The next case continues our discussion of excuse of conditions. In this case, which comes to us from the Kansas Supreme Court, we deal with an insurance company that refuses to pay a claim because of the policyholder's failure to meet one of the conditions stated in the insurance policy. The plaintiff in this case is Forrest D. Ferguson who ran a drug store in a small town in eastern Kansas. On the night of March 8th, 1960, the drugstore was burgled. The burglar cause some damage to the store and stole some pills. But the biggest lost was $433 stored in a safe in the drugstore. The safe had two layers of protection. The outer door had a combination lock, while the inner door opened with the key. The burglar had somehow managed to open the outer door leaving no visible damage, but he or she had punched out the lock on the inner door. Mr. Ferguson had taken out a storekeepers burglary and robbery policy from Phoenix Insurance Company of New York, which he expected would cover his losses from the burglary. Instead, it pointed to the section of the policy on safe burglary, and claimed that it could not cover the losses above $50 unless there was visible damages on all of the safe's doors. Ferguson then sued for the remainder of the money. We're reading the Kansas Supreme Court's opinion in this case, which deals with the question of whether a court can compel an insurance company to reimburse the policyholder if that policyholder's loss is excluded by contractual language, but that exclusion appears to contravene the contract's purpose. The trial court, in this case, had found this question obvious. Burglary had clearly occurred and money was taken from the safe, compensating for this kind of loss was exactly the purpose for which Mr. Ferguson had bought the insurance in the first place. And so, it wouldn't allow the insurance company to get out of pain by using "an escape clause." The Kansas Supreme Court takes a somewhat more circuitous route to affirming the trial court's ruling. It starts by noting the general rule that ambiguities in insurance contracts are interpreted against the insurance company that issued them. This is the great contra proferentem standard for insurance interpretation. Justice Schroeder, writing for the majority, concedes that even so, they cannot "give an unnatural meaning to the language"of the contract. This is a fancy way of saying if it's not ambiguous, you can't hold the ambiguities against the drafter. This is where Justice Price's dissent branches off. He finds that the clause in question is plain, clear, and unambiguous. Let's take a look at the clause in question. The contract's definition of safe burglary. As we can see, in order to account as safe burglary, the money must have been stored in a safe with a combination lock and the safe must have been completely closed and locked at the time of the burglary. The burglar must have used force and violence to get into the safe and there must be visible marks of that force and violence on the exterior of all the safe's doors. Justice Schroeder makes the distinction between substantive and evidentiary conditions in his analysis of this clause. He finds that the requirement that the safe be opened with force and violence is a substantive condition meant to exclude the possibility of an inside job done simply to collect insurance money. This requirement specifies the types of risks that are meant to be insured, and is therefore essential to the insurance company's ability to price its insurance policies. On the other hand, the requirement that there be visible marks is "intended to determine the character of the evidence necessary to show liability," not to specify the sorts of situations the insurance policy is meant to cover. Justice Schroeder holds that, where a rule of evidence is imposed by a provision in an insurance policy as here, the assertion of such rule by the insurance carrier beyond the reasonable requirements necessary to prevent fraudulent claims against it, in proof of the substantive conditions imposed by the policy, contravenes the public policy of this state. The trial court found that the drugstore safe was truly broken into by burglars. That is, it wasn't an inside job, exactly the sort of thing the clause was meant to protect against. To Justice Schroeder, it goes against public policy that allowed the insurance company to use an evidentiary condition to say that, this is not the case. Especially when a court of law has found that it is in fact true. There are a couple of things worth noting about this decision. The first is that the court is not finding the condition to be unconscionable or construing the contract in favor of the insured. Instead, it's finding it to be against public policy for insurance companies to use super restrictive evidentiary rules to avoid acknowledging what has been shown to be the truth. Other states often have statutory rules against insurance companies' use of conditions, requiring that the condition actually have "increased the risk of loss or contributed to the loss." Under such rules, the condition discussed in this case would probably not justify denying an insurance payment. It's possible, though, that had the Phoenix Insurance Company written the contract differently, for example, by clearly labeling this requirement as an exclusion, it might have prevailed. This would not have been a ridiculous requirement to impose. This kind of exclusion provision would have incentivized policyholders like Mr. Ferguson to close and lock the door and spin the combination, rather than leaving the outer door of the safe unlocked as many people do, or choosing not to spin the combination. Former high school students might remember from your high school days that if you don't spin the combination on your locker, you can sometimes open the locker but just moving the spinner to the third number instead of having to dial in all three numbers. Burt Reynolds explained this in his role as a safe cracker in the movie, Breaking In. He was able to break into safes more easily because people often fail to spin the dial after the last time they unlocked the safe. One way to criticize the opinion then is that, the court might have been mistaken in thinking that the only purpose of the visible marks language was as evidence of inside jobs. It might have had an additional purpose to exclude coverage if the insured was negligent in closing, locking, and spinning the combination. Well, let's take a look at a quiz. A car insurance contract excludes recovery if the driver was "under the influence of alcohol or any intoxicant that impairs the drivers ability to drive." A driver is drowsy because he took an antihistamine and hit a tree. Can he recover? A court would likely find that this contract is ambiguous and resolve the meaning against the company. While antihistamines do impair a person's ability to function normally and particularly to drive, they do not generally fall into the category of drugs we call intoxicants. Since exceptions to insurance contracts are read narrowly so as to favor the policyholder, this driver would be likely to recover. We have seen that courts tend to construe insurance contracts against insurance companies and that many states even have statutory rules that disfavor insurance companies use of conditions to limit their liability. In this case, the Kansas Supreme Court found that it contravened public policy to allow an insurance company to avoid liability by means of an evidentiary policy provision that went well beyond what was necessary to prove the substantive requirements for liability.
