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Contra Preferentum Requires the Court to Construe Ambiguous Contractual Language Strictly in Favor of the Insured
Johnson v. Am. United Life Ins. Co.
In this recent opinion, authored by Judge Traxler, the United States Court of Appeals for the Fourth Circuit reversed the judgment of the district court, which had affirmed the decision by American United Life Insurance (AUL) to deny Accidental Death and Dismemberment (AD&D) benefits to the widow of an insured, Richard Johnson. The district court relied on the definition of “accident” provided by North Carolina law to determine that Richard’s death did not qualify as such, thus disqualifying his widow, Angela Johnson, from receiving AD&D benefits.
This contract dispute arose as a consequence of Richard Johnson’s death. At about 1:30 a.m. on August 2, 2007, Richard was driving near Myrtle Beach, South Carolina when he lost control of his vehicle, veered off the road and flipped multiple times, sustaining fatal injuries. The traffic report regarding this incident stated that Richard’s driving too fast was the primary cause of the accident, but a later toxicology report showed that Richard had a blood alcohol level of 0.289 at the time he was driving. After his death, AUL immediately distributed Richard’s life insurance benefits to Johnson, but refused to disperse any of the AD&D benefits on the basis that Richard was drunk at the time of the crash, rendering his death not “accidental” under the terms of the policy.
After this denial, Angela Johnson sued AUL under ERISA. The district court noted that AUL’s policy failed to define the term “accident” so it applied North Carolina law, which defines accident as an “unanticipated and unexpected result of an intentional voluntary act.” Johnson at 9. The district court agreed with AUL that Richard’s death was not an “accident,” according to North Carolina’s definition, since the dangers of drunk driving are widely known. On appeal to the Fourth Circuit, the court reviewed this decision de novo, since this benefit plan did not give the administrator “discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Id.
AUL argued that the court should apply the analysis set forth in Wickman v. Northwestern Nat’l Ins. Co., 908 F.2d 1077, 1088 (1st Cir. 1990), to determine the meaning of accident, relying on Eckelberry v. ReliaStar Life Ins. Co., 469 F.3d 340, 343-346 (4th Cir. 2006). The court, however, explained that Eckelberry was inapposite for two (2) reasons: the insurance policy at issue there did provide a definition of “accident” and that plan reserved discretionary authority for the administrator to construe the terms of the plan, so the appropriate standard of review was abuse of discretion, rather than de novo. Instead the court relied on general principles of contract interpretation, seeking to give effect to every term to effectuate the intent of the parties.
The insurance policy at issue specifically listed limitations on the payment of AD&D benefits, and drunk driving was not included in this list. The policy also included additional benefits for anyone who died in a car accident while wearing a seatbelt, and this provision did explicitly exclude payment of these benefits if the insured was intoxicated while driving. The court also determined that “accident” is ambiguous because it is reasonably susceptible to multiple definitions. The policy’s limitations, combined with the lack of definition for the ambiguous term “accident,” compelled the court to apply the rule contra preforentum and construe the policy strictly in favor of the insured. The court concluded that a reasonable plan participant under these circumstances would not have understood that driving while intoxicated was substantially certain to result in death or severe injury, so that a reasonable plan participant would have expected this death to be considered an “accident” under the policy, qualifying for AD&D benefits.
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