SOME BASIC LEGAL PRINCIPLES REGARDING INSURANCE POLICIES

The following is from Sections 1.04 and 1.05 of Chapter 1 of the New Appleman North Carolina Insurance Litigation (2020 Edition of the LexisNexis Practice Guide) entitled “General Principles of Construction for Insurance Policies,” and it was written by PCKB’s Deb Bowers. Most case citations that appear in these sections of the book are omitted.

Section § 1.04:  Insurance Policies Are Contracts.

“An insurance policy is a contract, and its provisions govern the rights and duties of the parties thereto.” “[T]he goal of [policy] construction is to arrive at the intent of the parties when the policy was issued.” “Where a policy defines a term, that definition is to be used. If no definition is given, non-technical words are to be given their meaning in ordinary speech, unless the context clearly indicates another meaning was intended.”

As confirmed by the North Carolina Supreme Court in Gaston County Dyeing Machine Co., 351 N.C. 293, 299, 524 S.E.2d 558, 563 (2000):

The various terms of the policy are to be harmoniously construed, and if possible, every word and every provision is to be given effect. If, however, the meaning of words or the effect of provisions is uncertain or capable of several reasonable interpretations, the doubts will be resolved against the insurance company and in favor of the policyholder. Whereas, if the meaning of the policy is clear and only one reasonable interpretation exists, the courts must enforce the contract as written; they may not, under the guise of construing an ambiguous term, rewrite the contract or impose liabilities on the parties not bargained for and found therein.

In determining the ordinary meaning of a word, it is appropriate to look to dictionary definitions. Our Supreme Court has held that “[u]se of the plain, ordinary meaning of a term is the preferred construction.” C.D. Spangler Constr. Co. v. Industrial Crankshaft & Eng. Co., 326 N.C. 133, 151, 388 S.E.2d 557, 568 (1990).

Section 1.05:  Provisions That Provide Coverage Are Construed Liberally; Provisions That Take Coverage Away Are Construed Strictly; and Ambiguities Are Construed in Favor of Coverage.

Provisions in a policy “[w]hich extend coverage to the insured must be construed liberally so as to afford coverage whenever possible by reasonable construction.”

“[E]xclusions from, conditions upon and limitations of undertakings by the [insurance] company, otherwise contained in the policy, are . . . construed strictly . . . to provide coverage.” Trust Co. v. Insurance Co., 276 N.C. 348, 355, 172 S.E.2d 518, 522-23 (1970); see also Maddox v. Colonial Life & Accident Insurance Co., 303 N.C. 648, 650, 280 S.E.2d 907, 908 (1981) (“Exclusions from and exceptions to undertakings by the company are not favored, and are to be strictly construed to provide the coverage which would otherwise be afforded by the policy.”).

“Where there is ambiguity and the policy provision is susceptible of two interpretations, of which one imposes liability upon the company and the other does not, the provision will be construed in favor of coverage and against the company.” Jamestown Mut. Ins. Co. v. Nationwide Mut. Ins. Co., 266 N.C. 430, 434, 146 S.E.2d 410, 414 (1966); see also Wachovia Bank & Tr. Co. v. Westchester Fire Ins. Co., 276 N.C. 348, 354, 172 S.E.2d 518, 522 (1970) (“If such a word has more than one meaning in its ordinary usage and if the context does not indicate clearly the one intended, it is to be given the meaning most favorable to the policyholder, or beneficiary, since the insurance company selected the word for use.”).

“The words used in the policy having been selected by the insurance company, any ambiguity as to their meaning must be resolved in favor of the policyholder, or the beneficiary, and against the company.” Wachovia Bank & Trust Co. v. Westchester Fire Ins. Co., 276 N.C. 348, 354, 172 S.E.2d 518, 522 (1970); see also State Capital Ins. Co. v. Nationwide Mutual Ins. Co., 318 N.C. 534, 538, 350 S.E.2d 66, 68 (1986) (“[P]rovisions which exclude liability of insurance companies are not favored and therefore all ambiguous provisions will be construed against the insurer. . . .”).

An ambiguity exists where “the language of the policy is fairly and reasonably susceptible to either of the constructions for which the parties contend.” A “difference of judicial opinion regarding proper construction of policy language is some evidence” that a policy provision is ambiguous. Brown v. Lumbermens Mut. Cas. Co., 326 N.C. 387, 390 S.E.2d 150, 153 (1990); see also Maddox v. Colonial Life & Acci. Ins. Co., 303 N.C. 648, 654, 280 S.E.2d 907, 910 (1981) (“We feel the fact that the courts of other jurisdictions have reached conflicting interpretations emphasizes the ambiguity inherent in the [policy provision].”). However, “‘ambiguity in the terms of an insurance policy is not established by the mere fact that [a party] makes a claim based on a construction of its language which the company asserts is not its meaning’ and . . . ‘[n]o ambiguity, calling the above rule of construction into play, exists unless, in the opinion of the court, the language of the policy is fairly and reasonably susceptible to either of the constructions for which the parties contend.’”