Cengage Advantage Books: Essentials of Business Law 5th Edition by Jeffrey Beatty,Susan Samuelson

Exercise 8

YOU BE THE JUDGE WRITING PROBLEM Chip bought an insurance policy on his house from Insurance Co. The policy covered damage from fire but explicitly excluded coverage for harm caused "by or through an earthquake." When an earthquake struck, Chip's house suffered no fire damage, but the earthquake caused a building some blocks away to catch on fire. That fire ultimately spread to Chip's house, burning it down. Is Insurance Co. liable to Chip Argument for Insurance Co.: The policy could not have been clearer or more explicit. If there had been no earthquake, Chip's house would still be standing. The policy does not cover his loss. Argument for Chip: His house was not damaged by an earthquake; it burned down. The policy covered fire damage. If a contract is ambiguous, it must be interpreted against the drafter of the contract.