The Eleventh Circuit recently ruled in favor of an insurer and against a policyholder by
relying on some technical rules of construction but ignoring other important principles. In
ECB USA Inc. v. Chubb Insurance Company of New Jersey, the appeals court resolved
a commercial lines insurance dispute between an accounting firm and its commercial
insurer. The court stated the issue as follows:
This case comes down to grammar and canons of construc-
tion. Chubb issued an insurance policy that covers claims
against Constantin arising from “services directed toward
expertise in banking finance, accounting, risk and systems
analysis, design and implementation, asset recovery and
strategy planning for financial institutions.” Constantin
performed an audit for a food services company; the audit
went wrong and led to liability. Constantin transferred its
rights under the policy to the ECB parties. The question for
us is whether “for financial institutions” limits “accounting”
such that there is no coverage under the policy for the audit
of a food services company.
The court found that the policy only provided coverage for accounting services provided
for financial institutions and not other types of accounting services.
The court then turned to a couple of “canons’ of construction, which are rules used by
courts to interpret the language of contracts and statutes. They roughly parallel the rules
of grammar that many of us learned in high school. (My mom was an English teacher
and I had these rules engrained in me). The court focused on two rules in particular: the
last antecedent canon and the series qualifier canon. The court defined the last
antecedent canon as “unless a contrary intention otherwise appears, a qualifying phrase
within a statute refers to the last antecedent phrase” and also “The rule of the last
antecedent in its purest form provides that ‘[a] pronoun, relative pronoun, or
demonstrative adjective generally refers to the nearest reasonable antecedent.’” The
accounting firm argued that the phrase “for financial institutions” applied to the words
“strategy planning” or at most “strategy planning and asset recovery.”
The court also looked at the “series qualifier canon” which it defined as “[w]hen there is
a straightforward, parallel construction that involves all nouns or verbs in a series, a
prepositive or postpositive modifier normally applies to the entire series.” The insurer
argued that “for financial institutions” referred to a whole series of words, including
“accounting.”
While acknowledging that these two rules provide for very different results, the court
chose to favor the series qualifier canon to reach its holding that the policy only covered
the accounting firm for accounting services for financial institutions. In reaching its
holding, the court rationalized that the two rules were not at odds but actually were
intended to address two different problems. According to the court, “[t]he series-qualifier
canon helps us understand the meaning of items in a list with a parallel construction that
are modified by an adjective, adverb, or qualifying phrase” while [t]he last-antecedent
canon…is generally used to help us understand to what a pronoun, relative pronoun, or
demonstrative adjective is referring.” The court then decided that the group of words
consisted of items in a list with a parallel construction and chose to apply the series
qualifier canon.
The court’s reasoning suffers from several logical flaws. First, the two canons clearly are
at odds with each other and a court could clearly reach the opposite result from the
Eleventh Circuit just by using the other rule. Second, the Court ignores the anti-
redundancy canon which holds that “a provision in a contract should be given effect and
should not needlessly be given an interpretation that causes it to duplicate another
provision or have no consequence.” The policy specifies that it covers “banking finance”
and by saying that “for financial institutions” applies to the whole series of words, it
renders the word “banking” redundant.
The court acknowledges that any of these canons of construction “—can be defeated
by other indicia [indicators] of meaning because they are just one tool of textual
analysis.” However, the court does not look at any of those other indicators of meaning
and ignores other rules.
For instance, the court also loses sight of the rule that policies are to be interpreted from
the standpoint of a reasonable insured and not necessarily a linguist or highly educated
appellate court judge. A court should also look at the entire policy when determining the
meaning of policy language and not pull single sentences out of context. A provision in
an insurance policy is also ambiguous if it is capable of more than one reasonable
meaning and, if it is ambiguous, it must be interpreted in favor of the policyholder.
The opinion does not provide a copy of the policy or cite to any of the headings in the
policy. Did the insurer refer to the policy as a banking or financial services professional
liability policy or an accounting professional liability policy or something else? We don’t
know because the opinion does not tell us.
Ultimately, insurance policies should be written so that ordinary people can know for
certain what coverage they are purchasing when they buy it. If there is any doubt as to
the meaning of policy language, it should be resolved in favor of the insured. As much
as us grammar nerds may like it, policies should be understood by everyone not just
grammar nerds.
As always, if you have any questions or need any legal help with an insurance matter,
please reach out.
P.S. Here is an excellent article by two Florida policyholder attorneys on this same
v-chubb-how-the-use-of-linguistics-in-insurance-coverage-disputes-creates-risks-and-
uncertainty-for-corporate-policyholders/
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