Case Study: Interpreting Policy Language – Part 2
In Part 1 of this post, we started to look at the recent case Leonor v. Provident Life and Accident Company[1]. The key issue in this case was whether the disability policy language “the important duties” meant “all the important duties.” In Part 2 of this post, we will look at how the court addressed the parties’ arguments and see how the court ultimately resolved the dispute.
The Law
Under Michigan law, ambiguous words in a disability policy are construed in favor of the insured. A word or phrase is ambiguous if the word or phrase may “reasonably be understood in different ways.” Because of these rules, in order to win his case, the claimant, Leonor, did not have to come up with an interpretation that was superior to the interpretation offered by the disability insurer, Provident Life. Instead, Leonor merely had to establish that the policy language was ambiguous and then come up with a reasonable interpretation of the policy language that supported his disability claim for benefits.
The Analysis
The court began its analysis by recognizing that context is important when interpreting a contract. The court acknowledged that the definition of “residual disability” was obviously intended to be a less severe category of disability, and even acknowledged that the terms “total disability” and “residual disability” had to be mutually exclusive for the rest of the policy to make sense. Nonetheless, the court determined that the phrase “the important duties” was ambiguous.
By way of illustration, consider the following continuum, beginning with no limitations and ending at the inability to perform all of the important duties of an occupation.
|———————————–|———————————–|———————————–|
No Limitations Unable to Perform Unable to Perform Unable to Perform Some Duties Most Duties All Duties
Essentially, the court determined that the “residual disability” definition was broad enough to encompass individuals who could not perform “some” of the duties of their occupation, but was not broad enough to encompass individuals who could not perform “most” or “all” of the duties of their occupation. Thus, the policy language remained ambiguous because the “total disability” definition could still mean either the inability to perform “most” duties or the inability to perform “all” duties.
Next, the court determined that Leonor’s interpretation of the policy language was reasonable. The court explained that, under the rules of grammar, the definite plural does not necessarily apply to each thing in the group referred to. To support its position, the court noted that Provident Life’s own counsel argued at oral argument that its position was supported by “the rules of grammar” even though Provident Life’s counsel obviously did not mean to suggest that its position was supported by “all the rules of grammar.”
Finally, the court held that a claimant’s income is “far from dispositive” in disability cases. Specifically, the court determined that Leonor should not be penalized for earning more income after his injury than he did before the injury. The court noted that because investing in businesses is inherently risky, it was entirely appropriate for Leonor to insure himself against the loss of the guaranteed, steady income provided by the dental procedures.
The Decision
In the end, the court determined that Leonor was “totally disabled” under the policies because the phrase “the important duties” was ambiguous and Leonor had offered a reasonable application of the phrase that supported an award of benefits. The court ordered Provident Life to pay Leonor his benefits under the policy, plus 12% interest as a penalty for failing to pay the claim in a timely fashion.
Conclusion
This case demonstrates how the presence or absence of a single word in a policy can dramatically affect your ability to recover disability benefits. Even language that is not necessarily unfavorable, but merely ambiguous, can delay your recovery of benefits if you have to go to court to resolve a dispute with the insurer. For example, in the Leonor case, Leonor made his initial disability claim in July 2009, but the court did not conclusively establish he was entitled to disability benefits until June 2015—nearly six years later.
If possible, you should avoid ambiguous and unfavorable language when purchasing a policy. If you already have a disability policy, an experienced disability insurance attorney can review your policy and identify words or phrases that could impact your ability to recover disability benefits in a timely fashion.
[1] 790 F.3d 682 (6th Cir. 2015).
