or similar “decay” weakening them. Under the policy, a collapse caused by “decay that is hidden from view” is covered, but collapse from other causes, such as defective construction (but without some accompanying decay), was excluded. Relying on the first definition of decay that would first come to mind for most insureds in the Pacific Northwest, Berkley denied the claim because its adjusters did not find any “aerobic decomposition of proteins chiefly by bacteria.”
Not so fast, said the court. Although decay in the context of damage to a building (and, perhaps, especially one in rainy Auburn, Washington just south of Seattle) might naturally imply dry rot, the dictionary definitions are not so limited. In particular, several versions of Webster’s dictionaries included some variant of “decay” to mean “the condition of a person or thing that has undergone a decline in strength, soundness, or prosperity or has been diminished in degree of excellence or perfection.” Webster’s usage example for this meaning is “the decayof the public school system.”
This shaded difference in meaning, driven by the context of how “decay” is being used, may have tipped the scales in favor of Berkley’s proposed, and coverage-defeating, definition. One does not usually speak of the “decline in strength” of a damaged building, after all, but of rotted framing. But that is not how policy interpretation works in insurance-coverage disputes. Washington, like Oregon, favors any genuine ambiguity in favor of the insured. And because Berkley’s adjusters had found a “decline in strength” of the roof trusses caused by “higher than normal temperatures,” which then gave way in the collapse, the insured got the checkered flag. No rot required.
Winning coverage was also possible because of ambiguity in how Berkley itself described these issues in different parts of its policy. The court noted that Berkley used “decay” in the additional coverage for collapse cases, but also generally excluded losses caused by “’Fungus’, Wet Rot, Dry Rot and Bacteria.” If “decay” really meant only damages caused by “rot,” as Berkeley argued in defending its denial of coverage, then it could have simply repeated this word in the collapse-coverage provision. Using different words, the court reasoned, implied different meanings, including the broader meaning the insured provided.
Winning coverage was also possible because of ambiguity in how Berkley itself described these issues in different parts of its policy. The court noted that Berkley used “decay” in the additional coverage for collapse cases, but also generallyexcluded losses caused by “’Fungus’, Wet Rot, Dry Rot and Bacteria.” If “decay” really meant only damages caused by “rot,” as Berkeley argued in defending its denial of coverage, then it could have simply repeated this word in the collapse-coverage provision. Using different words, the court reasoned, implied different meanings, including the broader meaning the insured provided.
One cannot read many insurance-coverage opinions without developing a healthy skepticism for the first, and perhaps most natural, meaning of a term in an insurance policy. Coverage law doesn’t work that way, and Feenix Parksidereinforces that insureds and their attorneys must be able to think about what word means outside of its traditional context, where ambiguity may be born to the insured’s benefit.