In a recent decision that offers crucial guidance to policyholders and public adjusters about how to interpret commercial insurance contracts, the Fourth Circuit Court of Appeals sided with the policyholder, highlighting a key lesson about insurance policy interpretation: When insurance language is ambiguous, courts will interpret any ambiguity in favor of the policyholder. 1

At the center of this dispute was a significant loss at JW Aluminum’s South Carolina facility involving molten aluminum. Insurers argued that damages totaling roughly $35 million—caused by fire, falling debris, water damage from firefighting, and equipment shutdown—should be limited to a $10 million policy cap related specifically to molten material incidents. JW Aluminum disagreed, asserting that these distinct damages should not all be limited by the molten material provision. 2

The policy provided:

It is hereby understood and agreed this policy does insure against direct physical loss or damage caused by heat from Molten Material, which has been accidentally discharged from equipment, subject to a limit of $10,000,000 per occurrence. This policy does not insured [sic] against the following types of loss or damage.

  1. Loss or damage to such discharged material unless caused by a peril not otherwise excluded.

2. The cost of repairing any fault which permitted such accidental discharge unless caused by a peril not otherwise excluded.

The lower federal district court ruled in favor of the insurers. Nevertheless, the appellate court recognized the inherent ambiguity in the insurance policy’s “Molten Material” provision. Specifically, the policy stated that coverage was limited to losses directly caused by “heat from Molten Material” accidentally discharged from equipment, subject to a $10 million sublimit per occurrence. However, the policy did not clearly define critical terms such as “direct,” “physical loss,” “damage,” or even “heat from molten material.” The insurers contended that all ensuing losses—fire damage, falling debris, water damage from firefighting efforts, and equipment damage from utility shutdown—were subject to this cap due to their connection to the molten material discharge.

The Fourth Circuit found the insurers’ interpretation overly broad and unreasonable, emphasizing that under South Carolina law, ambiguous insurance policy language must be interpreted liberally in favor of policyholders and strictly against insurers. The court specifically pointed out that the insurers’ interpretation disregarded essential wording in the policy, rendering terms like “direct” and “heat from” meaningless. The court explained:

[T]here is an alternative reading that fits at least as well with the provision’s text. That interpretation would read the Molten Material provision as saying: ‘This policy does insure against direct physical loss or damage caused by heat from Molten Material, which has been accidentally discharged from equipment, subject to a limit of $10,000,000 per any loss or series of losses directly caused by heat from Molten Material arising out of one event.’ The underlying ambiguity of the terms ‘direct’ and ‘by heat’ remain, and nothing in the definition of ‘occurrence,’ or any other language in the policies, resolves that issue.

The parties spar over other potential sources of ambiguity in the policies and how various possible resolutions of the ambiguities we have identified would impact the proper resolution of this case. We need not resolve those issues here. Under South Carolina law, ‘[a]mbiguous or conflicting terms … must be construed liberally in favor of the insured and strictly against the insurer.’ Williams, 762 S.E.2d at 710 (quotation marks removed). Having concluded there are several such terms here, we reverse the district court’s determination that JW Aluminum’s total recovery is capped at $10 million as a matter of law.

By ruling the policy provision ambiguous, the appellate court highlighted a fundamental principle of insurance contract interpretation: insurers are responsible for drafting clear and explicit language. If they fail to do so, courts are required to adopt interpretations that favor broader coverage for policyholders. In this case, JW Aluminum successfully argued that the immediate and direct causes of its losses—fire, water damage, falling debris, and frozen aluminum—were distinct covered perils, each potentially subject to their own coverage provisions rather than solely limited by the molten material sublimit.

This case serves as a valuable reminder to policyholders and public adjusters alike: Ambiguous insurance policy terms must always be challenged. When insurers rely on ambiguous language to restrict coverage unfairly, courts will often protect policyholders by interpreting these unclear provisions in favor of broader coverage. For insurers, this decision highlights the critical need to draft clear, precise, and explicit policy language if they wish to limit coverage effectively. JW Aluminum’s success in this matter demonstrates how courts play a pivotal role in ensuring fairness and accountability in insurance disputes, firmly reinforcing the rights of policyholders to the coverage for which they have contracted.

Thought For The Day

“Words must clearly reflect thoughts; otherwise, they lead only to misunderstandings.”
—Confucius

1 JW Aluminum v. Ace American Ins. Co., et al., No. 24-1229, 2025 WL 753373 (4th Cir. Mar. 10, 2025).
2 JW Aluminum, [Doc. #27, Brief of Plaintiff-Appellant].