Between the Lines

A Discussion of Case Law and Statutory Law Affecting Commercial Lines of Insurance

Article

Non-Negotiable

When is an e-mail offer of employment a negotiable instrument?  Never, says the court in a case that is just a bit less creative than that introduction makes it sound.  A company was sued for allegedly failing to keep the promises in the e-mail, which included hiring the recipient as an independent contractor for six months and then making him a partner.  The company tendered the suit to its insurer under a package policy that included general liability, employment practices liability and property coverage.  The insurer responded that it was investigating under the liability coverage, that the company should protect itself during the investigation, and that the insurer would reimburse defense costs if it determined the claim was covered.

Meanwhile, the company discovered that the version of the e-mail on its computer was not the same as the plaintiff’s version.  The company’s version had a lower monthly payment and no offer of partnership.  The company relied on the alleged alteration in moving to dismiss the complaint.  The complaint against the company was dismissed.

The insurer denied the claim under the liability coverage.  The company sued, asserting that the property coverage for forgery applied and it was entitled to recover its defense costs.  That coverage applied to loss caused by forgery or alteration of “checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain in ‘money’”.  Although it was part of the property coverage, not the liability coverage where the duty to defend usually is found, this section of the policy also covered legal expenses if the company was sued “for refusing to pay any Covered Instrument on the basis that it has been forged or altered, and you have our written consent to defend against the suit.”

Beginning to get the picture?  The company argued that the e-mail was a promise to pay, that it refused to pay based on the alteration of the e-mail, and that the insurer, by saying that the company should protect its interests while the insurer investigated the claim, had consented to the defense.  At least, the company argued, the policy was ambiguous, and had to be interpreted in favor of coverage.

Not so fast, said the court.  Under the principle of contract interpretation known as ejusdem generis, when a general category (“similar written promises . . .”) follows a list (“checks, drafts, promissory notes”), the general words will be interpreted to include only the type of things in the list.  All of the writings listed in the forgery coverage are negotiable instruments.  An e-mail offer of employment is not, and no reasonable policyholder would expect the forgery coverage to apply to the e-mail.  Also, the insurer said it was investigating under the liability coverage, and nothing it said in its letter reasonably could be interpreted as consent to defend under the forgery coverage.  (In addition, although the court doesn’t address this issue, it doesn’t appear that the company was sued for refusing to pay on the basis of the alteration; rather, it appears that they were sued for breaching the promises in the e-mail, and then discovered the alteration and incorporated it as a defense.)

Bottom line?  The rules of insurance policy interpretation are a powerful tool for policyholders, but they only stretch so far.  They will not make a silk purse out of a sow’s ear, or a negotiable instrument out of an e-mail employment offer.

The case is CustomMade Ventures Corporation v. Sentinel Insurance Company Limited, United States District Court for the District of Massachusetts Civil Action Number 11-10365-DPW (September 17, 2012).

Harvey Nosowitz
(617) 621-6555

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Harvey Nosowitz


Posted In: Duty to Defend, Uncategorized

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