December 8, 2021

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Clearing Things Up: Interpreting Ambiguities in Arizona Policies

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Throughout my years at Merlin Law Group, I have noticed a troubling pattern with insurance carriers: denying claims based on confusing and ambiguous policy language. Perhaps you are challenging a continuous seepage or leakage exclusion or a protective safeguard requirement on your collectibles. It is unlikely the policy defines “seepage” “leakage” or what qualifies as a protective safeguard. However, the Arizona courts and Legislature have brought some clarity to interpreting these unclear provisions.

Interpretation of insurance contracts is a question of law.1 The Arizona Revised Statutes require every insurance contract be construed pursuant to the “entirety of its terms and conditions as set forth in the policy.”2 Likewise, Arizona courts construe policy provisions “according to their plain and ordinary meaning.”3 When a specific provision is susceptible to multiple interpretations, courts will attempt to discern its meaning by (1) examining the language of the provision, (2) the purpose of the transaction, and (3) public policy considerations.4 In other words, “‘the policy must be read as a whole in order to give a reasonable and harmonious meaning and effect to all its provisions.’”5

Courts must “construe the written terms of [the policy] to effectuate the parties’ intent” and “to protect the reasonable expectations of the insured.”6 When construing policies that are not on its face ambiguous, the court must interpret the policy according to its ordinary meaning and effect.7 Courts will examine the language from the standpoint of a person not trained in law or in the insurance business.8

Ambiguities in policy language will be construed against the insurer.9 If an insurer carrier intends to limit its liability under a policy, it should employ language which clearly and distinctly communicates to the insured the nature of the limitation.10 “This is especially true where the ambiguity involves an exclusionary clause.”11 When clauses are susceptible to different constructions,

[R]ather than simply finding ambiguity and resorting to the contra proferentem doctrine, we will first attempt to discern the meaning of the clause ‘by examining the purpose of the exclusion in question, the public policy considerations involved and the transaction as a whole.’12

In essence, insurance carriers bear the burden of demonstrating when a policy exclusion applies.13

Want to learn more? Stay tuned for an upcoming podcast with Merlin Law Group’s Arizona attorneys.
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1 Liristis v. Am. Family Mut. Ins. Co., 204 Ariz. 140, 61 P.3d 22, 26 (App.2002) (citation omitted).
2 A.R.S. § 20–1119.
3 Sparks v. Republic Nat’l Life Ins. Co., 132 Ariz. 529, 534, 647 P.2d 1127, 1132 (1982).
4 State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 257, 782 P.2d 727, 733 (1989).
5 Sparks, 132 Ariz. at 536, 647 P.2d at 1134, quoting Fed. Ins. Co. v. P.A.T. Homes, Inc., 113 Ariz. 136, 139, 547 P.2d 1050, 1053 (1976).
6 Liberty Ins. Underwriters, Inc. v. Weitz Co., 215 Ariz. 80, 158 P.3d 209, 212 (App.2007) (citations omitted).
7 Mid–Century Ins. Co. v. Duzykowski, 131 Ariz. 428, 430, 641 P.2d 1272, 1274 (1982).
8 Sparks, 132 Ariz. at 536, 647 P.2d at 1132 (1982).
9 Security Ins. Co. for Hartford, v. Andersen, 158 Ariz. 426, 428, 763 P.2d. 246, 248 (1988) (citations omitted); see also Thomas v. Liberty Mut. Ins. Co., 173 Ariz. 322, 325, 842 P.2d 1335, 1338 (App. 1992).
10 Coconino County v. Fund Adm’rs Ass’n, 149 Ariz. 427, 431, 719 P.2d 693, 697 (App.1986).
11 Id.
12 Keggi v. Northbrook Prop. & Cas. Ins. Co., 199 Ariz. 43, 13 P.3d 785 (Ariz. App. 2000) quoting Ohio Cas. Ins. Co. v. Henderson, 189 Ariz. 184, 186, 939 P.2d 1337, 1339 (1997).
13 Hudnell v. Allstate Ins.Co., 190 Ariz. 52, 54, 945 P.2d 363, 365 (App.1997).

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