Ambiguous Insurance Policies & Your Rights

Ambiguous Insurance Policies & Your Rights

By Jeffrey Boxer

Roof with extensive damage as an example of what an insurance policy may or may not cover.

If an insurance company writes ambiguous policy language, the insured has coverage.  In a recent case handled by this office, involving a roofing claim and subsequent denial by American Family Insurance, American Family attempted to limit coverage (pay less to its insureds than a neutral appraiser had found the claim to be worth) with a provision that read, in relevant part, that the insurer “will not pay for any damage caused by hail to any metal vent, flashing, drip edge, ridge, valley, accessory, or trim unless such metal component . . . will no longer: (1) prevent water from entering the building; or (2) perform any other intended function.”  As the term “any other intended function” was not defined in the policy, this office argued that such exclusionary clauses exempting the insurer from providing coverage in certain circumstances must be written in clear and specific language and construed in favor of coverage.  See, e.g., McGowan v. State Farm Fire & Cas. Co., 100 P.3d 521, 523 (Colo. App. 2004).  After voluminous briefing, the Federal Court for the District of Colorado the term “perform any other intended function” was in fact ambiguous.

The implications of this determination were dramatic both in this case, and to anyone with an American Family insurance policy containing the same exclusion.  While Colorado offers parties great freedom to contract, and while insurance policies are generally interpreted like other contracts, because of the difference in bargaining power between insureds and insurance companies, policy language must be construed against the insurer when it is reasonably susceptible on its face to more than one interpretation and is thus ambiguous.  See, e.g. TBL Collectibles, Inc. v. Owners Ins. Co., 285 F. Supp. 3d 1170, 1199 (D. Colo. 2018).  This office obtained a judicial finding that the term is susceptible on its face to more than one meaning.  Therefore, in all cases implicating this potential exclusion, American Family (or any other carrier relying on this term) must provide coverage.

It is important to read insurance policies, and to seek help from a lawyer specializing in insurance coverage and insurance bad faith when disputes like this arise.  Insurance policies are typically required to be written in language that can be understood by someone with a tenth-grade education.  C.f. C.R.S. § 10-4-633.5.  Still, American Family, like other large insurers, takes advantage of its vast resources to hire teams of lawyers to write the contract in a legalese that is a skill for even trained lawyers to decipher.  American Family also is not going to tell its insureds about the finding that its provision is ambiguous and unenforceable.  The best protection for insureds dealing with an insurance carrier attempting to enforce an exclusion, therefore, is to hire counsel who specializes in holding carriers to the law.

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