Legal Memorandum: Construction of Insurance Policies

Issue: What governs how a federal court deals with the construction of insurance policies?

Federal courts look to state law for the construction of insurance policies, starting by determining whether or not any state supreme court decision is dispositive.  Centennial Ins. Co. v. Ryder Truck Rental Inc., 149 F.3d 378 (5th Cir. 1998).  If no such holding exists, the federal court attempts to predict how the state supreme court would rule, relying on state decisions in analogous cases, the state court’s rationales on related issues, relevant state supreme court dicta, lower state court decisions, any relevant general rule, holdings of courts of other influential states, and other sources.  Id.  The federal court is “emphatically not permitted” to do what it thinks is best, but rather must do what it thinks the state court would deem best.  Id.  Therefore, to the extent that Louisiana substantive law exists on point, it will control any contract interpretation and construction issues.     

Louisiana law provides that insurance contracts must be interpreted in favor of coverage by those reasonably entitled to it. Mahaffey v. State Farm Mut. Auto. Ins. Co., 679 So. 2d 129 (La. Ct. App. 3 Cir. 1996).  The parties’ intent, as reflected by the words in the policy, determines the extent of coverage, and the intent must be determined using the ordinary, plain and popular meaning of the words in the policy, unless the words have acquired a technical meaning. Mobley v. State Farm Mut. Auto. Ins. Co., 674 So. 2d 1117 (La. Ct. App. 2 Cir 1996).  Also, a court may not interpret […]