That or Which and the Rules of Grammar in Insurance Contract Interpretation

Those who follow me on LinkedIn know that I consider myself somewhat of a (okay, an obsessive-compulsive) grammarian.  

A post to LinkedIn that I made this morning today prompted an interesting discussion (at least to me and, at last count, one other) in the comments about policyholders’, insurers’, and courts’ use of dictionary definitions to argue and determine the meaning of an insurance policy’s undefined term.  

What’s at stake, of course, is the dreaded “A” word:  Ambiguity.  Why?  Because ambiguities in contracts are construed against the drafter of the contract–the insurer in the case of an insurance coverage dispute.  I’ve heard that insurance recovery attorneys are taught that in kindergarten.  

The A-word can be quite the vorpal blade when it comes to slaying the ambiguous Jabberwock.  Especially for words or terms left undefined in an insurance policy.  But it is well-established in New York (and many other jurisdictions) that an ambiguity does not arise from an undefined term in a policy merely because the parties interpret that term differently.  Mount Vernon Fire Ins. Co. v. Creative Housing, Ltd., 88 NY2d 347, 352 (1996).

So what’s the role, if any of grammar (and syntax) in insurance policy interpretation?  The now-retired Justice Bernard J. Fried, who concluded that his “job is not to police the rules of grammar”, said it best in his 2006 decision in AIU Ins. Co. v. Robert Plan Corp. (2006 Slip Op. 52538 [Sup. Ct., NY Co., 2006], affd, 44 A.D.3d 355 [1st Dept. 2007]):

Under New York principles of contract interpretation, however, strict rules of grammar do not have the last word, when a grammatical construction of a contract is inconsistent with the parties’ intent. Rather, a court’s purpose in interpreting a written contract should be: 

to discover the intention which the parties have formulated in its written language. Often punctuation and grammatical construction are reliable signposts in the search. At times the language of a contract, read as a whole and in the light of the circumstances surrounding its execution, may disclose an intention which would be thwarted by a strict grammatical construction. We refuse to follow a signpost when it appears that it points in the wrong direction. Intention may be formulated in words that are not strictly accurate and in terms that are not grammatical. 

Wirth & Hamid Fair Booking v. Wirth, 265 NY 214, 219, 220-21 (1934) (concluding that a fair construction of the language of a written contract manifested that parties intended that defendant should have right to book performances for two circuses during summer months, notwithstanding the strict grammatical construction of the restrictive covenant to the contrary). 

The Court of Appeals has further instructed: 

Contracts are not to be interpreted by giving a strict and rigid meaning to general words or expressions without regard to the surrounding circumstances or the apparent purpose which the parties sought to accomplish. The court should examine the entire contract and consider the relation of the parties and the circumstances under which it was executed. 

William C. Atwater & Co. v. Panama R., 246 NY 519, 524 (1927) (citations and internal quotations omitted). In Atwater, for instance, the Court refused to enforce a provision of a contract for the sale of coal that, read literally, precluded the plaintiff seller from obtaining damages for breach of contract as to any coal remaining unshipped at the expiration of the contract. The Court reasoned that a literal reading of the provision was inconsistent with the “general sense of the contract,” read in the light of “reason, equity, [and] fairness.” Id. at 523-24. The Court concluded that it was “evident that the plaintiff had not the remotest intention of releasing any claims against defendant [the buyer] for damages for breach of contract which had accrued at the date of the expiration of the agreement and that the defendant could not reasonably have so understood the language thus used.” Id. at 523. 

Although Wirth and Atwater were decided some years ago, they articulate principles that remain valid. See, e.g., Kass v. Kass, 91 NY2d 554, 566 (1998); In re Estate of Stravinsky, 4 AD3d 75, 81-82 (1st Dept. 2003).

For those two of you who may be wondering (and didn’t click the case’s Google Scholar hyperlink), the case before Justice Fried involved the restrictive and nonrestrictive relative pronouns of “that” and  “which” — a topic which that has brought many grammarians better than me I to fisticuffs for a long time many years (if not decades or centuries).  Justice Fried explained:

In the previous Order, I concluded that the universe of property owned by Plaintiffs is the property described in clause A,[4] after subtracting the property described in clause B. Order at 2-3, 3 n.2. I further stated that clause C the phrase, “which are the property of AGENT” modifies the property described in clause B. Order at 3-4 n.2. These conclusions followed July’s oral argument, at which the parties focused on whether “which” modified clause A or clause B. July 14 Trans. at 36-43. The issue of how “which” modified clause B did not arise. It seems necessary now to investigate how clause C modifies clause B, and, in particular, the significance of the word “which” in clause C. 

Strict grammarians prefer the use of the word “that” as the defining, or restrictive relative pronoun, while reserving “which” as the nondefining, or nonrestrictive relative pronoun. William Strunk, Jr. & E.B. White, The Elements of Style 59 (4th ed. 2000). So, for example, in the sentence, “The lawn mower that is broken is in the garage,” the restrictive pronoun “that” tells the reader which mower is in the garage. (The broken one.) In contrast, in the sentence, “The lawn mower, which is broken, is in the garage,” the nonrestrictive “which” adds a fact about the only mower in question. Id. 

In practice, however, “not all writers observe the distinction between restrictive clauses [] and non-restrictive clauses.” The New Fowler’s Modern English Usage 774 (R.W. Burchfield ed., 3d ed., Clarendon Press 1996). In fact, “it would be idle to pretend that it is the practice either of most or of the best writers.” Id. (quoting with approval H.W. Fowler, A Dictionary of Modern English Usage 635 (1st ed., Oxford Univ. Press 1926)). The relative pronoun “which” is commonly used in both written and spoken English in place of the restrictive relative pronoun “that.” Strunk, The Elements of Style at 59. In fact, writers of English sometimes use “which” in both the restrictive and the nonrestrictive sense in the same piece of writing. The New Fowler’s Modern English Usage at 774 (emphasis added). 

The agreement itself contains other instances of “which” used in place of “that” as a restrictive relative pronoun. E.g. Agreement art. IV ¶ 4 (“In addition to… any applicable underwriting guideline, bulletin or instruction which may be issued from time to time…”); id. art. VI ¶ 3 (“AGENT will promptly advise the COMPANY in writing of any Insurance Department notice which specifically threatens the Company with disciplinary actions or penalties.”). 

However, a strict grammarian would point out that in both of these instances, “which” is not preceded by a comma, whereas it is in clause C. Ordinarily, a comma setting off a modifying clause indicates that the modifier is nonrestrictive. See Strunk, The Elements of Style at 4. Thus, a comma preceding “which” in clause C would tend to suggest that “which” is being used as a nonrestrictive pronoun and that clause C does not limit or define clause B. This is the reading favored by Plaintiffs. 

This reading is supported by the fact that a purpose of paragraph 9 appears to be to identify who, between AIU and TRP, owned certain items relating to the business of TRP’s agency. If “which” in clause C were read as a restrictive pronoun, clause B would no longer identify the items that were owned by TRP. Instead, clause B would assume that the reader knew which items were owned by TRP and would simply carve them out from the items identified in clause A, which were owned by AIU.

You had me at “restrictive, relative pronoun”, judge. 😜😍

Next up: “different than” or “different from” in insurance contract interpretation?