Smith v. Southern Farm Bureau Casualty Insurance

Donald L. Corbin, Justice, concurring. This case was certified to us by the Arkansas Court of Appeals as presenting an issue of first impression and substantial public interest: Whether the term “family,” as used in an automobile insurance policy, encompasses a couple living together. I agree with the majority that the trial court was correct in ruling that the plain meaning of the term is kin, or persons related by blood or marriage. I further agree that because Appellant Sarah Smith was not, at the time of the accident, married to the insured, Raymond Smith, she was not covered under his insurance policy.

The policy in this case provided underinsured-motorist coverage for “you [the insured] or any member of your family residing in your household.” Sarah argued that because she and Raymond shared living expenses, as an economic unit, and resided in the same household, she was a member of his family. The trial court disagreed, ruling from the bench:

I think clearly that’s the reasonable construction of that term, and especially as used in this paragraph, or this sentence, because it does say “member of your family residing in your household.” So if we’re just going to say family means household, then you don’t need the word “family” in there; you’re just talking about household. . . . My job is to interpret the law as I understand it, and for me to say that “family” means just anybody in the household in this situation is really straining that contract language. To me, interpretation of “family” in this state means somebody that’s kin to you, they’re residing in your household, and they’re going to be covered under that policy. And if not, they’re not. Otherwise, how are these insurance people going to know how to charge a premium?

Thereafter, the trial court granted summary judgment to Appellee Southern Farm Bureau.

Where there is a dispute as to the meaning of a contract term or provision, be it an insurance or other contract, the trial court must initially perform the role of gatekeeper, determining first whether the dispute may be resolved by looking solely to the contract or whether the parties rely on disputed extrinsic evidence to support their proposed interpretation. Elam v. First Unum Life Ins. Co., 346 Ark. 291 , 57 S.W.3d 165 (2001). Where the issue may be resolved by reviewing the language of the contract itself, it is the trial court’s duty to make such a determination as a matter of law, and summary judgment is appropriate. Id.

The law regarding the interpretation and construction of an insurance policy is well settled in this state. The language in an insurance policy is to be construed in its plain, ordinary, and popular sense. Norris v. State Farm Fire & Cas. Co., 341 Ark. 360 , 16 S.W.3d 242 (2000). If the language is unambiguous, this court will give effect to the plain language of the policy without resorting to the rules of construction. Elam, 346 Ark. 291 , 57 S.W.3d 165 . “In considering the phraseology of an insurance policy the common usage of terms should prevail when interpretation is required.” Continental Cas. Co. v. Davidson, 250 Ark. 35, 42 , 463 S.W.2d 652, 655 (1971). On the other hand, if the language is ambiguous, this court will construe the policy liberally in favor of the insured and strictly against the insurer. Id. Language is ambiguous if there is doubt or uncertainty as to its meaning and it is fairly susceptible to more than one reasonable interpretation. Id.

Additionally, different clauses of an insurance contract must be read together and the contract construed so that all of its parts harmonize, if that is at all possible, and, giving effect to one clause to the exclusion of another on the same subject where the two are reconcilable, is error. Continental, 250 Ark. 35 , 463 S.W.2d 652 . A construction that neutralizes any provision of a contract should never be adopted, if the contract can be construed to give effect to all provisions. Id. (citing Fowler v. Unionaid Life Ins. Co., 180 Ark. 140, 145 , 20 S.W.2d 611 , 613 (1929) (holding: “Every word in the agreement must be taken to have been used for a purpose, and no word should be rejected as mere surplusage if the court can discover any reasonable purpose thereof which can be gathered from the whole instrument.”)).

The question then is whether the word “family,” as used in Raymond’s policy, is fairly susceptible to more than one reasonable interpretation, when it is given its plain, ordinary, popular, and common usage. I believe that it is not. When read within the context of the entire phrase, “any member of your family residing in your household,” there can only be one reasonable interpretation: family means kin. This is the same conclusion reached by the Washington Court of Appeals in Matthews v. Penn-America Ins. Co., 106 Wash. App. 745 , 25 P.3d 451 (2001).

In Matthews, the appellant was an adult living with his mother and her boyfriend. He was seriously injured in a car wreck, and he attempted to claim underinsured coverage from his mother’s boyfriend’s policy. The policy provided such coverage for the insured, his or her spouse, and members of the insured’s family who are residents of the household. The policy specifically provided: “You, your, yourself means the person named on the Declarations page and includes the spouse if a resident of the same household. This also means a member of the family who is a resident of the household and includes a ward or foster child.” Id. at 747, 25 P.3d at 452 . The appellant claimed that he was a member of the insured’s family. The Washington Court of Appeals held that he was not for three reasons. First, the court relied on a decision from the Washington Supreme Court, which held that although “family” can be used synonymously with the broader term “household,” the most common use of “family” implies a blood relationship. Id. (citing Collins v. Northwest Cas. Co., 180 Wash. 347 , 39 P.2d 986 (1935)).

Another reason given by the Matthews court was that if “family” was broad enough to encompass the insured’s live-in girlfriend, then it would also encompass his spouse, and there would have been no need to specifically extend coverage to a spouse. Similarly, if a live-in girlfriend’s son was included in the term “family,” then any ward or foster child living with the insured would also be included; thus, the specific inclusion of those terms would have been superfluous.

Lastly, just like the trial court in this case, the Matthews court concluded that construing the term within the entire phrase, “family” plainly meant more than residency. The court explained:

[I]f “family” means all those who five under one roof, Penn-America’s requirements that an insured be both a family member and a resident merge. [The appellant] would be a family member because he lives with [the insured]. And he would be a resident of the same household because he lives with [the insured]. Thus, simple residency would establish coverage and “family” and “resident” would merge; the word “family” would have no independent meaning. But we construe the language of an insurance policy to give meaning to all the words of the policy if possible. This we can do only by assigning some meaning to “family” beyond residency. In short, “family” must further qualify the definition of “insured” beyond the qualification imposed by residency.

Id. at 749, 25 P.3d at 453 (citation omitted).

The holding in Matthews is instructive on the issue presented in this case. Although the dissent correctly points out the difference in the language of the two policies, I believe that such difference is one without distinction. Additionally, Sarah is correct in pointing out that the standard of review set out in Matthews is slightly different from ours. In Washington, the language of an insurance policy is viewed through the eyes of the average insurance purchaser. Be that as it may, the reasoning expounded by the Washington Court of Appeals is sound and consistent with our case law requiring us to view the language of a policy in its plain, ordinary, popular, and common usage.

Finally, I disagree with the dissent’s conclusion that Sarah’s definition of “family” as an economic unit does not merge into the phrase “residing in the same household.” By way of example, Sarah explains that if a person rents out a room to a boarder, that boarder resides in the same household, but is not part of his landlord’s economic unit. That example is not persuasive. “Household” is commonly and popularly understood as comprising an economic unit. A boarder may reside in one’s house, but not in one’s household. On the other hand, two students who decide to rent an apartment together and share living expenses would make up a household, but they would not be a family.

Here, Sarah and Raymond lived together and shared living expenses. Thus, they resided in the same household. They were not family, however, because they were not related to each other by blood or law. The trial court was correct in ruling that “family” has to mean something beyond mere residency in the same household; otherwise, the term is superfluous. The courts of this state are required to give meaning to every word in an insurance policy, if possible. The trial court’s interpretation satisfies this requirement, and it must be affirmed. I therefore concur in the majority’s decision.