The United States Court of Appeals for the Fourth Circuit Applies Contra Proferentum in Construing Contract Ambiguity

In Johnson v. Am. United Life Ins. Co., the United States Court of Appeals for the Fourth Circuit, applying the rule of contra proferentum (interpretation against the draftsman) reversed the United States District Court for the Middle District of North Carolina, at Greensboro, in its decision to deny Accidental Death and Dismemberment (AD&D) benefits to the widow of an insured. 

This case arises out of a single vehicle crash that claimed the life of Richard Johnson (“Mr. Johnson”).  Mr. Johnson, sustained fatal injury when he drove a vehicle owned by his employer while intoxicated, and was ejected from that vehicle.

Prior to his death, Mr. Johnson had participated in an employee welfare benefit plan and received life insurance and AD&D benefits through group policies issued by the American United Life Insurance Company (“American United”).  Following Mr. Johnson’s death, his wife Angela Johnson (“Mrs. Johnson”) received insurance benefits.  However, American United refused to pay any of the AD&D benefits.  Seeking to recover these AD&D benefits, Mrs. Johnson filed this action under the Employee Retirement Income Security Act (“ERISA”).  See 29 U.S.C. § 1132(a)(1)(B).  The district court affirmed American United’s denial of benefits concluding that Mr. Johnson’s death was the result of drunk-driving, and, was therefore, “anticipated and expected,” and, thus, not accidental, such that it was not covered by the AD&D policy.

American United argued that when an ERISA plan does not define “accident” or “accidental” with sufficient clarity, circuit precedent requires the use of the analysis used in Eckelberry v. ReliaStar Life Insurance Company.  See 469 F.3d 340, 343-346 (4th Cir. 2006).  Although the Court of Appeals acknowledged some factual similarities between the case at hand and Eckelberry, it rejected American United’s argument on grounds that Eckelberry did not establish “a per se rule that drunk driving injuries or fatalities can never be accidental.”  Further, the Court of Appeals noted that unlike the policy presently before it, the policy in Eckelberry defined “accident” in terms of foreseeability.  Finally, here, unlike in Eckelberry, the review is de novo and therefore, the decision is “not limited to considering only the reasonableness of the decision and reasoning of the claims administrator.”  Thus, the Court of Appeals was not bound to follow Eckelberry in defining “accident.”  The Court of Appeals went on to consider how the lower court used state law in defining “accident.” 

The Court of Appeals, although acknowledging that drunk driving “is reckless, irresponsible conduct that produces tragic consequences,” focused its decision on contract law and considered the language of the policy itself.  The Court of Appeals began by evaluating the plain language of the disputed provision.  The provisions of American United’s AD&D policy provided that American United would pay benefits "[i]f a Person has an accident while insured under the policy which results in a [covered] loss."  Although the policy defined “accidental death” as "death due to an accident, directly and independently of all other causes," the term "accident” was not defined.  When considering the meaning of “accidental,” within the context of Mr. Johnson’s policy, the Court of Appeals determined that there was an ambiguity.  Thus, the court applied the rule of contra proferentum and construed “the terms strictly in favor of the insured."  Wegner v. Standard Ins. Co., 129 F.3d 814, 818 (5^th Cir. 1997).  

Given that the insurance policy at issue expressly enumerated its limitations on the payment of AD&D benefits, and did not include drunk driving in this list, included benefits for anyone who died while wearing a seatbelt but expressly excluded drunk drivers who died while wearing a seat belt, the ambiguous nature of the term “accident” since it is reasonably subject to multiple definitions, and the lack of definition of “accident” within the policy itself, the Court of Appeals applied contra preforentum and construed the policy in favor of the insured.  Ultimately the Court of Appeals concluded that a reasonable plan participant would have expected that a death, resulting from drunk driving, would be covered as an “accident” under the AD&D benefits.  Thus, the Court of Appeals reversed the lower court and remanded the case to award benefits to Mrs. Johnson.