Stolen Property is Recovered, Who Gets To Keep It? Three Clues: Adhesion, Ambiguity, and Contra Proferentem

In 1976, thieves stole Helen Thompson’s portrait of her Colonial ancestors, John Apthorp and his two daughters, painted by Angelica Kauffmann, a founding member of the British Royal Academy. In March 2007, the painting was recovered when an art dealer saw it listed in the Art Loss Register.1

The total value of the property stolen from Helen Thompson’s house was $65,000 including the picture. The painting, which had been appraised for $25,000, was not specifically insured. Northern Insurance Company paid Helen Thompson $32,500, the limit for unscheduled personal property in her homeowners policy.

OneBeacon Insurance Company, the successor to Northern Insurance, claimed ownership of the recovered painting based on the language in the proof of loss signed by Helen Thompson. The executor of her estate disputed OneBeacon’s claim and sought to obtain the portrait for the estate by reimbursing OneBeacon in the amount of $25,000, The language in the proof read as follows: …the assured does hereby subrogate to said insurer all right, title and interest in and to the property for which claim is being made hereunder, and agrees to immediately notify said insurer in case of any recovery of the property for which claim is being made hereunder, and will render all assistance possible in any endeavor to recover said property. Assured also agrees to turn over to said insurer, any such recovery which may be made, or reimburse said insurer in full to the extent of the payment for such property which may be recovered.

(A similar provision is included in ISO HO policies.)

Did no one at OneBeacon ever hear of adhesion, ambiguity, and contra proferentum? They are legal-speak for the concept that the insured gets the benefit of the doubt when there are two or more possible meanings to an insurance provision. One client’s response to my explanation of this principle was “That’s just like baseball. In the event of a tie (the ball and runner arrive at first base at the same time), the runner wins.”

“Adhesion” emphasizes the take-itleave it nature of many contracts. The insured must adhere to the terms stipulated by the insurer or forgo the coverage. “Ambiguity” deals with the problem of contract provisions that have two or more reasonable meanings. “Contra proferentum” is Latin for against the one who offered (proffered) the contract. In insurance, it means the insured gets the benefit of any ambiguity. They are different names for the same doctrine.

The doctrine applies to all contracts, but, because of the nature of the insurance transaction, insurance is an area where it often comes into play. The general rule is that a contract is interpreted against the party that drafted it, especially if the contract is presented to the other party with no opportunity to negotiate terms. That’s certainly the case with homeowners policies like the one involved in Apthorp v. OneBeacon. Like Model Ts that Henry Ford said were available in any color you wanted as long as it’s black, insureds can have any policy provision they want, as long as it’s in the company’s manual. If there are two or more reasonable interpretations of contract wording, the insured is entitled to the interpretation that is most beneficial to it. It doesn’t have to be the most likely meaning; the only requirement is that it is a reasonable interpretation. In this case, the insured has two choices: it can keep the loss payment and turn over the recovered property to the insurer or it can keep the recovered property and reimburse the insurer in full to the extent of the payment for the recovered property.

When it was recovered, the painting was estimated to be worth, at a minimum, $400,000 and perhaps as much $800,000. OneBeacon asserted that it was entitled to the painting because it was subrogated to the insured’s interest in the property. The court had no trouble dismissing that position. It pointed out that the agreement said that OneBeacon was subrogated to the insured rights; the agreement didn’t say that the insured had assigned its interest to OneBeacon. Even if there were some merit to OneBeacon’s position, it would make the agreement ambiguous and the ambiguity would be resolved in the insured’s favor. OneBeacon’s final argument was that the reimbursement due Northern should be calculated with annual compound interest at the rate of ten percent per annum from the date of the payment. That would make the amount due over $425,000. The court quickly disposed of this argument also: “However, the agreement requires the insured to repay only the amount it received. It does not require that the repayment be with interest. OneBeacon is not entitled unilaterally to rewrite the agreement it drafted to add a requirement that interest be paid to the insurer from the date of its payment for the loss.” But, again, even if the provision is ambiguous as to payment with interest, any ambiguity would be resolved in favor of the insured. The insured was entitled to retain the painting upon payment of $25,000 to the insurance company.

The first court to hear the case ruled in favor of the insured by summary judgment. (In a motion for summary judgment one party asks the court to decide that the available evidence, even if taken in the light most favorable to the other party, could not support a ruling in favor of the other party.2) Undeterred by the summary judgment in the first court to hear the case, OneBeacon appealed. The appellate court affirmed the lower court, again by summary judgment.3 While summary judgments avoid the expense of a full-blown trial, they are not without cost and this is compounded when the opposing side, as was the case in this instance, also moves for summary judgment. Furthermore, insureds are often unable or unwilling to risk the costs of a losing lawsuit and therefore retain counsel on a contingent fee basis. That can mean that as much as 1/3 of the recovery goes to the insured’s attorney. The real winners in that case are the attorneys. The losers are the insured, who was put to unnecessary expense, the insurance company, which had to pay the claim and its attorneys, and the insurance industry as a whole. Not only is insured left with a bad taste, but you can be sure the story will be told to innumerable others, confirming their low opinion of the industry. OneBeacon needs crash courses in Insurance 101 and Customer Care. Its actions, which flew in the face of legal precedents and policy provisions, served only to reinforce the low public perception of the insurance industry.

1 The Art Loss Register (ALR) is the world’s largest private database of lost and stolen art, antiques and collectables. It provides search and recovery services to collectors, the art trade, insurers and worldwide law enforcement agencies. ALR has been instrumental in the recovery of over $320 million worth of stolen items.

http://www.artloss.com/content/history-andbusiness 2 http://en.wikipedia.org/wiki/Motion_%28legal %29

3 William O. Apthorp, executor, v. OneBeacon Insurance Group, LLC; Henry S. Thompson & others. 78 Mass. App. Ct. 115 (2010)