New York Law Review

Tag: Ambiguous Contract Terms

  • Graev v. Graev, 11 N.Y.3d 262 (2008): Defining “Cohabitation” in Separation Agreements Requires Extrinsic Evidence of Intent

    Graev v. Graev, 11 N.Y.3d 262 (2008)

    The term “cohabitation” in a separation agreement is ambiguous absent a clear definition within the agreement itself, and courts must consider extrinsic evidence to determine the parties’ intended meaning, rather than relying solely on a presumption of shared economic circumstances.

    Summary

    Linda and Lawrence Graev divorced, incorporating a settlement agreement that obligated Mr. Graev to pay spousal support, terminating if Mrs. Graev cohabitated with an unrelated adult for 60 days. Mr. Graev stopped payments, alleging cohabitation between Mrs. Graev and MP, based on overnight stays at her vacation home and their social activities as a couple. Mrs. Graev argued that “cohabitation” required sexual relations, and later, an economic unit, which did not exist. The Court of Appeals held that “cohabitation” is ambiguous without a specific definition in the agreement and reversed the lower court’s decision, remanding the case for consideration of extrinsic evidence of the parties’ intent.

    Facts

    Linda and Lawrence Graev divorced in 1997, with a settlement agreement incorporated but not merged into the divorce judgment. The agreement stipulated Mr. Graev would pay $10,000 monthly spousal support until August 2009 or the occurrence of certain termination events, including Mrs. Graev’s cohabitation with an unrelated adult for 60 substantially consecutive days. The agreement did not define “cohabitation.” In 2004, Mr. Graev ceased payments, asserting that Mrs. Graev was cohabitating with MP, based on surveillance showing MP stayed overnight at Mrs. Graev’s vacation home in Connecticut for more than 60 days. Mr. Graev argued the pair had an “obvious serious relationship,” acting as a couple at family events.

    Procedural History

    Mrs. Graev moved to enforce the maintenance provisions of the settlement agreement. Mr. Graev cross-moved for summary judgment, arguing cohabitation had occurred. Supreme Court ordered a hearing to determine if the relationship constituted cohabitation, holding sexual intercourse was not conclusive. After a hearing, the trial court found no cohabitation, emphasizing the lack of a shared residence and economic unit. The Appellate Division affirmed, concluding “cohabitation has a plain meaning which contemplates changed economic circumstances, and is not ambiguous.” The Court of Appeals reversed, holding the term “cohabitation” ambiguous and remanded the case for a hearing considering extrinsic evidence of the parties’ intent.

    Issue(s)

    Whether the term “cohabitation,” as used in the settlement agreement, is ambiguous, thus requiring the consideration of extrinsic evidence to determine the parties’ intent, or whether it has a plain meaning under New York law that requires a shared economic unit.

    Holding

    No, the term “cohabitation” is ambiguous as used in the settlement agreement because neither the dictionary nor New York case law supplies an authoritative or “plain” meaning. Extrinsic evidence of the parties’ intent must be considered.

    Court’s Reasoning

    The Court of Appeals found that the word “cohabitation” is ambiguous because neither dictionary definitions nor New York case law provides a singular, authoritative meaning. The Court highlighted the various definitions of “cohabit,” noting the common element of “living together” in a manner resembling marriage. The Court rejected the Appellate Division’s assertion that New York case law established a distinct meaning of “cohabitation” as requiring “changed economic circumstances,” stemming from the decision in Scharnweber v. Scharnweber. While some Appellate Division decisions implied that there could be no “cohabitation” without changed economic circumstances, the Court of Appeals had never adopted that position. The Court observed the parties’ shifting interpretations of “cohabitation” throughout the litigation, further demonstrating the term’s ambiguity. Because the term is ambiguous, the Court reasoned that extrinsic evidence is necessary to determine the parties’ intent, stating, “Without extrinsic evidence as to the parties’ intent, there is no way to assess the particular factors inherent in the dictionary meanings or case law discussions of ‘cohabitation’ the parties may have meant to embrace or emphasize.” Therefore, the Court reversed the Appellate Division’s order and remitted the case to Supreme Court for further proceedings to consider such evidence.

  • Mostow v. State Farm Ins. Co., 88 N.Y.2d 321 (1996): Interpreting Ambiguous Insurance Policy Limits

    Mostow v. State Farm Ins. Co. 88 N.Y.2d 321 (1996)

    When an insurance policy provision is susceptible to multiple reasonable interpretations, it is ambiguous and must be construed in favor of the insured.

    Summary

    Sandell and Alan Mostow were injured in an auto accident. Their underinsured motorist policy with State Farm had limits of $100,000 per person and $300,000 per accident. After receiving $10,000 from the other driver, they sought arbitration under their policy. The arbitrators awarded Sandell $190,000 and Alan $100,000, finding the $100,000 per person limit inapplicable where multiple people were injured. State Farm sought to modify the award, arguing Sandell’s recovery should be capped at $100,000. The New York Court of Appeals held that the policy language was ambiguous because it could be interpreted as either limiting recovery to $100,000 per person or allowing the full $300,000 to be apportioned among multiple injured persons. The court construed the ambiguity against the insurer, affirming the arbitrator’s award.

    Facts

    Sandell and Alan Mostow were involved in an automobile accident in January 1992.

    The Mostows’ insurance policy with State Farm provided underinsured motorist coverage with limits of $100,000 per person and $300,000 per accident.

    The policy stated that ” ‘[u]nder ‘Each Person’ is the amount of coverage for all damages due to bodily injury to one person. Under ‘Each Accident’ is the total amount of coverage for all damages due to bodily injury to two or more persons in the same accident”.

    After receiving the other driver’s policy limit of $10,000, the Mostows demanded arbitration from State Farm under their underinsured motorist coverage.

    Procedural History

    Arbitrators awarded Sandell Mostow $190,000 and Alan Mostow $100,000, determining the policy provided $300,000 coverage when two or more people were injured.

    The Mostows sought to confirm the arbitration award; State Farm cross-petitioned to vacate or modify it, arguing Sandell’s award exceeded the policy limit.

    The Supreme Court granted State Farm’s cross-petition, reducing Sandell’s award to $100,000, finding the arbitrators exceeded their authority and that the policy limited recovery to $100,000 per person.

    The Appellate Division reversed, reinstating the original arbitration award, holding the policy provisions were ambiguous and should be construed in favor of the insured.

    The New York Court of Appeals granted State Farm leave to appeal.

    Issue(s)

    Whether the terms of an insurance policy providing a per-person limit and a per-accident limit, without explicitly stating the per-accident limit is subject to the per-person limit, are ambiguous, allowing for a construction favoring the insured.

    Holding

    Yes, because the policy language is susceptible to multiple reasonable interpretations, it is ambiguous and must be construed in favor of the insured, allowing for a per-person recovery exceeding the stated per-person limit when multiple people are injured in a single accident.

    Court’s Reasoning

    The court found the policy language ambiguous because it could be reasonably interpreted in two ways: (1) limiting any injured person’s recovery to $100,000, or (2) providing $100,000 only when one person is injured, but allowing the full $300,000 when two or more are injured. The court noted the absence of language stating the per-accident limit was “subject to” the per-person limit, unlike the statutory language in Insurance Law § 3420 (f) (2) (A).

    Because Insurance Law allows for coverage more favorable to the insured, the court reasoned that the interpretation allowing a higher recovery for Sandell Mostow was permissible. Citing precedent, the court emphasized that ambiguities in insurance policies are construed against the insurer, as the drafter of the policy language.

    The court stated, “Although the common understanding of the insurance industry and the legal profession may well be that the total per accident coverage is subject to the per-person limits — i.e.— classic ‘split limit’ coverage — the test to determine whether an insurance contract is ambiguous focuses on the reasonable expectations of the average insured upon reading the policy… and employing common speech”.

    The court also addressed a regulation promulgated by the Superintendent of Insurance mandating similar policy language, noting that the regulation did not clarify the ambiguity of the policy at issue. The court suggested the insurer could have avoided the ambiguity by including the “subject to” language from the Insurance Law.

  • Williams Press, Inc. v. State, 37 N.Y.2d 434 (1975): Interpreting Ambiguous Contract Terms Based on Prior Dealings

    Williams Press, Inc. v. State, 37 N.Y.2d 434 (1975)

    When contract language is ambiguous, a court may consider prior dealings between the parties to ascertain their intent at the time of contracting, especially when one party drafted the ambiguous language.

    Summary

    Williams Press, a printing corporation, sued the State of New York after the state deducted $87,701.85 from payments due under a 1971 contract, alleging overcharges from 1965-1970 based on ambiguous bidding specifications for legislative printing. The ambiguity stemmed from a change in the 1961 contract format regarding amended budget bills. The Court of Appeals reversed the lower court’s ruling, holding that the specifications were indeed ambiguous and that the prior course of dealing between Williams Press and the State supported Williams Press’s interpretation of the contract. The court emphasized that contracts should be interpreted to give effect to their overall purpose and that the State, as the drafter of the ambiguous specifications, should not benefit from an inequitable interpretation.

    Facts

    Williams Press had been the primary printer for the New York State legislature for many years. A dispute arose over the interpretation of the specifications for budget and amended budget bill printing, specifically from 1965 to 1970. The core issue concerned how Williams Press bid on and invoiced for amended budget bills, given changes made in the 1961 contract specifications. Before 1961, the state had separate bid lines for Senate and Assembly amended budget bills. In 1961, the state consolidated these into a single line, creating ambiguity. Williams Press continued to invoice each house separately, charging half the total bid price to each. In 1972, the State claimed this was an overcharge and offset the amount from a subsequent contract payment.

    Procedural History

    Williams Press sued the State in the Court of Claims. The Court of Claims found in favor of the State, holding that the contract specifications were unambiguous and that Williams Press had overcharged the State. The Appellate Division affirmed, with a divided court. Williams Press appealed to the New York Court of Appeals.

    Issue(s)

    Whether the contract specifications for legislative printing, specifically regarding amended budget bills from 1965-1970, were ambiguous.

    Holding

    Yes, because the change in the contract specifications in 1961 created an ambiguity as to how amended budget bills should be bid and invoiced, and the prior course of dealing between the parties supported Williams Press’s interpretation.

    Court’s Reasoning

    The Court of Appeals found that the lower courts erred by focusing solely on the budget bill paragraph in isolation, ignoring the broader context and prior dealings between the parties. The court emphasized that a contract must be read as a whole to give effect to its general purpose, quoting Empire Props. Corp. v Manufacturers Trust Co., 288 NY 242, 248-249: “A written contract will be read as a whole, and every part will be interpreted with reference to the whole; and if possible it will be so interpreted as to give effect to its general purpose.’ (3 Williston on The Law of Contracts, § 618.)” Because of this ambiguity, the court considered the prior course of dealings between Williams Press and the State. The court noted that the State had honored Williams Press’s invoices for several years, suggesting that the State also initially interpreted the contract in the same way. The court found it significant that Williams Press bid $9.33 per page for each 2,000 copies delivered to each house, totaling $18.66 for 4,000 copies, which was consistent with prior bidding practices. The court rejected the State’s argument that Williams Press should have explicitly doubled its bid, stating that this would have been “hazardous and misleading” given the specifications. The court concluded that the State received exactly what it bargained for and should not benefit from its own ambiguously worded specifications. “The State received exactly what it bargained for, and, in the words of one of the dissenting Justices at the Appellate Division, ‘is attempting to advance a construction of the contract which not only is erroneous in light of prior bids for the same work but unfair to claimant who did the work on a reasonable assumption based on prior bidding that it would be paid $9.33 per page for each 2,000 copies printed.’”