The insured filed a class action lawsuit on behalf of himself and similarly situated individuals in Pennsylvania, seeking damages for (among other things) breach of contract and bad faith for the insurers refusal to pay claims filed under credit insurance disability policies. The case hinged on whether the policy language that defined “disability” after the first twelve months was ambiguous. The policy stated that after twelve months, “the definition [of disability] changes and requires the Member to be unable to perform any of the duties of his occupation, or any occupation for which he is reasonably qualified.” (emphasis added).
The insured argued that the inclusion of the word “or” (in bold above) necessitated the presence of two alternatives; that is, a person would be disabled under the policy if he is unable to perform his job, or any other job for which he is reasonably qualified. The insurer argued that the policy should be interpreted to mean that a person is disabled after twelve months only if he/she is unable to perform “any occupation”; in essence, the insurer argued for the Court to replace the word “or” with “and.” The insurer also argued that their interpretation is consistent with industry standards, and similar policy language has been construed in the insurer’s favor in other cases.
The Court, finding the policy language susceptible to multiple interpretations, ruled that due to its ambiguity it must be construed against the insurer. Therefore, upon consideration of plaintiff’s breach of contract claim, the Court entered judgment in favor of the plaintiff and similarly situated Pennsylvanians whose claims were denied under the insurer’s “any occupation” definition.
The Court distinguished the cases cited by the insurer because the policy language was not identical and because most of those cases did not hinge on the interpretation of “disability.”
Furthermore, the Court found the evidence of industry standard irrelevant because it told the Court nothing of the insured’s intentions, and because there was no reason why the insured would know about industry standards.
The Court also noted that the industry standards actually help to show the language was ambiguous, because the insured chose not to use the model (or standard) language in its policy.
Conversely, the Court entered judgment against the plaintiffs on their bad faith claim, reasoning that it was not bad faith to deny coverage because the insurer’s interpretation of the policy language was equally plausible (if not more so) as the insured’s interpretation.
Date of Decision: September 28, 2007
James D. Meyer, et al. v. CUNA Mutual Group, Cv-03-602, United States Court for the Western District of Pennsylvania, 2007 U.S. Dist. LEXIS 72833 (W.D. Pa. Sept. 28, 2007) (Conti, J.)