There is a new case out of Arkansas discussing ambiguous terms within policies.1 I have not previously blogged on any matter from Arkansas, so this seemed like a good opportunity. My practice covers mainly the Midwest states, so I don’t want to leave anyone out. So, this is for all of you in the "Land of Opportunity" and in "The Natural State" of Arkansas.
A neighbor was burning grass in a ditch, he lost control of the fire and it spread to other properties. It destroyed Bishop’s commercial property which was rented to a tenant who operated a bar. Bishop had a homeowner’s policy with Farm Bureau. The insurance company filed a declaratory judgment action claiming that the policy did not cover damage from an incident that occurred away from the insured premises. Bishop argued that certain terms were ambiguous, thus coverage could not be denied. There was a five acre coverage restriction, but the parties disagreed what area that covered. The court granted summary judgment to the insurance company and Bishop appealed.
Bishop argued there were two important and ambiguous terms at issue: ‘residence premises’ and ‘business pursuits.’ The policy defined ‘residence premises’ as "any premises shown on the Declaration page as an insured premises. This includes vacant land, not to exceed five acres." There is no language stating how the five acres are measured. The court found this to be ambiguous and susceptible to more than one interpretation, so it construed the language in favor of the insured.2
Since the court found coverage, it then looked to applicable exclusions.3 The policy did not provide coverage for property damage arising from ‘business pursuits.’ This term was not defined in the policy. ‘Business" was defined as "a trade or profession or occupation, including farming whether full or part-time. It does not include part-time or seasonal activities that are performed by minors." For the plain meaning of ‘pursuit’ the court looked to the dictionary definition of "an activity that one engages in as a vacation, profession, or avocation."4
It was undisputed that Bishop had landlord-tenant relationships, including one with the person who started the fire on his land. Therefore, the court had to decide whether the landlord-tenant status constituted a business pursuit and if burning vegetation was a profession, trade or occupation. The court could not do so and held that the exclusion should be construed in favor of coverage.
If you are reading an insurance policy and you believe a term to be ambiguous, first look to see if a definition is provided in the policy. Next, look to the dictionary definition. If there are more than one way to interpret the language, it may be ambiguous. If a term is ambiguous, it is generally construed in favor of the policyholder. This is true in Arkansas, and most states.
1 Bishop v. Farm Bureau Mut. Ins. Co. of Ark, Inc., 2016 Ark. App 27 (2016).
2 See Norris v. State Farm Fire & Cas. Co., 341 Ark. 360, 16 S.W.3d 242 (2000).
3 McGrew v. Farm Bur. Mut. Ins. Co. Of Ark., 371 Ark. 567, 570-1, 268 S.W.3d 890, 895 (2007).
4 Webster’s Third International Dictionary at 1848 (2002).
