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The Million Dollar Cost of Uncertainty in Contract Drafting
A recent case before the Eleventh Circuit Court of Appeals considered an issue eerily reminiscent of a high school English quiz—albeit with $4.85 million at stake in the outcome.
Assume that someone sent you a text message that said, “I will pay you $500 if you clean my house, take my dog for a walk, and shovel my driveway before I get home from work.” You clean their house in the morning. You shovel their driveway in the afternoon. And they get home just as you are leaving to take their dog for a walk. Do they owe you the $500? Does the requirement that you finish before they get home from work apply to all three tasks in the list, or only to shoveling the driveway?
Consider a few different ways that job offer could have been written:
- I will pay you $500 if you clean my house, take my dog for a walk, and shovel my driveway before I get home from work.
- I will pay you $500 if you clean my house, take my dog for a walk, and shovel my driveway, before I get home from work.
- I will pay you $500 if, before I get home from work, you clean my house, take my dog for a walk, and shovel my driveway.
In the second example, the comma after driveway separates the list of tasks from the timing requirement, making it clear that the same deadline applies to all three tasks. In the third example, the placement of the timing requirement before the list of tasks also makes it clear that same deadline applies to all three. But in the first example, the deadline could be interpreted as applying either to all three tasks or only to the third.
In ECB USA, Inc. v. Chubb Insurance Company of New Jersey, 113 F.4th 1312, (11th Cir. 2024), the court considered this exact question: Does a modifier placed at the end of a list, and not separated from the last item in the list by a comma, modify the entire list or only the last item?
Constantin purchased an insurance policy from Chubb that included coverage for claims arising from “services directed toward expertise in banking finance, accounting, risk and systems analysis, design and implementation, asset recovery and strategy planning for financial institutions.” Schratter Foods, Inc., a food services company, later filed a claim against Constantin arising from an audit that Constantin performed. Chubb denied coverage of the claim on the grounds that the policy only covered services provided to financial institutions and not services provided to food services companies. Constantin assigned its rights under the policy to ECB, which had by that time acquired Schratter. ECB fought Chubb’s denial of coverage up to the Eleventh Circuit.
ECB argued the court should interpret the policy according to the last-antecedent canon—a modifier is presumed to apply to the nearest preceding item. Chubb argued the court should interpret the policy according to the series-qualifier canon—a modifier placed before or after a series of items with parallel construction is presumed to apply to the entire series. After a lengthy analysis, the court decided the series-qualifier canon applied.
ECB argued, alternatively, that the policy was at least ambiguous and, therefore, should be interpreted in favor of the non-drafting party. The court rejected this argument on the grounds that (1) the meaning of the policy could be interpreted in the context of the entire document and by the common usage of the words at issue, and (2) such deference to the interpretation of the non-drafting party does not apply in the case of two sophisticated parties.
While the court’s analysis in this case offers an interesting lesson for those interested in the nuances of grammar and sentence construction, the larger lesson lies in why this case arose in the first place. Chubb wrote an insurance policy in a way that left a key provision open to interpretation. Although Chubb prevailed, that victory came at a significant price. Anyone drafting contracts, or hiring others to draft their contracts, should remember to pay attention to these issues of clarity in their review. It may take a little extra work to get a contract right, but it’s always less expensive than litigation thereafter.
