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On May 25, 2017, the New Jersey Supreme Court issued its opinion in Oxford Realty Group Cedar v. Travelers Excess & Surplus Lines Co., setting out a number of principles on interpreting commercial insurance policies, application of the reasonable expectations doctrine and the doctrine of contra proferentem, and the nature of surplus lines insurance. A list of these principles, as quoted from the majority Opinion, is set out below.

  1. Surplus lines insurance and party sophistication.

“Surplus lines insurance policies, governed by N.J.S.A. 17:22-6.40 to -6.84, offer coverage in specialized situations. Surplus lines policies insure ‘risks which insurance companies authorized or admitted to do business in [New Jersey] have refused to cover by reason of the nature of the risk.’ …. These policies are unique in that the insured parties ‘engage[] in high risk enterprises for which insurance could only be obtained from a surplus lines carrier’ through a broker.’ …. Insureds procure surplus lines policies covering commercial risk through insurance brokers, thus involving parties on both sides of the bargaining table who are sophisticated regarding matters of insurance.”

  1. The role of the Property Coverage Form in shaping policy interpretation.     

“The Property Coverage Form constitutes the insuring agreement and proceeds to delineate the boundaries of coverage under the Policy. It thus establishes the structure for analyzing how the Policy’s parts work together.”

  1. The first step in determining the meaning of policy language and plain language.

“In assessing the meaning of provisions in an insurance contract, courts first look to the plain meaning of the language at issue. ….   ‘If the language is clear, that is the end of the inquiry.’”

  1. How to look at “ambiguity”.

(a)        “[I]n the absence of an ambiguity, a court should not ‘engage in a strained construction to support the imposition of liability’ or write a better policy for the insured than the one purchased.”

(b)        “The presence of an ambiguity is key because ‘if an ambiguity exists, the court will resort to tools and rules of construction beyond the corners of the policy.’”

(c)        “But our courts will not manufacture an ambiguity where none exists.”

(d)       “An ‘insurance policy is not ambiguous merely because two conflicting interpretations of it are suggested by the litigants.’”

(e)        “Nor does the separate presentation of an insurance policy’s declarations sheet, definition section, and exclusion section necessarily give rise to an ambiguity.”

  1. Ambiguity and the doctrine of contra proferentem; sophisticated and unsophisticated insureds.

(a)        “Ordinarily, our courts construe insurance contract ambiguities in favor of the insured via the doctrine of contra proferentem. …. In applying contra proferentem, courts‘adopt the meaning that is most favorable to the non-drafting party.’”

(b)        Sophisticated commercial insureds, however, do not receive the benefit of having contractual ambiguities construed against the insurer. …. Contra proferentem is a consumer-protective doctrine ‘only available in situations where the parties have unequal bargaining power. If both parties are equally ‘worldly-wise’ and sophisticated, contra proferentem is inappropriate.’”

  1. Ambiguity and the doctrine of reasonable expectations.

(a)        “The doctrine of reasonable expectations is a related doctrine [to contra proferetem] commonly applied in cases where an ambiguity is alleged. …. Under that doctrine, “the insured’s ‘reasonable expectations’ are brought to bear on misleading terms and conditions of insurance contracts and genuine ambiguities are resolved against the insurer.’”

(b)        “Similar to the doctrine of contra proferentem, the doctrine of reasonable expectations is less applicable to commercial contracts.”

  1. The litigants cannot themselves create ambiguity in language.

In rejecting an argument raised by the insured on the existence of ambiguity, the Court stated that the insured’s “alternative reading presents a conflicting interpretation suggested by litigants rather than a genuine ambiguity.”

Oxford Realty Group Cedar v. Travelers Excess & Surplus Lines Company, No. A-85 September Term 2015, 077617 (New Jersey Supreme Court May 25, 2017) (Opinion by Justice Fernandez-Vina, joined by Chief Justice Rabner, and Justices LaVecchia, Patterson, and Solomon)

Fineman, Krekstein & Harris, P.C.’s coverage group is headed by Hema P. Mehta, Esquire.