SUNY at Stony Brook Interpretation of Insurance Contract Terms Case Discussion

Interpretation of Insurance Contract Terms

KLJ Insurance Co. issued an insurance policy to Allan Viola to cover his aircraft. One provision of the policy excluded coverage for a “resident spouse.” A different provision included coverage for “any passenger.” Allan was piloting the aircraft with his wife, Julie, as a passenger when the aircraft crashed. Allan was killed, and Julie was injured. At the time, Julie and Allan had been living together. Julie filed a suit in a federal district court to collect under the policy for her injuries. KLJ claimed that the policy clearly excluded Julie. Julie argued that the policy was ambiguous. What will the court decide? Why?

Here is a case dealing with an equally ambiguous term:

Tina Johnson worked as a sales and reservations supervisor in a Global Securities Corp. (GSC) office located in Philadelphia. At 10:00pm one evening, after she had completed her work shift, Johnson left her office and exited the building onto a covered walkway. While she stood on this walkway, her estranged husband fatally stabbed her. As a GSC employee, Johnson was covered by a group life insurance policy issued by Federal Life Assurance Co. of America. A provision of the policy, marked “Hazard F,” provided for a payment of $100,000 to the insured beneficiaries in the event of death resulting from “a felonious assault while on authorized business of [GSC].” The term “felonious assault” was defined to include murder. Federal Life refused to pay the proceeds of the policy to Johnson ‘s beneficiaries (her children) on the grounds that Johnson had not been “on authorized business” at the time of her death. The beneficiaries then sued Federal Life to recover the proceeds.

One of the questions posed by this case was at what instant following the conclusion of an employee’s work shift should separation from the employer’s authorized business be complete? The trial court held that this instant occurred when Johnson left the employer’s premises. Although she had left the building in which she worked, she was still on her employer’s premises at the time of the fatal stabbing. The appellate court agreed. One appellate court judge dissented, however, concluding that at the time of the tragedy, Johnson was on her own business, not on the business of her employer. Argue the merits of each conclusion. Which one do you think is the fairer? Why?

Is the phrase “on authorized business” sufficiently ambiguous for the court to construe the phrase against the insurer, Federal Life? Do you discern any ethical principle underlying the rule that ambiguous terms and phrases will be construed against the insurance company? Given the fact that both parties to an insurance contract must agree to the terms contained therein or no contract will be formed, do you think that it is fair to hold just one of the parties responsible for ambiguous terms or phrases?