Opinion ID: 566300
Heading Depth: 3
Heading Rank: 2

Heading: The 1979 National Union Policy and the Columbia Casualty Policy

Text: 38 In its January 17, 1989 decision, the District Court made extensive findings of fact with respect to the 1979 National Union Policy and the Columbia Casualty Policy. Carey Canada, 720 F.Supp. at 1019. Specifically, the court concluded: 39 [A]sbestosis is a medical term and, when correctly used, makes reference to a specific, single disease caused by the inhalation of asbestos fibers. 40 Id. at 1020, 1021-22. Additionally, the court found that appellants' position is supported by medical definitions, by the compensation statutes of certain states and by legal decisions. Id. at 1021. The court also concluded that the meaning of asbestosis was a matter of public record based on congressional hearings, newspaper and magazine articles, and insurance industry trade journals. Id. 41 To counter this evidence regarding the proper use of the term asbestosis, 3 the court cited the parties' negotiations to suggest that they intended to use the term generically to cover all asbestos-related diseases. Id. at 1022-25. The court, however, cited little evidence external to the parties' negotiations to demonstrate that the term asbestosis was ever used ambiguously by anyone other than the parties in this case. 42 [I]n using the term asbestosis ... it was objectively intended by all the parties that the exclusion of asbestosis should be interpreted to mean the exclusion of all asbestos-related disease claims. 43 Id. at 1025. The court apparently assumed that it could consider evidence of the parties' subjective pre-contractual intent in order to find a latent ambiguity. 44 It does not appear to us that either Florida or Illinois law permits this approach. Under Florida and Illinois law, as in other states, a court construing a contract must give effect to the parties' intent as expressed in the contract. See Towne Realty, Inc. v. Safeco Ins. Co., 854 F.2d 1264, 1267 (11th Cir.1988) (Florida law is quite clear that the parties' intent is to be measured solely by the language of the policies unless the language is ambiguous) (emphasis in original) (citing Durham Tropical Land Corp. v. Sun Garden Sales Co., 106 Fla. 429, 138 So. 21, 23 (1931)); Conway Corp. v. Ahlemeyer, 754 F.Supp. 596, 599 (N.D.Ill.1990) (court's  'primary objective in construing a contract is to ascertain the intent of the parties and to give effect to that intent' ) (quoting United Airlines, Inc. v. City of Chicago, 116 Ill.2d 311, 318, 107 Ill.Dec. 705, 708, 507 N.E.2d 858, 861 (1987)). If the language used in the contract is ambiguous or vague and does not in itself disclose the parties' intent, then the court must resort to usage or other surrounding circumstances existing at the time the contract was made to divine the intent of the parties. See Conway, 754 F.Supp. at 599. 45 Evidence of surrounding circumstances is admissible only where the written contract is ambiguous. See Chicago Bd. of Options Exchange, Inc. v. Conn. Gen. Life Ins. Co., 713 F.2d 254, 258 (7th Cir.1983) (In construing ambiguous contract the court must consider any evidence that sheds light upon the intentions of the parties, including the situation of the parties, the purpose of the contract, and the circumstances surrounding the formation of the contract) (citations omitted); Indemnity Ins. Co. v. Du Pont, 292 F.2d 569, 574 (5th Cir.1961) (unless there is an ambiguity in the contract terms, extrinsic evidence is inadmissible); Ace Electric Supply Co. v. Terra Nova Electric, Inc., 288 So.2d 544, 547-48 (Fla.App.1973) (same). Ambiguity exists in an insurance policy only when its terms make the policy reasonably susceptible to different constructions and interpretations, one resulting in coverage and one resulting in exclusion. See Thompson v. Amoco Oil Co., 903 F.2d 1118, 1120 (7th Cir.1990); Towne Realty, 854 F.2d at 1267; Gulf Tampa Drydock Co. v. Great Atlantic Ins. Co., 757 F.2d 1172, 1174-75 (11th Cir.1985); Fabrica Italiana Lavorazione Materie Organiche, S.A.S. v. Kaiser Aluminum & Chemical Corp., 684 F.2d 776, 780 (11th Cir.1982); see also Papago Tribal Utility Authority v. FERC, 723 F.2d 950, 955 (D.C.Cir.1983), cert. denied, 467 U.S. 1241, 104 S.Ct. 3511, 82 L.Ed.2d 820 (1984). 46 The court may not create ambiguity where none exists. Simmons Refining Co. v. Royal-Globe Ins. Co., 543 F.2d 1195, 1197 (7th Cir.1976). Significantly, neither the mere absence of a policy definition nor the presence of a dispute as to meaning of the provision necessarily renders the policy or term ambiguous. Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 1360 (11th Cir.1988), cert. denied, 488 U.S. 1041, 109 S.Ct. 865, 102 L.Ed.2d 989 (1989); Keyser v. Conn. Gen. Life Ins. Co., 617 F.Supp. 1406, 1410 (N.D.Ill.1985). If the language found in the policy is not ambiguous or otherwise susceptible of more than one meaning, the court's duty is to apply the plain meaning of the words and phrases used to the facts before it. The court is without authority to rewrite the policy or add meaning to it that is not there. National Union Fire Ins. Co. of Penn. v. Carib Aviation, Inc., 759 F.2d 873, 876 (11th Cir.1985); see also FDIC v. W.R. Grace & Co., 877 F.2d 614, 620-21 (7th Cir.1989) (the 'four corners' rule, which excludes extrinsic evidence if the contract is clear 'on its face'  shows that there is ancient wisdom as well as ancient prejudice), cert. denied, --- U.S. ----, 110 S.Ct. 1524, 108 L.Ed.2d 764 (1990); Orkin, 849 F.2d at 1362 (where party seeks to prove latent ambiguity, interpretation urged must be reasonable and resolve actual ambiguity, not create one). Courts determine whether a party's construction of a term is reasonable from objective circumstances, not merely by looking at the course of dealing between the parties or other internal evidence of the parties' understandings. See FDIC, 877 F.2d at 621. Otherwise, the contract would not protect the parties. Id. (nature of the offer of proof to demonstrate ambiguity is critical determination). 47 Where the terms of the contract are ambiguous, vague, or indefinite, where the words have, by the usage of trade, acquired a particular meaning, or where the words are technical or are applicable to a certain trade and require an explanation or interpretation in order to determine what the parties meant, parol evidence of usage is admissible to explain them. Standard Oil Co. v. United States, 340 U.S. 54, 58-60, 71 S.Ct. 135, 137-38, 95 L.Ed. 68 (1950) (Supreme Court resorted to extrinsic evidence to clarify phrase predominantly and determining in relation to causation in insurance policy); accord Nationwide Mutual Ins. Co. v. Jones, 414 So.2d 1169, 1171 (Fla.App.1982) (extrinsic evidence of industry and individual practices admissible to clarify ambiguity); English & American Ins. Co. v. Swain Groves, Inc., 218 So.2d 453, 456 (Fla.App.1969) (court allowed extrinsic evidence of industry practice to ascertain meaning of term value of the crop); Wilson v. Resolute Ins. Co., 132 Ill.App.2d 174, 267 N.E.2d 720, 723 (1971) (Industry practice is relevant, and indeed may be determinative, in suits between members of the industry). Thus, the court must interpret the contract in view of the usages and customs affecting the agreement, where the terms used are of doubtful meaning otherwise. Standard Oil Co., 340 U.S. at 60, 71 S.Ct. at 139 (in interpreting insurance contracts reference should be made to considerations of business and insurance practices) (citation omitted). 48 We emphasize that such evidence is admissible only where the contract language is in fact ambiguous. For example, in Wilson v. Resolute Ins. Co., supra, the Appellate Court of Illinois found no ambiguity where an automobile liability policy contained an omnibus clause but had therein a rating symbol 1 used when the premium charged was for a policy which excluded drivers under age 25, but no such exclusion endorsement was attached to policy. The appellate court held that the trial court acted properly in holding that the insureds' 18 year-old son driving with the insureds' permission was covered by the policy. The court held that there was no reason to resort to extrinsic evidence or to admit evidence as to the acknowledged industry practice in construing the unambiguous policy language, and therefore the court correctly applied the plain meaning of the policy's terms to the particular facts of the case. Wilson, 267 N.E.2d at 723. 49 The defendant insurance carriers contend that FDIC, supra, allows the admission of evidence of the parties' negotiations whenever a party raises an ambiguity claim. We disagree. Under the FDIC court's analysis, objective extrinsic evidence, not evidence of the parties' dealings, is admissible to show that although the agreement itself is a perfectly lucid and apparently complete specimen of English prose, anyone familiar with the real-world context of the agreement would wonder what it meant with reference to the particular question that has arisen. FDIC, 877 F.2d at 620. 50 In FDIC, the Seventh Circuit Court of Appeals reviewed Illinois precedent. In deciding that objective extrinsic evidence was required to determine if an ambiguity existed, the court reviewed the facts involved in Rakowski v. Lucente, 104 Ill.2d 317, 84 Ill.Dec. 654, 472 N.E.2d 791 (1984). See FDIC, 877 F.2d at 621-22. Significantly, the appellant in Rakowski sought to introduce subjective evidence in the form of an affidavit containing appellant's assertion that he did not intend to include his right to seek contribution in a settlement releasing a party from liability. Rakowski, 104 Ill.2d at 324, 84 Ill.Dec. at 657, 472 N.E.2d at 794. The FDIC court dismissed this evidence as insufficient to create an ambiguity. FDIC, 877 F.2d at 621-22. The fact that the parties to a contract disagree about its meaning does not show that it is ambiguous, for if it did, then putting contracts into writing would provide parties with little or no protection. Id. at 621. Thus, a party's self-serving statement is insufficient to establish ambiguity. 51 Rather, objective evidence--a showing that anyone who understood the context of the contract would know it could not mean what an unskilled reader would suppose it to mean--is required. FDIC, 877 F.2d at 622. See also Conway Corp., 754 F.Supp. at 601 & n. 12; Harris Bank Naperville v. Morse Shoe, Inc., 716 F.Supp. 1109, 1112 (N.D.Ill.1989). We thus read FDIC to authorize a court assessing a claim of ambiguity to consider extrinsic evidence of an agreement's commercial context, i.e., the industry or trade practices milieu within which the parties executed a particular agreement. 52 Florida law also requires objective evidence of ambiguity. In Durham Tropical Land Corp. v. Sun Garden Sales Co., 106 Fla. 429, 138 So. 21 (1931), the Florida Supreme Court rejected a trial court finding that an insurance policy was ambiguous because concurrent execution of insurance policies created an ambiguity as to which insurer had primary liability. The Florida Supreme Court held: The intention of the parties to a contract is to be deducted from language employed, and such intention, when expressed, is controlling, regardless of intention existing in the minds of parties. 138 So. at 23 (emphasis and citations omitted). 53 Moreover, in Orkin Exterminating Co., Inc. v. FTC, supra, the Eleventh Circuit, construing Florida law, concluded that  '[a]n ambiguity in a contract cannot be created by the mere assertion of a party to it.' The fact that the meaning of a contract term is disputed likewise reveals no ambiguity. 849 F.2d at 1360 (quoting Vreeland v. Federal Power Comm'n, 528 F.2d 1343, 1351 (5th Cir.1976)). 54 Thus, we read both Florida and Illinois law to require more than a subjective showing that a contract term is ambiguous. Furthermore, we find persuasive Judge Posner's reasoning in FDIC that objective evidence of an ambiguity is necessary to find a contract term ambiguous. Accordingly, we reject the defendant insurance carriers' suggestion that FDIC allows the court to find the term asbestosis ambiguous solely upon examining the parties' course of dealings. On the contrary, absent a showing of an external ambiguity--one which would cause anyone cognizant of the commercial setting, FDIC, 877 F.2d at 622, to find the term asbestosis ambiguous--the term asbestosis, as found by the District Court, unambiguously would seem to refer to a separate disease caused by asbestos and is distinct from plaques, mesothelioma and bronchogenic carcinoma. Carey Canada, 720 F.Supp. at 1021-22. 55 To hold otherwise, without objective evidence of ambiguity, could defeat the intent of the parties to abide by the terms of the contract and to indemnify the insureds for asbestos-related claims other than those for the specific disease asbestosis, allowing one party to create ambiguity where none exists. We therefore remand the case for further findings to determine whether the term asbestosis was used ambiguously in the public record and the insurance industry at the time the parties concluded the 1977 National Union Policy and the Columbia Casualty Policy. 4 56 3. The Binding Effect of the Alternative Dispute Resolution Interpretation of the Arising Out of Asbestosis Exclusion Upon the 1979 National Union Policy 57 Appellants contend that the trial court erred in not finding National Union bound under the doctrines of collateral estoppel and following form based on the result of an ADR construction of the U.S. Fire exclusion incorporated into the 1979 National Union Policy. The District Court concluded that the following form doctrine and collateral estoppel did not preclude National Union from asserting that the term asbestosis was ambiguous despite the decision of an ADR arbitrator to the contrary. In the ADR proceeding, U.S. Fire and appellants agreed that the policies only excluded the single disease asbestosis. The District Court nevertheless reasoned that the arbitration did not have binding effect on National Union because: (1) it was the result of a private contractual arrangement between appellants and U.S. Fire; (2) National Union was not a party to the ADR proceeding and no evidence was taken from National Union; (3) the ADR arbitrator did not have access to the voluminous documentary evidence presented in this case; (4) the ADR arbitrator based his conclusion on the fact that U.S. Fire signed the Wellington Agreement and thereby waived its right to assert that its policies excluded more than asbestosis; and (5) the ADR arbitrator's determination that the term asbestosis was unambiguous and that extrinsic evidence to determine the intent of the parties was inadmissible was contrary to the District Court's findings. Carey Canada, 720 F.Supp. at 1026. 58 Whether National Union is bound by the ADR proceeding involving U.S. Fire is not a question of collateral estoppel, but of contract interpretation. See Keith v. Aldridge, 900 F.2d 736, 741 (4th Cir.) (whether parties intend to foreclose through agreement litigation of claim is a matter of contract interpretation), cert. denied, --- U.S. ----, 111 S.Ct. 257, 112 L.Ed.2d 215 (1990). Thus, the principal inquiry is whether National Union's decision to follow form to the U.S. Fire asbestosis exclusion means that National Union's liability is inextricably tethered to that of the insurer whose form it followed. As the court did not address this issue, we remand the case and direct the court to ascertain whether as a matter of contract interpretation the form-following provisions of the 1979 National Union Policy yoke National Union's fate to that of U.S. Fire, rendering National Union equally liable under the 1979 National Union Policy. 59