New York Law Review

Tag: contra proferentem

  • York v. Sterling Ins. Co., 67 N.Y.2d 823 (1986): Interpreting Ambiguous Policy Exclusions in Favor of the Insured

    67 N.Y.2d 823 (1986)

    When the language of an insurance policy exclusion is ambiguous, and the insurer uses different prepositions (such as “away from” versus “on”) within the same policy to define the scope of exclusions, the ambiguity should be construed in favor of the insured.

    Summary

    Fenton York sustained injuries when an unregistered vehicle located partially on his property rolled and struck him. Sterling Insurance denied coverage under York’s homeowner’s policy, citing an exclusion for injuries arising from the use of unregistered vehicles “away from” the residential premises. The New York Court of Appeals affirmed the Appellate Division’s decision, holding that “away from” did not have the same meaning as “off” the premises, especially given the policy’s separate exclusion for unregistered vehicles requiring the injury to occur “on” the premises. This demonstrated that the insurer itself distinguished between the terms, leading the court to resolve the ambiguity in favor of coverage for the insured.

    Facts

    Fenton York was injured when an unregistered vehicle, situated partially on his residential property, rolled and struck him.
    York had a homeowner’s insurance policy with Sterling Insurance Company.
    The policy contained an exclusion for bodily injury arising out of the ownership or use of an unregistered vehicle “away from” the residential premises.
    Another exclusion in the policy regarding unregistered vehicles stated the injury must occur “on” the residential premises.

    Procedural History

    York filed a claim with Sterling Insurance, which was denied based on the policy exclusion.
    York sued Sterling Insurance seeking coverage.
    The trial court ruled in favor of Sterling Insurance.
    The Appellate Division reversed, finding the exclusion inapplicable.
    Sterling Insurance appealed to the New York Court of Appeals.

    Issue(s)

    Whether the phrase “away from” the residential premises, as used in the homeowner’s insurance policy, is ambiguous when applied to the circumstances where the injury occurred partially on the insured’s property.
    Whether the insurer’s use of both “away from” and “on” in different exclusions within the same policy creates an ambiguity that should be construed against the insurer.

    Holding

    Yes, because in the context of the policy and the circumstances of the injury, the phrase “away from” is uncertain and open to interpretation.
    Yes, because the carrier itself distinguished between “on” and “away from” in the policy, which creates an ambiguity that must be construed against the insurer.

    Court’s Reasoning

    The court reasoned that the precise meaning of “away from” is not clear-cut when applied to a situation where the vehicle was partially on the insured’s property. Because the injury occurred in a gray area, the court had to interpret the policy language.
    The court emphasized that the insurance company itself used different language (“on” versus “away from”) in crafting the policy’s exclusions. This demonstrated that the insurer recognized a distinction between the two phrases. As the court stated, “because the unregistered vehicle exclusion was written to require that the injury occur ‘on’ the residential premises, showing that the carrier itself distinguished between ‘on’ and ‘away from’.”
    When an insurance policy contains ambiguous language, the established legal principle is that such ambiguity should be construed against the insurer, who drafted the policy. This is because the insurer has the opportunity to be clear and specific in its policy language. The court found the Appellate Division didn’t err in holding the exclusion inapplicable, favoring coverage for the insured.
    No dissenting or concurring opinions were mentioned.

  • 151 West Associates v. Printsiples Fabric Corp., 61 N.Y.2d 732 (1984): Ambiguous Lease Terms Construed Against Landlord

    151 West Associates v. Printsiples Fabric Corp., 61 N.Y.2d 732 (1984)

    Ambiguous terms in a lease agreement, especially those drafted by the landlord, are construed against the landlord, and absent clear language, additional liabilities will not be imposed on the tenant.

    Summary

    This case addresses the interpretation of a “Bankruptcy” clause in a lease agreement. The landlord sought to terminate the lease, arguing that an agreement between the tenant’s creditors and a third party constituted an “arrangement” under the lease’s bankruptcy clause. The court held that the term “arrangement” was ambiguous and, therefore, construed against the landlord who drafted the lease. Because the tenant did not initiate a bankruptcy proceeding or a formal arrangement under the Bankruptcy Act, the termination clause was not triggered. This case underscores the importance of clear and unambiguous language in lease agreements, especially when drafting clauses that could result in forfeiture.

    Facts

    In 1975, 151 West Associates (landlord) leased premises to Printsiples Fabric Corp. (tenant) for 10 years. In 1978, the tenant sublet the premises to Futterman-Schlang Industries, Ltd., with the landlord’s approval. In 1980, the tenant faced financial difficulties, leading its creditors to enter into an agreement with Norcnote Associates, who purchased their claims against the tenant. The tenant consented to this agreement.

    Procedural History

    The landlord, 151 West Associates, sought to terminate the lease based on the “Bankruptcy” clause after the tenant’s creditors entered into an agreement with Norcnote. The lower court ruled in favor of the tenant, and the Appellate Division affirmed. The landlord then appealed to the New York Court of Appeals.

    Issue(s)

    Whether the agreement between the tenant’s creditors and Norcnote Associates constituted an “arrangement” within the meaning of the lease’s “Bankruptcy” clause, thereby entitling the landlord to terminate the lease.

    Holding

    No, because the term “arrangement” as used in the lease’s “Bankruptcy” clause is ambiguous and must be construed against the landlord, who drafted the lease. Furthermore, the tenant did not “petition for or enter into an arrangement” as contemplated by the Bankruptcy Act in effect when the lease was signed.

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    Court’s Reasoning

    The court emphasized the principle that ambiguities in a contract are construed against the drafter (contra proferentem). Citing Taylor v. United States Cas. Co., the court reiterated that ambiguities are resolved against the party who prepared the contract. It also noted that additional liabilities cannot be imposed on a tenant unless the lease terms are clear, citing 67 Wall St. Co. v. Franklin Nat. Bank and 455 Seventh Ave. v. Hussey Realty Corp. Given the uncertainty in the meaning of “arrangement,” the court sided with the tenant.

    The court reasoned that the “Bankruptcy” clause, read in its entirety, suggested that the term “arrangement” referred to a formal proceeding under the Bankruptcy Act of 1938. Under that Act, an arrangement required a petition filed in a pending bankruptcy proceeding or with a court that would have jurisdiction over a bankruptcy adjudication. Since no such petition was filed, the court concluded that the agreement between the tenant’s creditors and Norcnote did not trigger the lease’s termination provision.

    The court explicitly rejected the dissent’s argument that the mere use of the word “arrangement” in the agreement between Norcnote and the tenant’s creditors was dispositive. The court distinguished the agreement from the lease, noting that the former explicitly referred to a “nonjudicial arrangement or settlement,” whereas the latter referred to a tenant “petitioning for or entering into an arrangement,” which implied a judicial proceeding under the Bankruptcy Act. The court emphasized that the instruments were written and entered into by different parties, further supporting its conclusion.