March 1, 2004

By John N. Ellison, Robert E. Frankel and Kevin B. Dreher

The purpose of insurance is to insure. In attempting to see that this purpose is achieved, courts have developed the following rules of construction that are beyond dispute. First, grants of coverage are broadly construed. See, e.g., Federal Home Loan Mtg. Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 444 (3d Cir. 2003); Community Found. for Jewish Educ. v. Federal Ins. Co., 16 Fed. Appx. 462, 465 (7th Cir. 2001); Blum v. Allstate Ins. Co., No. 4:03CV401 CDP, 2003 WL 23009136, at *2 (E.D. Mo. Dec. 15, 2003). Second, exclusions to coverage are strictly construed. See, e.g., Auto-Owners Ins. Co. v. Churchman, 489 N.W.2d 431 (Mich. 1992); Napoli, Kaiser & Bern, LLP v. Westport Ins. Co., No. 02 Civ. 7931 (JGK), 2003 WL 22952171, at *7 (S.D.N.Y. Dec. 15, 2003); Dursham v. Nationwide Ins. Co., 92 F. Supp.2d 353 (D. Vt. 2000). Third, if there is any doubt as to whether coverage exists, such doubts should be resolved in favor of the existence of coverage. See, e.g., American Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 550 N.W.2d 475, 481 (Mich. 1996); Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1090 (Colo. 1991). All of these doctrines, while generally recognized, result in endless disputes between the insurance purchasers (policyholders) and insurance sellers (insurance companies) on a daily basis when the specific facts of a claim develop. But one recurring scenario is not addressed by these broad maxims of insurance law: What should a court do with the insurance contract that is, by its very nature, internally structured so that there is an inherent conflict that renders a determination of available coverage ambiguous before a claim is even presented?

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