HNRK Coverage Corner

On December 26, 2023, the Second Circuit issued a decision in Ezrasons, Inc. v. The Travelers Indemnity Co., Docket No. 22-766, construing an ambiguous provision in a marine cargo insurance policy in favor of the insured under the doctrine of contra proferentem.

As the Second Circuit explained: “When dealing with insurance policies, it is a ‘fundamental’ principle of New York law that ambiguities should be interpreted against the insurer and in favor of the insured.” This rule of construction (which we have discussed in previous posts) is an application of the contra proferentem doctrine—i.e., interpreting ambiguous contract provisions against the drafting party.

In Ezrasons, the Second Circuit applied this rule and construed an ambiguous provision in favor of coverage. In discussing the background law, however, the Second Circuit observed (citing two of its earlier decisions) that the rule of contra proferentem “is used only ‘as a matter of law resort’,” after making use of all other available tools to resolve the ambiguity,” including consideration of extrinsic evidence. 

That’s not how the New York Court of Appeals has described the rule. Nearly a hundred years ago, Judge Cardozo stated: “In the presence of ambiguity we adhere to the construction adverse to the insurer.” Killian v. Metro. Life Ins. Co., 251 N.Y. 44, 48 (1929). Nothing in there about a “last resort.” More recently, the court has continued to apply the contra proferentem rule to insurance policies without the qualification suggested by the Second Circuit in Ezrasons. See, e.g., Jin Ming Chen v. Ins. Co. of the State of Pennsylvania, 36 N.Y.3d 133, 142–43 (2020) (“Ambiguous provisions—those that may be reasonably interpreted in two conflicting manners—must be construed in favor of the insured and against the insurer.”). 

And while we’re name-dropping renowned New York jurists, no less a luminary of the Second Circuit than Learned Hand observed that “Contra proferentem is more rigorously applied in insurance than in other contracts. Insurers who seek to impose upon words of common speech an esoteric significance intelligible only to their craft, must bear the burden of any resulting confusion.” Gaunt v. John Hancock Mut. Life Ins. Co., 160 F.2d 599, 602 (2d Cir. 1947).

Here at the Coverage Corner, we’ll throw in our lot with Cardozo and Hand. The insurer typically drafts the policy and should bear the risk of any textual ambiguity for which it is responsible.