On July 3, 2013, a closely divided Florida Supreme Court held that judges were required to interpret ambiguous policy language strictly against the insurer and in favor of coverage, and that courts should not first attempt to resolve ambiguities by examining extrinsic evidence. The dissenters argued forcefully that the majority thereby ignored “well-settled Florida law that parties may attempt to resolve … ambiguity through available extrinsic evidence before applying the last-resort principle of construction against the drafter.” Though it arose in the context of home health care coverage, the case announced a rule that now applies to the construction of all insurance policies in Florida’s state and federal courts.

Washington National Ins. Co. v. Ruderman, -- So.3d --, 2013 WL 3333059 (Fla., July 3, 2013) arose after a class action was filed in the U.S. District Court for the Southern District of Florida against Washington National Insurance Company’s predecessor-in-interest, Pioneer Life Insurance Company. The case involved insurance policies that reimbursed the policyholder for certain home health care expenses. The issue was whether an automatic increase provision that boosted benefits by 8 percent per year applied only to the maximum daily benefit amount (as the carrier contended) or whether it also increased the “per occurrence” limit for each illness and the “life time” limit for all sickness or injury during the policy term (as the insureds argued).

The district court granted summary judgment in favor of the policyholder plaintiffs after concluding that the language was ambiguous and that Florida law required an ambiguous policy to be construed against the insurer and in favor of coverage. 2010 WL 3522136 (S.D.Fla. 2010). On appeal, the 11th Circuit agreed that Washington National’s contracts of insurance were ambiguous, but it determined that the issue of whether the state allowed resort to extrinsic evidence to clarify an ambiguity in an insurance policy was an “unsettled question of Florida law.” 671 F.3d 1208 (11th Cir. 2012). The 11th Circuit therefore certified three questions to the Florida Supreme Court:

1. Did an ambiguity exist?
2. If so, should the courts first attempt to resolve the ambiguity by examining available extrinsic evidence?
3. Did the automatic increase provision apply only to the maximum daily benefit amount or to all three coverages?

A bare majority of the Florida Supreme Court held that the district court had been correct. Justice Labarga, with two justices concurring and one justice concurring in the result, announced that the policy was ambiguous and, most importantly, that “consistent with our precedent, … where a contract of insurance is ambiguous, it is to be liberally construed in favor of coverage and strictly against the insurer … without resort to consideration of extrinsic evidence.” According to the majority, where an insurance policy is “susceptible to more than one reasonable interpretation, one providing coverage and … another limiting coverage, the insurance policy is considered ambiguous and must be construed against the drafter and in favor of the insured.” (quoting Auto-owners Ins. Co. v. Anderson, 756 So.2d 29 (Fla. 2000)).

The 11th Circuit had perceived a lack of clarity and certified because the Florida Supreme Court stated in 1979 in Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So.2d 938 (Fla. 1979) that contra proferentem applies “[o]nly when a genuine inconsistency, uncertainty, or ambiguity in meaning remains after resort to the ordinary rules of construction.” Justice Labarga’s opinion explained, however, that:

nothing in Excelsior expressly holds that extrinsic evidence must be considered in determining if an ambiguity exists [and] nothing in Excelsior constitutes an implicit declaration that resort must be made to consideration of extrinsic evidence before an insurance policy is found to be an ambiguous and construed against the insurer.

Chief Justice Polston dissented vigorously in an opinion joined by the court’s two remaining members. According to the chief justice, the majority “ignore[d] the plain language of the contract and [Florida’s] binding precedent.” It did so by “misconstru[ing] the certified question” and “answering a question that the Eleventh Circuit ha[d] not asked.” As the dissent explained, the 11th Circuit did not certify the issue of whether Florida law allowed the use of extrinsic evidence “to render a clear contract ambiguous” but rather whether – once ambiguity had already been found – the courts should first attempt to resolve it by resorting to such evidence. In the chief justice’s view:

the majority concludes that our precedent does not require “that extrinsic evidence must be considered in determining if an ambiguity exists.” […]. I agree. Our precedent is clear that a contract must be ambiguous before extrinsic evidence may be introduced.

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If all available construction tools, including extrinsic evidence, fail to resolve the ambiguity, only then is the contract construed against the drafter, under the theory that “having chosen the language employed and being responsible for the alleged uncertainty and ambiguity,” the drafter must “suffer the result of having such [ambiguous] language construed against [it].”

As interpreted by the dissent, “[n]one of the decisions that the majority cite[d] justifies its departure from our established framework for construing insurance contracts, under which ‘[t]he central concern … is the intent of the parties’, just as it is with any contract.”

In sum, the impact of this new Florida decision is that insurance carriers will not be able to rely on extrinsic evidence to resolve ambiguities in an insurance policy. If a court holds that policy language is ambiguous, this ends the inquiry and that policy language will be construed against the insurance carrier.