Ambiguities Bite Back: Second Circuit Reaffirms Commitment To Construing Ambiguous Terms In Favor Of Coverage

The Second Circuit's recent decision affirming a $54.2 million recovery for CITGO signals the judiciary's renewed commitment to a bedrock principle of insurance law: Ambiguous policy language must be construed in favor of coverage. This rule of construction recognizes that insurance policies are risk-transfer products underwritten and sold by insurance companies – not ordinary commercial contracts. Accordingly, courts should not resort to extrinsic evidence in an effort to divine what an insurance company may have intended with respect to ambiguous policy language. Instead, as a rule, courts will automatically construe ambiguities in favor of the policyholder.

The Second Circuit Decision