Every word in a business contract has a legal meaning and importance. That does not mean the parties to the contract always agree on what that meaning and importance are. Litigation frequently arises over the definition of what may seem like simple words and phrases.
Wirth v. Liberty Mutual Insurance Co.
Here is a recent example from a case decided by the Appellate Division, Fourth Department. The case arose from a terrible single-truck accident in Seneca County. The driver of the truck was killed. He had taken the truck from his parents without their permission. The parents reported the vehicle stolen to local police.
The parents then sought to recover insurance benefits for the death of their son and the total loss of the truck. Their insurance company rejected the claim. The parents sued, and Seneca County Supreme Court ruled in their favor.
The Fourth Department largely agreed with the Supreme Court's decision. The critical legal question was how to interpret the word “theft.” The parents' insurance claim was based on a provision in the original policy governing losses arising from events “other than collision.” (The policy did not cover collision damage.) These “other” events included “theft” or “larceny.” The insurance company argued both terms should be defined the same way New York State's penal code defines criminal larceny, which is when a person acts “with intent to deprive another person of property or to appropriate the same to himself or to a third person.” This would mean the parents would need to prove their deceased son had criminal intent when he took their truck without permission.
Neither the Supreme Court nor the Fourth Department thought that was the correct interpretation of an insurance contract. The appeals court said “theft” should be accorded its “ordinary” meaning, which is different than larceny. In cases like these, courts must be “guided by what would be the reasonable expectations and purpose of an ordinary [consumer] in making such a contract.” The average person equates “theft” with “stolen,” rather than the specific elements necessary to prove criminal larceny. Even experts in criminal law do not always understand the technical definition of “larceny,” the appeals court observed, making it even more inapplicable in the context of a consumer insurance contract.
The insurance company also disputed whether the parents complied with a contractual requirement to “promptly notify the police” of the theft before seeking to recover under the policy. The appeals court saw no merit in that argument. The policy did not specifically define “prompt notification,” and the court said, based on “all of the facts and circumstances,” the parents gave the insurance company notice within a reasonable time. The Fourth Department accordingly affirmed the Supreme Court's determination that since the son took the truck without permission, the subsequent loss of his life and the vehicle arose from an act of “theft” covered by the insurance policy.
As this case demonstrates, words matter when it comes to drafting any sort of business contract. If you need assistance or advice in any contract matter, you should contact an experienced New York business attorney right away.