United States: Title Bout: Second Circuit Limits Parties' Control Over Construction Of Policies

Last Updated: November 19 2016
Article by Robert D. Helfand

Like other contracts, insurance policies are divided into parts, and most of the parts appear under headings or captions. A separate contract term (known as a "titles clause" or a "headings clause") sometimes specifies that the titles should not affect the interpretation of the policy. But a catchy title can be hard to resist. This week, in Infrassure, Ltd. v. First Mut. Transp. Assurance Co., No. 16-306 (2d Cir., Nov. 16, 2016), the U.S. Court of Appeals for the Second Circuit ruled that a titles clause did not prevent consideration of language in a heading, which the court took to be an "express indication as to the context in which a particular provision is operative." Because the ruling relied on judgments that are difficult to explain, it potentially opens a new frontier for disputes over contract interpretation.

London Calling

Infrassure was a reinsurance dispute that arose out of Superstorm Sandy. After the storm, New York's Metropolitan Transportation Authority (which operates the city's buses, subways and commuter rail lines) submitted a claim under a property insurance policy issued by its captive insurer, First Mutual Transportation Insurance Company. In connection with that policy, First Mutual had purchased more than $1 billion of reinsurance from a group of reinsurers. When First Mutual submitted its claim for the MTA's losses in Sandy, one of those companies—Infrassure, Ltd.—denied coverage.

Infrassure had agreed to provide coverage to First Mutual under a bilateral Certificate of Facultative Reinsurance. The certificate included an endorsement (Endorsement No. 2), calling for arbitration in London. That endorsement supplemented a clause in the body of the certificate, which provided for arbitration in New York, and which also required that the arbitrators be current or former officers of an insurer or reinsurer.

When First Mutual initiated the London arbitration, Infrassure responded with an action in federal court in New York, seeking a declaration that Endorsement No. 2 did not apply to this dispute—and so that any arbitration should proceed in New York, before a panel of insurance professionals. First Mutual counterclaimed, seeking (i) a declaration that the endorsement applied and (ii) an order compelling arbitration in the UK.

First Mutual and Infrassure are, respectively, American and Swiss corporations. Infrassure based its claim that Endorsement No. 2 was inapplicable on the following language, which appeared in boldface at the top of each page of the endorsement:

LONDON ARBITRATION AND GOVERNING LAW (UK AND BERMUDA INSURERS ONLY)

First Mutual, on the other hand, argued that this language was inoperative, because it appeared only in the title of the endorsement, and because the Certificate contained the following titles clause:

The several titles of the various paragraphs of this Certificate (and endorsements, if any, now or hereinafter attached hereto) are inserted solely for convenience of reference and will not be deemed in any way to limit or affect the provisions to which they relate.

The case turned, therefore, on whether the words "UK and Bermuda Insurers Only" were part of a "title," within the meaning of the titles clause (the Certificate did not define the word "title"), and, if so, whether that clause could nevertheless be construed in a way that permits consideration of that language. The district court, without delving into those questions, held that "Endorsement No. 2 is inapplicable because, by its explicit language, it only governs disputes between [First Mutual] and 'UK and Bermuda Insurers.'" The court awarded judgment on behalf of Infrassure, and First Mutual appealed.

Names Will Never Hurt Me

Infrassure responded to the appeal with a number of arguments, including the assertion that the phrase "UK and Bermuda Insurers Only" is "not a title":

While the Certificate does not define 'title,' [the titles clause] indicates that a 'title' is text that serves 'convenience of reference.' The parenthetical phrase 'UK and Bermuda Insurers Only' does not ... serve as a reference point ... . Rather, the phrase contains substantive instructions concerning the reinsurers to which the [endorsement] appl[ies]—an issue not addressed elsewhere in the provision."

This argument is hard to square with the language of the titles clause. That provision did not suggest that a "title" is defined or distinguished by the fact that it is used for "convenience of reference." Rather, it affirmatively stated that "titles"—however defined—should be understood as being used that way in this contract. Infrassure's contention that the disputed phrase "contains substantive instructions," therefore, is actually another way of saying that the titles clause should not be enforced, because the language of this particular title is too important to ignore.

Infrassure also made that argument directly. It asserted that the court could give force to the parenthetical language of the title without "limit[ing] or affect[ing]" Endorsement No. 2, in violation of the titles clause:

The district court's reading of the phrase 'UK and Bermuda Insurers Only' does not 'limit or affect' the [endorsement,] ... [because]the phrase does not concern the interpretation of any portion of the provision. Instead, the phrase clarifies an issue not addressed in the provision: to whom the [endorsement] appl[ies].

The Ruling

While the Court of Appeals affirmed the order of the district court, it is not clear which of Infrassure's arguments the court accepted. In its opinion, the court declared, without explanation, that the disputed language "is not part of the title itself, though it shares the same line and bolded format." The court's analysis, however, appeared to reach the conclusion that a titles clause simply does not apply to every title:

The purpose of the Titles Clause is not to strip away an express indication as to the context in which a particular provision is operative, but to ensure that the text of a provision is not discounted or altered by the words of its heading.

"Our reading ... is easily confirmed by consulting other provisions. In some instances, critical clauses would have no meaning at all if the Titles Clause were mechanically applied. For example, Paragraph 14 of the Certificate reads in its entirety:

14. Program Policy Limits
     Various as per the attached schedule.

"If we were to apply the Titles Clause to this paragraph in the same way that First Mutual asks us to apply it to Endorsement No. 2, we would be left with the cryptic provision, 'Various as per the attached schedule.' The heading 'Program Policy Limits' instructs the reader that the phrase 'Various as per the attached schedule' refers to program policy limits, as opposed to some other concern of the reinsurance agreement."

In short, some titles contain information that is just too valuable to pass up. The court's opinion shared this sentiment with one of the district court cases cited by Infrassure, Small Business Bodyguard Inc. v. House of Moxie, Inc., No. 14–cv–7170 (S.D.N.Y. Mar. 20, 2015), which offered this thought:

[T]he parties did not choose to call Section 11 of their [contract] 'Zebras' or 'Xylophones,' although those words would have been just as effective in setting off Section 11 from the Section 10 that immediately preceded it; Instead, they gave Section 11 a generally descriptive title. Nothing in [the titles clause] ... requires this Court to pretend otherwise."

Context? Discount?

The Court of Appeals stated that it was issuing its opinion for the benefit of future litigants, because it was interpreting "wording that ... has not been construed before, and that is in a contract that may share features with other standard forms and endorsements." But while the decision makes it clear that titles clauses should not be enforced "mechanically," it provides little guidance about how to distinguish "mechanical" interpretations from valid ones.

The court stated, for example, that a titles clause serves to "ensure that the text of a provision is not discounted or altered by the words of its heading." In this case, the court found that consideration of the heading would not have that effect, because the title merely stated the "context" in which Endorsement No. 2 "is operative." But the endorsement is part of a bilateral contract between an American insurer and a Swiss reinsurer (albeit one of dozens of such contracts in First Mutual's facultative reinsurance program). Under the court's reading, therefore, the heading indicates that the endorsement can never be "operative." It is at least arguable that such an interpretation impermissibly "discounted" the endorsement. In Infrassure, however, the court did not identify the critical factor or consideration that led it to reject that argument.

Furthermore, the court provided no explanation for its underlying claim about the limited objectives of a titles clause. In this case, the clause stated expressly that the parties intended to use their titles "solely for convenience of reference," and that the titles should not "in any way ... limit or affect the provisions to which they relate." It is something of a stretch to conclude that prescribing the "context in which a particular provision is operative" does not "limit or affect" that provision "in any way."

Nor is it clear that following "an express indication as to ... context" will always be consistent with the parties' intent. As one commentator  has observed, a titles clause is a blunt instrument; parties who use it gamble that the body of their contract will, on the whole, reflect their agreement more accurately than the titles:

[A titles clause] is a simple, imperfect, solution to the problem of poorly-drafted agreements, with headings that conflict with clause language. It is ... best used in a pinch when parties don't have the time, or resources, to craft clear headings and clauses."

The Bottom Line On That Line At The Top

So what really happened in Infrassure? The key might lie in the court's unsupported assertion that the disputed parenthetical "is not part of the title itself." In the end, that is, the court might actually have accepted Infrassure's argument that language at the top of a page is not a title, if it does more than merely "serve as a reference point." After all, the phrase "UK and Bermuda Insurers Only" does not look like it was inserted "solely for convenience of reference," and it appears that the court simply found that fact impossible to ignore.

If that is correct, then the rule of Infrassure might be stated as, "To the extent a heading is intended to provide instructions to the reader, it is not a title." In effect, the court's view of what constitutes a proper "title" is the same as the view of Plato's Hermogenes on the subject of "names": "there is no name given to anything by nature; all is convention and habit of the users."

In future cases, though, it is likely that the question of whether a heading provides instructions to the reader will rarely be straightforward. Furthermore, as noted, it is by no means clear that parties will always have intended such instructions to be enforced.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.