The Case of the Misplaced Modifier - or poor English does not make policy ambiguous
Payless was sued in California for making hourly employees work "off the clock." It asked its insurer, Travelers, to defend and indemnify, but Travelers declined, saying that the claim was not covered. Payless settled the claims and then went after Travelers for reimbursement of the settlement and defense expenses. Travelers got summary judgment and the Tenth Circuit affirmed.
See, Payless v. The Travelers.
The Tenth Circuit found that this was a case of a misplaced modifier. The clause at issue excluded certain statutory claims against employers and stated:
The Insurer shall not be liable for Loss on account of any Claim made
against any Insured . . . for an actual or alleged violation of the Fair
Labor Standards Act (except the Equal Pay Act), the National Labor
Relations Act, the Worker Adjustment and Retraining Notification Act,
the Consolidated Omnibus Budget Reconciliation Act of 1985, the
Occupational Safety and Health Act, the Employee Retirement Security
Act of 1974, any workers’ compensation, unemployment insurance,
social security, or disability benefits law, other similar provisions of
any federal, state, or local statutory or common law or any
amendments, rules or regulations promulgated under any of the
foregoing; provided, however, this exclusion shall not apply to any
Claim for any actual or alleged retaliatory treatment on account of the
exercise of rights pursuant to any such law, rule or regulation.
emphasis added.
The question was whether "other similar provisions" modified all the listed exclusions, or just the underlined exclusions. The court found that even though bad grammar was used, the clause excluded all claims arising out of the Fair Labor Standards Act or other similar state law.
The court held that bad grammar did not make the clause ambiguous and even quoted Groucho Marx:
The opinion states:
All this underscores that, while the rules of English grammar often afford a valuable starting point to understanding a speaker’s meaning, they are violated so often by so many of us that they can hardly be safely relied upon as the end point of any analysis of the parties’ plain meaning. So it is that Groucho Marx could joke in Animal Crackers, “One morning I shot an elephant in my pajamas. How he got into my pajamas I’ll never know,” leaving his audience at once amused by the image of a pachyderm stealing into his night clothes and yet certain that Marx meant something very different. In the more mundane task of contract interpretation, we must be no less entitled to acknowledge the parties’ plain meaning without being straight-jacketed by a grammatical rule into reaching a patently unintended result.
Grammar and Groucho in an insurance policy interpretation case. Doesn’t get much better than that!
