Silverton Elevators

• Facts – Plaintiff employer give house and property– Tornado does what tornados do– Plaintiff sued under employees policy

Battle in Silverton

• Insurance company argues:– Property not owned by policy

• Plaintiff argues:– Defendant had waived the requirement that the

named insured own the property because insurance company knew when issuing the policy knew that plaintiff employee was the owner of the property covered by the policy.

– Majority says waiver.– Dissent says you can’t have waiver or estoppel if you

don’t have a contract in the first place.

Clark Peterson

• Employer fires employee for alcoholism.

• Employee sues and wins.

• Insurance company argues intentional act.

Doctrine of Reasonable Expectations

• Threshold Questions1. Either policy is such that an ordinary layperson would

misunderstand its coverage, OR2. Circumstances attributable to the insurer which would

foster coverage expectations.

• Doctrine requires:1. is bizarre or oppressive.2. eviscerates terms explicitly agreed to.3. eliminates the dominant purpose of the transaction.

• In other words, policy cannot withdraw with the policy's left hand what is given with its right.

Taylor v. State Farm

• Bad faith case involving classic excess verdict.

• UM release at issue: trial; thus, parol evidence was admissible at trial.

• State Farm says unambiguous on four corners of document.

Parol Evidence

• Corbin - extrinsic evidence should then be admissible to aid in interpretation.

• Williston – read the four corners of the document. Period.

Professor Corbin

• This is who I’m trying to make Corbin– Wild liberal– Hard drinking– Sleeping with Julia Roberts

Corbin’s Rule

• Two steps1. Court considers the evidence that is alleged to

determine the extent of integration, illuminate the meaning of the contract language, or demonstrate the parties' intent.

• Court eliminate the evidence that has no probative value in determining the parties' intent.

2. The second step involves "finalizing" the court's understanding of the contract.

• Parol evidence rule applies and precludes admission of the extrinsic evidence that would vary or contradict the meaning of the written words.

Pacific Indemnity

• How did the case end up in the Maryland Court of Appeals?

– 4th Circuit sent under Uniform Certification of Questions of Law Act. What does that mean?

• Federal court wants help in interpreting Maryland law – most states have same statute. Any federal court can do it.– A certification order shall set forth

1. the questions of law to be answered; and

2. a statement of facts relevant to the questions certified and showing nature of the controversy in which the questions arose

Pacific’s Argument

• $560,500 settlement; $200k in dispute. Who pays for it?– Pacific argues its policy "$ 200,000 each

claim $ 600,000 aggregate” means one $ 200,000 for Mom’s claim and and another $ 200,000 limit applies to the infant's claim (which includes Dad’s claim given policy language.

Interstate’s Position

• Three separate $ 200,000 limits are implicated with one limit applying to the claims of infant, Mom, and Dad.

The Certified Question

• Construing Pacific's policy under Maryland law, is Pacific liable to pay a separate $200,000 policy limit to Interstate for the claim of Dad for the financial injury sustained by him as a result of the insured's malpractice?

• Court of Appeals’ Answer?

Court of Appeals Holding

What do these wise judges say?

“DUNNO. But let’s talk insurance law!”

Maryland Insurance Law 101

• An insurance contract is just like any other contract is measured by its terms (statute, regulation, public policy exceptions).

• To determine intent, we construe the instrument as a whole.

• Use everyday language.• Ambiguous if it is "general" and may suggest two

meanings to a reasonably prudent layperson. • If ambiguous, go to extrinsic evidence to determine the

intention of the parties and whether the ambiguous language has a trade usage.

How to Define Injury?

• Interstate argues that the policy does not expressly limit "injury" to bodily injury.

• Court says “injury is ambiguous” so it cannot answer.

• Remember this: A term which is clear in one context may be ambiguous in another. Elsewhere, injury could be unambiguous.

Derivative Claims and Trade Claims

• Derivative claims argument from Pacific – derivative claims not constitute separate claims – All comes back to definition of injury which is different

in case cited by Pacific– So we are back to injury = ambiguous

• Where the meaning is ambiguous, "extrinsic evidence is admissible . . . to show the parties' intent and to show whether the term does or does not have a particular trade usage

• If no party presents extrinsic evidence bearing upon the meaning of the ambiguous term, construe against drafter.

So What Does This All Mean?

• COA says we don’t know because injury is undefined.

• But… assuming trade usage is clear, use industry standard which would view this as two injuries