Vlastos v. Sumitomo Marine & Fire Insurance
707 F.2d 775 (1983)
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Rule of Law:
When a provision in an insurance policy is ambiguous, meaning it is reasonably susceptible to more than one interpretation, the provision must be construed against the insurer and in favor of the insured.
Facts:
- Evelyn Vlastos owned a four-story commercial building in Pittsburgh.
- Vlastos and her son operated a luncheonette and bar on the first floor.
- The second and third floors were leased to Spartacus, Inc., which operated a massage parlor on the second floor and allegedly used a portion of the third floor.
- Vlastos' janitor, Philip Pinkney, allegedly lived in a partitioned-off room at the rear of the third floor.
- Vlastos obtained a fire insurance policy that included an endorsement stating: 'Warranted that the 3rd floor is occupied as Janitor’s residence.'
- On April 23, 1980, a fire destroyed the building.
- The insurers refused to pay Vlastos' claim, alleging that she had breached the warranty regarding the third floor's occupancy.
Procedural Posture:
- Evelyn Vlastos filed a complaint in federal district court to recover payment under an insurance policy.
- The trial was bifurcated, with the issue of liability tried first.
- At trial, the district court ruled as a matter of law that the warranty was unambiguous and required exclusive occupancy of the third floor by the janitor.
- The court instructed the jury that the warranty was breached if a massage parlor occupied any significant portion of the third floor.
- The jury returned a verdict for the insurers, finding that Vlastos had breached the warranty.
- The district court denied Vlastos’ motions for judgment notwithstanding the verdict or a new trial.
- Vlastos (appellant) appealed the judgment to the United States Court of Appeals for the Third Circuit.
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Issue:
Does a warranty in an insurance policy stating 'that the 3rd floor is occupied as Janitor’s residence' unambiguously mean that the third floor is used exclusively as a janitor's residence?
Opinions:
Majority - Adams, Circuit Judge
No. A warranty that a floor 'is occupied as Janitor’s residence' is ambiguous and does not unambiguously mean it is occupied exclusively by the janitor. Under Pennsylvania law, ambiguous terms in an insurance policy must be construed against the insurer and in a manner more favorable to coverage. The court reasoned that the phrase is ambiguous because reasonably intelligent people could differ as to its meaning—it could mean exclusive occupancy or simply that a janitor resides there, even with another concurrent use. The court noted that the insurers could have easily avoided this ambiguity by adding a single word, such as 'solely' or 'exclusively'. Because the insurers drafted the ambiguous language, it must be interpreted in favor of Vlastos, meaning she only warranted that a janitor resided on the third floor, not that he was its sole occupant.
Analysis:
This decision strongly reinforces the principle of contra proferentem (construing ambiguity against the drafter) within insurance law, particularly for warranties which can void a policy entirely. It emphasizes that insurers bear the responsibility for drafting clear and unequivocal language. The ruling protects policyholders from losing coverage due to technical interpretations of ambiguous terms they had no part in writing. Future cases will cite this decision to support the idea that if an insurer wants to enforce a condition of exclusive use, it must state so explicitly in the policy.
