Poorly Defined Contract Terms Could Spell Disaster For Your Company

The Court of Appeals decision in Jodi Perry v. Progressive (February 28, 2017, Unpublished Case No. 330966), should remind companies to remain vigilant in updating their contracts to clearly define the terms of their agreements.

In Perry, the Plaintiff had been involved in a vehicle accident and filed a lawsuit against the Defendant insurance company to recover “underinsured vehicle” benefits under her husband’s insurance policy.  In response, the insurance company filed a motion to dismiss the case, arguing that Plaintiff could not recover “underinsured vehicle” benefits because the vehicle that caused the accident was not an “underinsured vehicle”.

The problem for the insurance company in making this argument to the trial court?  “Underinsured vehicle” was not a clearly defined term under the insurance company’s policy.  Ultimately, the trial court denied the insurance company’s request to dismiss the case.  The insurance company appealed the trial court’s decision to the Court of Appeals.

On appeal, the Court of Appeals reversed the trial court’s decision.  The Court of Appeals noted that “underinsured vehicle” did not have its own definition under the insurance policy.  However, the Court of Appeals held that the term was included under the definition of “uninsured vehicle”. In other words, the court looked at the totality of the contract’s terms to identify and interpret the meaning of “underinsured vehicle”.  Based on the Court of Appeals ruling, the Plaintiff was not entitled to “uninsured vehicle” benefits or “underinsured vehicle” benefits.  Therefore, the Court of Appeals held that the trial court should have dismissed the case in favor of the insurance company.

Luckily for the insurance company in this case, the totality of the terms in the contract established the meaning of “underinsured vehicle” in their favor.  However, had they simply provided a definition of this term, they may have been able to avoid the expensive litigation necessary to interpret the term from the totality of the contract.

Companies should define terms and address any areas of concern with strong contract terms early on. Waiting until a problem comes to fruition could cost a business thousands of dollars.

The attorneys at Demorest Law have proven their expertise in drafting agreements in a wide array of subjects. Feel free to contact us to help ensure that potential loose ends are not snagged by the nails of litigation.

This Article was written by Nezar Habhab, Law Clerk.

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