For those insurance policies issued for more than one year, policyholders often argue that the insurance policies provide for annual aggregate limits. Two court decisions in Ohio agreed with the policyholder.
The court in Cincinnati Ins. Co. v. ACE INA Holdings, Inc., 886 N.E.2d 876 (Ohio Ct. App. 2007) addressed whether an aggregate limit provision in a multi-year policy should be applied annually or on a per-term basis. The court determined that the aggregate policy limit at issue applied annually. In that case, ACE provided the primary insurance coverage and Cincinnati Insurance Company (“CIC”) provided the excess layer of coverage. CIC argued that ACE owed an additional $1,800,000 in primary coverage because it issued three multi-year policies with each policy spanning three years for a total of nine years of coverage. The documents produced in the case set forth that ACE’s potential liability was $300,000 “aggregate.” However, the parties disagreed as to whether the $300,000 aggregate limit applied per term or per year. CIC argued that the $300,000 applied annually, totaling $1,800,000.00 in coverage. ACE, on the other hand, argued that the clear language of the policy provided that the $300,000 limit applied per term, for total coverage of only $600,000.
ACE’s argument for limiting its liability to $300,000 per term was that no document referred to the $300,000 aggregate on an “annual” basis. The court, however, noted that when a document is silent and thus, ambiguous, basic principles and policies of insurance law interpretation are applied. The court followed the basic principle that any ambiguity in an insurance policy should be construed in favor of coverage. Additionally, the court noted that basic policy interpretation principles provide that contract terms are to be given their plain and ordinary meaning. Id. See also Gomolka v. State Auto. Mut. Ins. Co., 436 N.E.2d 1347 (Ohio Misc.1982). If, however, an insurance policy provision is susceptible to more than one reasonable interpretation, extrinsic evidence can be used to resolve the ambiguity. Id. at 882. Furthermore, Ohio law is clear that where provisions of an insurance policy are reasonably susceptible to more than one interpretation, those provisions will be construed strictly against the insurer and liberally in favor of the insured, the non-drafting party. Id; King v. Nationwide Ins. Co., 35 Ohio St.3d 208 (1988); Buckeye Ranch, Inc. v. Northfield Ins. Co, 839 N.E.2d 94 (Ohio Misc. 2005).
The Cincinnati Insurance Co. court asserted that extrinsic evidence could be considered to determine whether the limit applied per year or per term when the language in the policy was ambiguous. Id. at 880. After reviewing the extrinsic evidence, the court held that the parties intended for the insurance policy aggregate limits to be applied annually. In so holding, the court focused on the subsequent performance of the parties, the industry norms, and the past premiums paid as an indication that the policy limits were intended to be applied annually.
In 2016, the same appellate court followed its precedent in Cincinnati Insurance Co. and held that the insurance policies issued by One Beacon Insurance Company supported a construction for the annualization of aggregate limits. See William Powell Co. v. OneBeacon Ins. Co., 2016 Ohio 8124 (Ohio Ct. App. 2016). The appellate court held that the use of the word “aggregate” without a limiting modifier in missing or incomplete multi-year policies was ambiguous and evaluated the extrinsic evidence presented on the issue to determine whether the aggregate limits were annualized. The extrinsic evidence included the testimony of a One Beacon account manager at the time, Gene Waymon, who testified that he treated the William Powell multi-year policies as having annualized limits and treated each separate exposure to asbestos as a separate occurrence under the policies. Subsequent One Beacon account managers did the same. In addition, Mr. Waymon and William Powell’s expert witness testified that the industry custom and practice supported annualized aggregates. Moreover, the premiums William Powell paid on its pre-1965 insurance policies were calculated in the same way and for the same amounts as William Powell’s post-1965 policies were, policies that One Beacon agreed contained annual aggregate limits.
An analysis of annual limits vs. policy limits is important for multi-year insurance policies. When the limits apply annually, there is an increase in the amount of insurance coverage available for a claim. In addition, there is also an increase in the amount of available coverage for all other claims presented to the insurance company.
ACE’s argument for limiting its liability to $300,000 per term was that no document referred to the $300,000 aggregate on an “annual” basis. The court, however, noted that when a document is silent and thus, ambiguous, basic principles and policies of insurance law interpretation are applied. The court followed the basic principle that any ambiguity in an insurance policy should be construed in favor of coverage. Additionally, the court noted that basic policy interpretation principles provide that contract terms are to be given their plain and ordinary meaning. Id. See also Gomolka v. State Auto. Mut. Ins. Co., 436 N.E.2d 1347 (Ohio Misc.1982). If, however, an insurance policy provision is susceptible to more than one reasonable interpretation, extrinsic evidence can be used to resolve the ambiguity. Id. at 882. Furthermore, Ohio law is clear that where provisions of an insurance policy are reasonably susceptible to more than one interpretation, those provisions will be construed strictly against the insurer and liberally in favor of the insured, the non-drafting party. Id; King v. Nationwide Ins. Co., 35 Ohio St.3d 208 (1988); Buckeye Ranch, Inc. v. Northfield Ins. Co, 839 N.E.2d 94 (Ohio Misc. 2005).
The Cincinnati Insurance Co. court asserted that extrinsic evidence could be considered to determine whether the limit applied per year or per term when the language in the policy was ambiguous. Id. at 880. After reviewing the extrinsic evidence, the court held that the parties intended for the insurance policy aggregate limits to be applied annually. In so holding, the court focused on the subsequent performance of the parties, the industry norms, and the past premiums paid as an indication that the policy limits were intended to be applied annually.
In 2016, the same appellate court followed its precedent in Cincinnati Insurance Co. and held that the insurance policies issued by One Beacon Insurance Company supported a construction for the annualization of aggregate limits. See William Powell Co. v. OneBeacon Ins. Co., 2016 Ohio 8124 (Ohio Ct. App. 2016). The appellate court held that the use of the word “aggregate” without a limiting modifier in missing or incomplete multi-year policies was ambiguous and evaluated the extrinsic evidence presented on the issue to determine whether the aggregate limits were annualized. The extrinsic evidence included the testimony of a One Beacon account manager at the time, Gene Waymon, who testified that he treated the William Powell multi-year policies as having annualized limits and treated each separate exposure to asbestos as a separate occurrence under the policies. Subsequent One Beacon account managers did the same. In addition, Mr. Waymon and William Powell’s expert witness testified that the industry custom and practice supported annualized aggregates. Moreover, the premiums William Powell paid on its pre-1965 insurance policies were calculated in the same way and for the same amounts as William Powell’s post-1965 policies were, policies that One Beacon agreed contained annual aggregate limits.
An analysis of annual limits vs. policy limits is important for multi-year insurance policies. When the limits apply annually, there is an increase in the amount of insurance coverage available for a claim. In addition, there is also an increase in the amount of available coverage for all other claims presented to the insurance company.
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