Reading an insurance policy can be extremely cumbersome to almost anyone. Many times it feels like the language is muddled and the policy is written in a foreign language. It may be even more disconcerting to an insured to find out that the courts do their best to strictly interpret insurance policies when a breach of contract claim arises between an insured and the insurance company. After all, what did the policy say in the first place? In California, we are fortunate because the law is clear. The law says that when the language of a contract (in this case the policy) is ambiguous, the ambiguous language must be construed against the insurer in favor of applying coverage to the claim. Two recent Eastern District Cases that came down in November 2011 just one day apart show that the courts are doing their best to strictly interpret the insurance policies that apply to coverage.
In Sierra Recycling & Demolition Inc. v. Chartis Specialty Insurance Company, No. 1:11-cv-00500 (E.D. Cal. November 3, 2011), the Court held that the insurance company owed coverage to its insured Sierra Recycling. In this matter Sierra Recycling suffered injuries and environmental damage from the deposit of contaminated debris at a recycling drop-off site Sierra Recycling did not own. Sierra Recycling then transported the contaminated debris to a recycling center which tested the debris and found zinc and lead contaminants of a high level. When Sierra Recycling tendered the claim to Chartis, the claim was denied on the basis that the policy would not cover damage "arising from the final disposal of material and/or substances of any type … at any site or location which is not owned, leased or rented by you." Sierra Pacific argued that since the contaminated debris was in its possession before moving to a point of "final disposal," the policy should cover the claim. When the matter went to trial, the Court took the literal meaning of the language of the policy and found that Sierra Recycling’s interpretation was inline with the ordinary meaning of the words "final disposal." Specifically, because Sierra Recycling had to move the contaminated debris to a final place from the drop-off and that Chartis did not meet its burden to make the exclusion plain and clear. Ultimately, the Court ruled in favor of Sierra Recycling and found that coverage was not excluded.
The second case to recently come out of the Eastern District, Brafman v. Nationwide Mutual Insurance Company, No. 2:11-cv-01627 (E.D. Cal. November 2, 2011), shows that California courts will interpret language of a policy on its face. In this matter, a claim for personal property loss and structural damage from "toxic mold" was found time-barred because it was filed too late. The policy had language stating that a lawsuit under the policy must be brought within one year of the date of loss. Here, the insured purchased an endorsement to her insurance policy from Nationwide covering losses caused by mold. She began to notice the effect of mold on her home in August and September of 2009. The insured presented a claim to Nationwide, and was denied coverage because the mold was caused by "dampness of atmosphere." In January 2010, the insured noticed mold problems in her rental unit on her property, and engaged in coverage discussions with Nationwide for several months. She finally filed suit on May 12, 2011. Because the insured was aware of property damage in approximately August or September of 2009, as well as in January of 2010, the court found that the claim was time-barred.
Reading the policy literally is important. Moreover, in California, its important to note that the courts have and continue to uphold policy language pertaining to rights and times of filing suit. California allows insurance policies to contract out of the statutory limitation periods for breach of contract and covenant of good faith and fair dealing causes of action. If the Eastern District has shown us anything, it is that the policy contract holds the key to a claim’s strength or weakness.