§ 2.2 Ambiguous Terms

• Library: Guide to South Carolina Liability and Property Insurance Law (SCBar) (2019 Ed.)

§ 2.2 Ambiguous Terms

Whether a term is ambiguous is a matter of law for the court.¹³ A contract is ambiguous when it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.¹⁴ A contract is read as a whole document such that an ambiguity cannot be created by pointing out a single sentence of clause.¹⁵ Therefore, whether a contract is ambiguous is to be determined from examining the entire contract, not by reviewing isolated portions of the contract.¹⁶ A contract is ambiguous only when it may reasonably and fairly be understood in more ways than one.¹⁷ If the court determines that the language of the policy is ambiguous, or is capable of two reasonable interpretations, the court will adopt the construction that is most favorable to the insured.¹⁸

Merely because the parties disagree regarding the definition of a term in a contract does not make the term ambiguous.¹⁹ It is not reasonable or possible to require an insurer to define every term in an insurance policy so that no disagreements would arise.²⁰ If a term is not defined in the policy, the court will interpret the term in accord with its usual and customary meaning.²¹ "South Carolina law permits the court to consult a dictionary in interpreting contract terms."²² Further, the fact a policy contains conflicting provisions does not automatically render the policy ambiguous.²³ In addition, ambiguity does not exist merely because the parties cannot agree regarding the meaning of a provision.²⁴ And, "a term in an insurance policy is not ambiguous, and the rule construing ambiguities in favor of the insured does not apply, when the term has been judicially defined."²⁵ If the court determines that the language of a policy is ambiguous, the ambiguous or conflicting terms must be construed liberally in favor of the insured and strictly against the insurer.²⁶

In interpreting a variety of policies, South Carolina courts have determined that the policy language is ambiguous in a number of contexts. For example, in Lyons v. Fidelity National Title Insurance Company,²⁷ the Court of Appeals determined that the language of the title insurance policy was ambiguous, and therefore construed the policy to afford coverage to the insured. The insured property was a residential lot and mobile home that had numerous extensions and additions. The insureds purchased the property in two transactions: (1) Lot 1 on May 5, 2005, along with title insurance from insurer #1, and; Lot 2 on October 28, 2005, along with title insurance from insurer #2. At the time of the purchase, unbeknownst to the insureds, the property was encumbered by a recorded easement that allowed for construction and maintenance of the Intracoastal Waterway. The easement was created as a result of the United States Congress passing the River and Harbor Act and the subsequent passage by the South Carolina General Assembly of an act providing for rights-of-way for the construction of Atlantic Intracoastal Waterway pursuant to the federal act. The insureds had no knowledge of the existence of the easement at the time they purchased the property. In addition, the property was subject to a county "no-build" resolution.

In May 2011, the county refused to issue a building permit to the insureds because of the "no-build" resolution. The insureds contended they first learned of the easement on the property at that time and that the easement made the property useless. The insureds submitted claims to both insurer #1 and insurer #2.

After determining that the title insurance policy was subject to the general rules of contract construction, the court explained that the purpose of title insurance was "to protect a purchaser or mortgagee against defects in or encumbrances on title which are in existence at the time the insured takes title."²⁸ Insurer #2 argued that the policy did not afford coverage for a number of reasons including the policy's Governmental Police Power Exclusion, which provided:

In addition to the Exceptions in Schedule B, you are not insured against loss, costs, attorneys' fees, and expenses resulting from:
1. Governmental police power, and the existence or violence of any law or government regulation. This includes building and zoning ordinances and also laws and regulations concerning:

• land use
• improvements on the land
• land division
• environmental protection

This exclusion does not apply to violations or the enforcement of these matter which appear in the public records at Policy Date.
This exclusion does not limit the zoning coverage described in Items 12 and 13 of the Covered Title Risks.²⁹

The policy also contained a "Covered Title Risks" section, which stated that covered title risks include but are not limited to the following:

10. Someone else has an easement on your land.
...
13. You cannot use the land because use as a single-family residence violates a restriction shown in Schedule B or an existing zoning law.
14. Other defects, liens, or encumbrances.³⁰

The policy defined "public records" to be "title records that give constructive notice of matters affecting your title - according to the state statutes where your land is located." The court explained that "[a]s to such public records, section 30-7-10 provides, in pertinent part:

[G]enerally all instruments in writing conveying an interest in real estate required by law to be recorded in the office of the register of deeds...are valid so as to affect the rights of subsequent creditors (whether lien creditors or simple contract creditors), or purchasers for valuable consideration without notice, only from the day and hour when they are recorded in the office of the register of deeds...of the county in which the real property affected is situated.³¹

Insurer #2 argued that the no-build resolution that prohibited issuance of building permits on property located on the easement was not a "public record" or available for title examination on the date the policy was issued and...