Insurance Dispute Lawyer Blog
In the first year of law school, nearly every student takes a course in Contracts. Contract law is one of the bases of our legal system and is at the core of almost all legal agreements. Everytime you get car insurance, sign a lease, agree to pay your plumber or electrician for work, or sign up for new cellphone service, you are dealing with a contract.
In contracts, every single word and punctuation mark is important. Clear, concise and unambiguous language is vital to writing a good contract. Sometimes even big companies enter into contracts that contain ambiguous language. These ambiguities can cause legal problems down the road. The case of WH Holdings, L.L.C. et al. v. ACE American Insurance Company illustrates how ambiguous contract language can lead to legal problems for the parties involved.
Prior to Hurricane Katrina, WH Holdings, the owner of the Ritz Carlton Hotel Complex in New Orleans, hired Gootee Construction Company to renovate the existing structure of the complex. Gootee was in the process of performing the renovations when Hurricane Katrina made landfall and caused damage to the exterior of the building. WH Holdings filed suit against Gootee’s insurer, ACE American Insurance Company, for almost $3.3 million for damage to the exterior of the hotel.
The parties agreed that the contract was governed by a form document known as the General Conditions of the Contract for Construction (General Conditions). The General Conditions is a document that contains amendments that the parties negotiated themselves – the Court acknowledges that these amendments are clearly marked in the document.
Both parties also agreed that WH Holdings was only covered under the policy which ACE issued to Gootee if, and only if, WH Holdings qualified as an insured party under the policy. Thus the entire case rested on whether or not Gootee was “contractually obligated… to insure WH Holdings such that it became an insured on the ACE policy.”
To reach its decision, the District Court looked at two clauses of the contract, Subsections 11.4.1 and 11.1.5(g). The parties distinctly amended a portion of Subsection 11.4.1. to seemingly place the responsibility of purchasing property insurance on Gootee. The District Court even acknowledged that if 11.4.1 stood alone, ACE would have no basis to contest WH Holdings claim. However, the District Court held that a separate subsection, 11.1.5(g), located in a different portion of the contract, changed the meaning of 11.4.1 by “unambiguously… obligating WH Holdings to carry the insurance ‘when the construction is an addition or a renovation.'”
The district court granted ACE’s motion for summary judgment and concluded that WH Holdings was not an insured party under the contract and Gootee had no responsibility to insure WH Holdings.
The 5th Circuit disagreed with the District Court’s analysis stating that while the district court “relied entirely on subsection 11.1.5(g) in finding the contract unambiguous… subsection 11.1.5(g) is not as ‘crystal clear’ as the district court thought it to be.” The Court goes on to point out that 11.1.5(g) appeared in an entirely different portion of the contract than 11.4.1. Subsection 11.1.5(g) appeared in a section of the contract covering “Contractor’s Liability Insurance” while 11.4.1 appeared in a section entitled “Property Insurance.” The Court found that 11.1.5(g) is limited in scope by a preceding clause and therefore does not modify 11.4.1, and to read it any other way would be ignoring this express limit. The 5th Circuit finally stated that it simply cannot agree with Gootee’s assertion and the District Court’s conclusion that the contract language unambiguously obligated WH Holdings to purchase property insurance.
The 5th Circuit also disagreed with WH Holdings argument that it was in fact Gootee who was “unambiguously required… to purchase the property insurance” since WH Holdings was unable to persuasively argue their interpretation. Stating that there were “difficulties with each party’s contention that the contract unambiguously supports its position,” the 5th Circuit vacated the District Court’s judgment and remanded the case back to the District Court. Finally, due to the ambiguous nature of the contract, the 5th Circuit also ordered the District Court to examine outside evidence brought by both parties regarding the meaning of the contract and to examine how both parties had performed the contract prior to the lawsuit being brought.
Contracts can be extremely important and very complicated particularly when dealing with insurance issues. Hiring the proper attorney is very important to ensure that all documents relevant are maintained, and provided, from start to finish, as well as to navigate any complicated appeals that may arise.
The Berniard Law Firm is very experienced in dealing with both contract issues and insurance issues, and legal assistance is just a phone call away.