Last Class Summary
• Warranty or misrepresentation?
– Warranty is contract language
– Misrepresentation is collateral to it
• Warranty – breach is fatal to recovery
• Representation – breach must be material
to agreement to enter the deal
• Promissory v. affirmative warranties
Last Class Summary Continued
– Materiality must be cause of death
• Court says materiality is measured at time of
• Court says what would a prudent insurer do.
Three possible tests: objective, subjective, hybrid
• Legal fraud
• Age misrepresentations
• Opinion questions
– Plaintiff employer give house and property
– Tornado does what tornados do
– Plaintiff sued under employees policy
Battle in Silverton
• Insurance company argues:
– Property not owned by policy
• Plaintiff argues:
• Defendant had waived the requirement that the
named insured own the property because
insurance company knew when issuing the
policy knew that plaintiff employee was the
owner of the property covered by the policy.
• Majority says waiver
• Dissent says you can’t have waiver or estoppel if
you don’t have a contract in the first place.
• Employer fires employee for alcoholism.
• Employee sues and wins
• Insurance company argues intentional act
Doctrine of Reasonable
• Threshold Questions
1. Either policy is such that an ordinary layperson
would misunderstand its coverage, OR
2. Circumstances attributable to the insurer which
would foster coverage expectations
• Doctrine requires:
1. is bizarre or oppressive
2. eviscerates terms explicitly agreed to
3. eliminates the dominant purpose of the transaction.
• In other words, policy cannot withdraw with the
policy's left hand what is given with its right.
Taylor v. State Farm
• Bad faith case involving classic excess
• UM release at issue: trial; thus, parol
evidence was admissible at trial
• State Farm says unambiguous on four
corners of document
• Corbin - extrinsic evidence
should then be admissible to
aid in interpretation
• Williston – read the four
corners of the document.
• This is who I’m trying to make Corbin
– Wild liberal
– Hard drinking
– Sleeping with Julia Roberts
• Two steps
1. Court considers the evidence that is alleged to
determine the extent of integration, illuminate the
meaning of the contract language, or demonstrate
the parties' intent.
• Court eliminate the evidence that has no probative value in
determining the parties' intent.
2. The second step involves "finalizing" the court's
understanding of the contract.
• Parol evidence rule applies and precludes admission of the
extrinsic evidence that would vary or contradict the
meaning of the written words.
• How did the case end up in the Maryland Court
– 4th Circuit sent under Uniform Certification of
Questions of Law Act. What does that mean?
• Federal court wants help in interpreting Maryland law –
most states have same statute. Any federal court can do it.
– A certification order shall set forth
1. the questions of law to be answered; and
2. a statement of facts relevant to the questions certified
and showing nature of the controversy in which the
• $560,500 settlement; $200k in dispute.
Who pays for it?
– Pacific argues its policy "$ 200,000 each
claim $ 600,000 aggregate” means one
$ 200,000 for Mom’s claim and and
another $ 200,000 limit applies to the
infant's claim (which includes Dad’s
claim given policy language.
–Three separate $ 200,000
limits are implicated with one
limit applying to the claims of
infant, Mom, and Dad.
The Certified Question
• Construing Pacific's policy under Maryland law,
is Pacific liable to pay a separate $200,000
policy limit to Interstate for the claim of Dad for
the financial injury sustained by him as a result
of the insured's malpractice?
• Court of Appeals’ Answer?
– Dunno. But let’s chat for a bit about
Maryland insurance law while we have
Court of Appeals Holding
What do these wise judges say?
“DUNNO. But let’s talk insurance law!”
Maryland Insurance Law 101
• An insurance contract is just like any other contract is
measured by its terms (statute, regulation, public policy
• To determine intent, we construe the instrument as a
• Use everyday language
• Ambiguous if it is "general" and may suggest two
meanings to a reasonably prudent layperson.
• If ambiguous, go to extrinsic evidence to determine the
intention of the parties and whether the ambiguous
language has a trade usage.
How to Define Injury?
• Interstate argues that the policy does not
expressly limit "injury" to bodily injury
• Court says “injury is ambiguous” so it
• Remember this: A term which is clear in
one context may be ambiguous in another.
Elsewhere, injury could be unambiguous.
Derivative Claims and Trade
• Derivative claims argument from Pacific –
derivative claims not constitute separate claims
– All comes back to definition of injury which is different
in case cited by Pacific
– So we are back to injury = ambiguous
• Where the meaning is ambiguous, "extrinsic
evidence is admissible . . . to show [*405] the
parties' intent and to show whether the term
does or does not have a particular trade usage
• If no party presents extrinsic evidence bearing
upon the meaning of the ambiguous term,
construe against drafter.
So What Does This All Mean?
• COA says we don’t know because injury is
• So 4th Circuit vacates summary judgment
and remands for extrinsic evidence. As
COA says, there is not likely to be extrinsic
evidence. Accordingly, construe against
• Interstate wins because there were three