Extrinsic Evidence and Conditional Reform

Insurance Policy Construction and the Use of Extrinsic Evidence

The paramount rule of construction for insurance policies ' and for contracts in general ' is that unambiguous provisions must be construed and applied as written. First Ins. Funding Corp. v. Federal Ins. Co., 284 F.3d 799, 804 (7th Cir. 2002). That is, extrinsic evidence cannot be used to change the meaning of an otherwise unambiguous contract provision. Schneider v. Continental Cas. Co., 989 F.2d 728, 732 (4th Cir. 1993). Even in those states that follow the Restatement (Second) of Contracts approach, which suggests the propriety of considering extrinsic evidence in order to make the threshold determination of whether the contract language is in fact ambiguous, courts generally consider extrinsic evidence only in a very limited manner. That is, courts considering extrinsic evidence in determining whether an ambiguity exists generally limit their review to contextual evidence showing that, under the specific circumstances surrounding the contract at issue, a particular provision reasonably might mean something other than what appears plain from a review of just the words themselves. See, e.g., Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 93 (3d Cir. 2001). Therefore, the general rule is that extrinsic evidence is not considered by a court in construing an insurance policy. Rather, a court construes the policy by considering its actual terms and applies the policy as written. In those few jurisdictions where extrinsic evidence may be considered in order to determine whether a latent ambiguity exists, such consideration generally is limited to 'the attendant and surrounding circumstances' of contract issuance. See, e.g., Ga. Code Ann. '13-2-2(1).

When the court determines that a particular contract provision is ambiguous, however, courts generally will consider extrinsic evidence in order to determine whether such extrinsic evidence will resolve the ambiguity. McCostis v. Home Ins. Co., 31 F.3d 110, 112 (2d Cir. 1994). But even that review of extrinsic evidence should be reasonably limited, as it is black letter law that a party's subjective, undisclosed intent with respect to a particular contract provision is irrelevant in contract litigation. As the Restatement (Second) of Contracts explains, the essence of contract construction is the 'external or objective standard for interpreting conduct; it means the external expression of intention as distinguished from undisclosed intention.' Restatement (Second) of Contracts '2 cmt. b (1981). Indeed, as Judge Learned Hand famously explained, '[a] contract has, strictly speaking, nothing to do with the personal or individual intent of the parties.' Therefore, in a perfect world, courts finding ambiguity in a contract provision would limit admissibility of extrinsic evidence ' and with it, discovery of admissible evidence ' to external expressions of intent communicated between the contracting parties rather than subjective expressions of intent.

But, alas, this is not a perfect world. Under the guise of considering extrinsic evidence bearing on confirmed or potential policy ambiguities, courts have sometimes allowed invasive, expensive, and most-often irrelevant discovery on a host of subjects that have little or nothing to do with the parties' externally stated intent with respect to a particular contract provision. While many courts have found, correctly in this author's view, that such discovery is inappropriate, courts occasionally have permitted 'extrinsic evidence' discovery of, for example, reinsurance information, reserves information, and claims handling histories between the insurer and other policyholders. See generally U.S. Fire Ins. Co. v. Bunge N. Am., Inc., 244 F.R.D. 638 (D. Kan. 2007); Owens-Corning Fiberglas Corp. v. Allstate Ins. Co., 660 N.E.2d 765 (Ohio Ct. Comm. Pleas, Lucas County 1993). Frequently, the principal effect of such broad discovery rulings is not to materially assist the court in resolving any contract ambiguity that may have been found, but rather to so multiply the costs and burdens imposed upon a litigating insurer as to reduce an insurer's incentive to vindicate its position through litigation and to increase the economic case for settling a case even if the insurer believes it likely would prevail on the merits. Not surprisingly, then, policyholders frequently seek this broad and invasive discovery, under the theoretical guise of resolving contract ambiguities, for the purpose of ratcheting up settlement pressure on the insurer, while insurers are understandably reluctant to take any positions in litigation ' such as reliance on extrinsic evidence ' that could open the gateway to such burdensome discovery.

The Use of Extrinsic Evidence in Reformation Litigation

As compared with ordinary contract construction, the principles underlying reformation of contracts call for an entirely different treatment of extrinsic evidence. The Restatement (Second) of Contracts states the general rule for contract reformation:

Where a writing that evidences or embodies an agreement in whole or in part fails to express the agreement because of a mistake of both parties as to the contents or effect of the writing, the court may at the request of a party reform the writing to express the agreement. …

Restatement (Second) of Contracts ' 155 (1981).

Thus, the essence of a reformation claim is that the parties, 'having reached an agreement and having then attempted to reduce it to writing, fail to express it correctly in the writing.' Id. cmt. a. There are several aspects of a reformation claim that affect its usefulness in coverage litigation and the proper use of extrinsic evidence in pursuing policy reformation.

First, reformation is available to correct mistakes 'as to the contents or effect of the writing.' Id. '155. That is, reformation is an available remedy not only for errors of fact ' such as scrivener's errors inserting the incorrect policy premium or limits ' but also can be used to correct the parties' mutual understanding of the legal effect of the language they have chosen. Id. cmt. a ('If the parties are mistaken with respect to the legal effect of the language that they have used, the writing may be reformed to reflect the intended effect.'). For example, imagine communications during the underwriting process where the insurer advises the policyholder that it will issue a policy but that coverage for all lead paint claims must be excluded. If the policyholder later seeks coverage for some subclass of the lead paint claims against it, on the grounds that the policy language excludes only some portion of the policyholder's lead paint claims, an insurer can seek reformation of the policy on the grounds that the parties mutually understood that the policy issued would exclude coverage for all lead paint claims.

In addition, there is no requirement that the language of a contract be ambiguous in order for a meritorious claim for reformation to lie. See, e.g., N.Y. First Ave, CVS, Inc. v. Wellington Towers Assocs., L.P., 750 N.Y.S.2d 586, 587 (N.Y. App. Div. 2002). Of course, the principle makes intuitive sense because contract reformation is not concerned with construction of the actual contract, but with correcting the contract to conform to the parties' actual intent. Moreover, the Statute of Frauds does not apply to reformation claims; thus, a requirement under the Statute of Frauds that certain agreement be reduced to writing will not preclude reformation of the written contract where the evidence supports such a result. Restatement (Second) of Contracts '156 (1981).

Nevertheless, the burden of proof for reformation is a high one. As the Restatement explains:

Because experience teaches that mistakes are the exception and not the rule, the trier of the facts should examine the evidence with particular care when it relates to a party's assertion of mistake as the basis for his claim or defense. Care is all the more necessary when the asserted mistake relates to a writing, because the law of contracts, as is indicated by the parol evidence rule and the Statute of Frauds, attaches great weight to the written expression of an agreement. This is commonly summarized in a standard that requires the trier of the facts to be satisfied by 'clear and convincing evidence' before reformation is granted. Restatement (Second) of Contracts ' 155 cmt. c (1981).

The 'clear and convincing' evidentiary standard reflects that reformation is an extraordinary remedy that is infrequently granted by the courts. Dairy Farmers of Am., Inc. v. Travelers Ins. Co., 292 F.3d 567, 575 (8th Cir. 2002); Bd. of Trustees of Univ. of Ill. v. Ins. Corp. of Ireland, Ltd., 969 F.2d 329, 332 (7th Cir. 1992). Where the parties specifically communicated regarding the type of coverage to be provided, and those communications reflect coverage different from that asserted by the policyholder in litigation, reformation can be a powerful tool not only in reaching the equitable result, but also in doing so without the expense and burden of discovery focused on construction of the policy's written terms.

While the general rule in contract construction is that, absent a finding of ambiguity, extrinsic evidence should not be considered by the court, this is not true of reformation claims. 'The fact that parol evidence contradicts the language of the written document clearly does not bar its admissibility [in a reformation action], since the gist of a reformation action is that the written document does not accurately reflect the parties' agreement.' Yeazel v. Burger King Corp., 526 S.E.2d 112, 117 (Ga. Ct. App. 1999); see also Thompson v. Estate of H.H. Coffield, 894 P.2d 1065, 1068 (Okla. 1995). Thus, extrinsic evidence is always admissible on the issue of reformation because it is extrinsic evidence that will show (or not show) that the written document fails to reflect the parties' actual agreement. By contrast, the least relevant evidence on a reformation claim is evidence bearing on the proper construction of the policy itself, as a reformation claim is concerned with discerning the terms of the parties' actual agreement in order to determine whether the written contract language reflects this actual agreement.

At the same time, however, the narrow scope of a reformation inquiry limits the types of relevant extrinsic evidence considerably. Because reformation requires a mutual intent that is not reflected in the written agreement, or at least a unilateral understanding combined with the other party's actual knowledge of that understanding, it is difficult to imagine much in the way of relevant extrinsic evidence beyond communications between the parties and their agents that would have any conceivable bearing on the propriety of reformation. Therefore, while extrinsic evidence is always admissible on a reformation claim, the scope of relevant evidence is so narrow that the discovery burdens associated with a reformation inquiry generally should be reasonably manageable.

Efficient Case Management and Pursuit of Reformation

Because of the relatively narrow scope of a reformation inquiry ' and its concomitantly narrow scope of required discovery ' there is much to be said for seeking judicial resolution of a reformation claim at the earliest stages of coverage litigation in those relatively infrequent situations where the parties discussed the coverage issues in dispute during the underwriting process and the parties' mutual intent is clear. The obvious vehicle for such a determination is a motion for summary judgment. Not surprisingly, parties seeking to avoid reformation often seek to erect procedural barriers to an early resolution on a reformation claim on summary judgment, but these arguments generally are not well taken, and are usually rejected.

For example, contracting parties sometimes argue that a reformation action requires a finding that the written contract fails to express the parties' actual intent and that this inquiry requires that the written contract be construed before determining whether reformation is even necessary. Essentially, the argument is that the party seeking reformation must concede that its opponent would prevail under ordinary contract construction, and that absent such a concession there is no 'mistake' that can support reformation. The Georgia Court of Appeals considered this argument and rightly characterized it as 'disingenuous.' Yeazel, 526 S.E.2d at 117 n.13. There is nothing wrong with a party arguing that the contract as written supports the party's position, but that the evidence of actual intent is so clear that the court would have to reform the policy to conform to the party's position even if the court found that, as a matter of contract construction, its opponent's proffered construction were more reasonable.

The essential irrelevance of policy construction to an insurer's reformation claim becomes clear when returning to the example used earlier, where an insurer advises that it will issue a policy but that coverage for all lead paint claims must be excluded, and the policyholder purchases the policy on that basis. Under such a factual scenario, the insurer properly may move for summary judgment on its reformation claim, arguing that the party's intent to exclude all lead paint claims would require reformation even if the court were to find that the exclusion as written reached only some of the lead paint claims against the policyholder.

This was the result reached by the Seventh Circuit in considering a district court decision granting a policyholder's motion for partial summary judgment on reformation. Bd. of Trustees of Univ. of Ill. v. Ins. Corp. of Ireland, Ltd., 969 F.2d at 335 n.9. In Board of Trustees, the policyholder sought partial summary judgment that its excess liability policy should be reformed to reflect two separate $5 million limits rather than a single limit for the entire policy period. Id. at 331. While the district court found that the policy unambiguously provided for a single limit of coverage, the court nevertheless granted the policyholder's summary judgment motion, finding that reformation was required to reflect the parties' actual intent. Id. On appeal, the Seventh Circuit affirmed the district court's decision on reformation but held that it did not need to consider the policyholder's cross-appeal on contract construction because its reformation decision rendered the contract construction dispute moot. Id. at 335 n.9.

The Seventh Circuit's conclusion that it need not reach a final determination on contract construction before passing on a reformation claim reflects the true relationship between the two doctrines. When the evidence of the parties' mutual intent is sufficiently clear from their communications, it really does not matter how the court would apply the policy as a matter of contract construction, as the reformation evidence would require that the contract be reformed if the court, for whatever reason, construed the policy language in any manner inconsistent with the parties' mutual intent. Thus, evidence of mutual intent sufficient to support reformation as a matter of summary judgment effectively trumps the contract construction process, rendering contract construction as little more than an advisory opinion. Indeed, resolution of a meritorious reformation claim, before requiring the parties to engage in the costly and burdensome discovery sometimes associated with contract construction furthers the principle stated in the Federal Rules of Civil Procedure and many state court rules of procedure, that procedural rules be 'administered to secure the just, speedy, and inexpensive determination of every action.' Fed. R. Civ. P. 1; see also Ga. Code Ann. 9-11-1 (same); W. Va. R. Civ. P. 1 (same). When the most inexpensive and efficient course for resolving a coverage dispute is to 'cut to the chase' of a reformation claim, there is no reason why the parties, and the court, should not take that path.

John O'Connor is a partner in Steptoe & Johnson LLP's Litigation Department. He regularly represents insurers in coverage litigation in federal and state courts as well as in arbitration proceedings.

In coverage litigation, insurers often treat extrinsic evidence as if it were radioactive material, and there is some justification for this instinct. Generally, consideration of extrinsic evidence connotes an ambiguity in policy language, and there are several reasons why insurers seek to avoid arguing, or even intimating, that the language at issue in an insurance policy is ambiguous. Most obvious, if consideration of extrinsic evidence cannot resolve the ambiguity, a finding of ambiguity sometimes leads courts to the doctrine of contra proferentum, the canon of contract construction that construes ambiguities in certain contracts against the drafter. See, e.g. , St. Paul Fire & Marine Ins. Co. v. Pryseski , 438 A.2d 282, 288 (Md. 1980). While not an inevitable result, application of the doctrine of contra proferentum most often inures to the insurer's detriment.

In addition, the notion of a potential ambiguity in contract language can lead to burdensome and expensive discovery into extrinsic evidence of intent, with much of the extrinsic 'evidence' sought in coverage litigation more noteworthy for its invasiveness than its actual or potential probative nature. Finally, as repeat players in coverage litigation, insurers must be wary of how an assertion or intimation that policy language is ambiguous will impact coverage disputes involving identical or similar language, even if the collateral effect of such an argument in the existing coverage dispute is insignificant. All of these considerations tend to make insurers reluctant to urge a court to consider extrinsic evidence in coverage litigation or to suggest that the policy language at issue is ambiguous.

But it is not true ' or at least it should not be ' that consideration of extrinsic evidence necessarily leads to all of the collateral damage discussed above. In particular, when an insurer seeks to reform a policy provision to reflect the parties' actual intent, it does not involve an intimation of ambiguity, nor should it open the door to freewheeling and burdensome discovery of extrinsic evidence that often comes to the fore when courts are called upon to construe arguably ambiguous policy provisions. Indeed, in those relatively uncommon situations where reformation is an appropriate remedy, effective litigation management can sometimes permit reformation to prevent the invasive discovery of extrinsic evidence that sometimes occurs in coverage litigation. The availability of reformation as an effective case management tool becomes apparent when contrasting the relevance of extrinsic evidence in policy construction with the use of such evidence in reformation litigation.

Insurance Policy Construction and the Use of Extrinsic Evidence

The paramount rule of construction for insurance policies ' and for contracts in general ' is that unambiguous provisions must be construed and applied as written. First Ins. Funding Corp. v. Federal Ins. Co. , 284 F.3d 799, 804 (7th Cir. 2002). That is, extrinsic evidence cannot be used to change the meaning of an otherwise unambiguous contract provision. Schneider v. Continental Cas. Co. , 989 F.2d 728, 732 (4th Cir. 1993). Even in those states that follow the Restatement (Second) of Contracts approach, which suggests the propriety of considering extrinsic evidence in order to make the threshold determination of whether the contract language is in fact ambiguous, courts generally consider extrinsic evidence only in a very limited manner. That is, courts considering extrinsic evidence in determining whether an ambiguity exists generally limit their review to contextual evidence showing that, under the specific circumstances surrounding the contract at issue, a particular provision reasonably might mean something other than what appears plain from a review of just the words themselves. See, e.g. , Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc. , 247 F.3d 79, 93 (3d Cir. 2001). Therefore, the general rule is that extrinsic evidence is not considered by a court in construing an insurance policy. Rather, a court construes the policy by considering its actual terms and applies the policy as written. In those few jurisdictions where extrinsic evidence may be considered in order to determine whether a latent ambiguity exists, such consideration generally is limited to 'the attendant and surrounding circumstances' of contract issuance. See, e.g., Ga. Code Ann. '13-2-2(1).

When the court determines that a particular contract provision is ambiguous, however, courts generally will consider extrinsic evidence in order to determine whether such extrinsic evidence will resolve the ambiguity. McCostis v. Home Ins. Co. , 31 F.3d 110, 112 (2d Cir. 1994). But even that review of extrinsic evidence should be reasonably limited, as it is black letter law that a party's subjective, undisclosed intent with respect to a particular contract provision is irrelevant in contract litigation. As the Restatement (Second) of Contracts explains, the essence of contract construction is the 'external or objective standard for interpreting conduct; it means the external expression of intention as distinguished from undisclosed intention.' Restatement (Second) of Contracts '2 cmt. b (1981). Indeed, as Judge Learned Hand famously explained, '[a] contract has, strictly speaking, nothing to do with the personal or individual intent of the parties.' Therefore, in a perfect world, courts finding ambiguity in a contract provision would limit admissibility of extrinsic evidence ' and with it, discovery of admissible evidence ' to external expressions of intent communicated between the contracting parties rather than subjective expressions of intent.

But, alas, this is not a perfect world. Under the guise of considering extrinsic evidence bearing on confirmed or potential policy ambiguities, courts have sometimes allowed invasive, expensive, and most-often irrelevant discovery on a host of subjects that have little or nothing to do with the parties' externally stated intent with respect to a particular contract provision. While many courts have found, correctly in this author's view, that such discovery is inappropriate, courts occasionally have permitted 'extrinsic evidence' discovery of, for example, reinsurance information, reserves information, and claims handling histories between the insurer and other policyholders. See generally U.S. Fire Ins. Co. v. Bunge N. Am., Inc. , 244 F.R.D. 638 (D. Kan. 2007); Owens-Corning Fiberglas Corp. v. Allstate Ins. Co. , 660 N.E.2d 765 (Ohio Ct. Comm. Pleas, Lucas County 1993). Frequently, the principal effect of such broad discovery rulings is not to materially assist the court in resolving any contract ambiguity that may have been found, but rather to so multiply the costs and burdens imposed upon a litigating insurer as to reduce an insurer's incentive to vindicate its position through litigation and to increase the economic case for settling a case even if the insurer believes it likely would prevail on the merits. Not surprisingly, then, policyholders frequently seek this broad and invasive discovery, under the theoretical guise of resolving contract ambiguities, for the purpose of ratcheting up settlement pressure on the insurer, while insurers are understandably reluctant to take any positions in litigation ' such as reliance on extrinsic evidence ' that could open the gateway to such burdensome discovery.

The Use of Extrinsic Evidence in Reformation Litigation

As compared with ordinary contract construction, the principles underlying reformation of contracts call for an entirely different treatment of extrinsic evidence. The Restatement (Second) of Contracts states the general rule for contract reformation:

Where a writing that evidences or embodies an agreement in whole or in part fails to express the agreement because of a mistake of both parties as to the contents or effect of the writing, the court may at the request of a party reform the writing to express the agreement. …

Restatement (Second) of Contracts ' 155 (1981).

Thus, the essence of a reformation claim is that the parties, 'having reached an agreement and having then attempted to reduce it to writing, fail to express it correctly in the writing.' Id. cmt. a. There are several aspects of a reformation claim that affect its usefulness in coverage litigation and the proper use of extrinsic evidence in pursuing policy reformation.

First, reformation is available to correct mistakes 'as to the contents or effect of the writing.' Id. '155. That is, reformation is an available remedy not only for errors of fact ' such as scrivener's errors inserting the incorrect policy premium or limits ' but also can be used to correct the parties' mutual understanding of the legal effect of the language they have chosen. Id. cmt. a ('If the parties are mistaken with respect to the legal effect of the language that they have used, the writing may be reformed to reflect the intended effect.'). For example, imagine communications during the underwriting process where the insurer advises the policyholder that it will issue a policy but that coverage for all lead paint claims must be excluded. If the policyholder later seeks coverage for some subclass of the lead paint claims against it, on the grounds that the policy language excludes only some portion of the policyholder's lead paint claims, an insurer can seek reformation of the policy on the grounds that the parties mutually understood that the policy issued would exclude coverage for all lead paint claims.

In addition, there is no requirement that the language of a contract be ambiguous in order for a meritorious claim for reformation to lie. See, e.g. , N.Y. First Ave, CVS, Inc. v. Wellington Towers Assocs., L.P. , 750 N.Y.S.2d 586, 587 (N.Y. App. Div. 2002). Of course, the principle makes intuitive sense because contract reformation is not concerned with construction of the actual contract, but with correcting the contract to conform to the parties' actual intent. Moreover, the Statute of Frauds does not apply to reformation claims; thus, a requirement under the Statute of Frauds that certain agreement be reduced to writing will not preclude reformation of the written contract where the evidence supports such a result. Restatement (Second) of Contracts '156 (1981).

Nevertheless, the burden of proof for reformation is a high one. As the Restatement explains:

Because experience teaches that mistakes are the exception and not the rule, the trier of the facts should examine the evidence with particular care when it relates to a party's assertion of mistake as the basis for his claim or defense. Care is all the more necessary when the asserted mistake relates to a writing, because the law of contracts, as is indicated by the parol evidence rule and the Statute of Frauds, attaches great weight to the written expression of an agreement. This is commonly summarized in a standard that requires the trier of the facts to be satisfied by 'clear and convincing evidence' before reformation is granted. Restatement (Second) of Contracts ' 155 cmt. c (1981).

The 'clear and convincing' evidentiary standard reflects that reformation is an extraordinary remedy that is infrequently granted by the courts. Dairy Farmers of Am., Inc. v. Travelers Ins. Co. , 292 F.3d 567, 575 (8th Cir. 2002); Bd. of Trustees of Univ. of Ill. v. Ins. Corp. of Ireland, Ltd. , 969 F.2d 329, 332 (7th Cir. 1992). Where the parties specifically communicated regarding the type of coverage to be provided, and those communications reflect coverage different from that asserted by the policyholder in litigation, reformation can be a powerful tool not only in reaching the equitable result, but also in doing so without the expense and burden of discovery focused on construction of the policy's written terms.

While the general rule in contract construction is that, absent a finding of ambiguity, extrinsic evidence should not be considered by the court, this is not true of reformation claims. 'The fact that parol evidence contradicts the language of the written document clearly does not bar its admissibility [in a reformation action], since the gist of a reformation action is that the written document does not accurately reflect the parties' agreement.' Yeazel v. Burger King Corp. , 526 S.E.2d 112, 117 (Ga. Ct. App. 1999); see also Thompson v. Estate of H.H. Coffield , 894 P.2d 1065, 1068 (Okla. 1995). Thus, extrinsic evidence is always admissible on the issue of reformation because it is extrinsic evidence that will show (or not show) that the written document fails to reflect the parties' actual agreement. By contrast, the least relevant evidence on a reformation claim is evidence bearing on the proper construction of the policy itself, as a reformation claim is concerned with discerning the terms of the parties' actual agreement in order to determine whether the written contract language reflects this actual agreement.

At the same time, however, the narrow scope of a reformation inquiry limits the types of relevant extrinsic evidence considerably. Because reformation requires a mutual intent that is not reflected in the written agreement, or at least a unilateral understanding combined with the other party's actual knowledge of that understanding, it is difficult to imagine much in the way of relevant extrinsic evidence beyond communications between the parties and their agents that would have any conceivable bearing on the propriety of reformation. Therefore, while extrinsic evidence is always admissible on a reformation claim, the scope of relevant evidence is so narrow that the discovery burdens associated with a reformation inquiry generally should be reasonably manageable.

Efficient Case Management and Pursuit of Reformation

Because of the relatively narrow scope of a reformation inquiry ' and its concomitantly narrow scope of required discovery ' there is much to be said for seeking judicial resolution of a reformation claim at the earliest stages of coverage litigation in those relatively infrequent situations where the parties discussed the coverage issues in dispute during the underwriting process and the parties' mutual intent is clear. The obvious vehicle for such a determination is a motion for summary judgment. Not surprisingly, parties seeking to avoid reformation often seek to erect procedural barriers to an early resolution on a reformation claim on summary judgment, but these arguments generally are not well taken, and are usually rejected.

For example, contracting parties sometimes argue that a reformation action requires a finding that the written contract fails to express the parties' actual intent and that this inquiry requires that the written contract be construed before determining whether reformation is even necessary. Essentially, the argument is that the party seeking reformation must concede that its opponent would prevail under ordinary contract construction, and that absent such a concession there is no 'mistake' that can support reformation. The Georgia Court of Appeals considered this argument and rightly characterized it as 'disingenuous.' Yeazel, 526 S.E.2d at 117 n.13. There is nothing wrong with a party arguing that the contract as written supports the party's position, but that the evidence of actual intent is so clear that the court would have to reform the policy to conform to the party's position even if the court found that, as a matter of contract construction, its opponent's proffered construction were more reasonable.

The essential irrelevance of policy construction to an insurer's reformation claim becomes clear when returning to the example used earlier, where an insurer advises that it will issue a policy but that coverage for all lead paint claims must be excluded, and the policyholder purchases the policy on that basis. Under such a factual scenario, the insurer properly may move for summary judgment on its reformation claim, arguing that the party's intent to exclude all lead paint claims would require reformation even if the court were to find that the exclusion as written reached only some of the lead paint claims against the policyholder.

This was the result reached by the Seventh Circuit in considering a district court decision granting a policyholder's motion for partial summary judgment on reformation. Bd. of Trustees of Univ. of Ill. v. Ins. Corp. of Ireland, Ltd. , 969 F.2d at 335 n.9. In Board of Trustees, the policyholder sought partial summary judgment that its excess liability policy should be reformed to reflect two separate $5 million limits rather than a single limit for the entire policy period. Id. at 331. While the district court found that the policy unambiguously provided for a single limit of coverage, the court nevertheless granted the policyholder's summary judgment motion, finding that reformation was required to reflect the parties' actual intent. Id. On appeal, the Seventh Circuit affirmed the district court's decision on reformation but held that it did not need to consider the policyholder's cross-appeal on contract construction because its reformation decision rendered the contract construction dispute moot. Id. at 335 n.9.

The Seventh Circuit's conclusion that it need not reach a final determination on contract construction before passing on a reformation claim reflects the true relationship between the two doctrines. When the evidence of the parties' mutual intent is sufficiently clear from their communications, it really does not matter how the court would apply the policy as a matter of contract construction, as the reformation evidence would require that the contract be reformed if the court, for whatever reason, construed the policy language in any manner inconsistent with the parties' mutual intent. Thus, evidence of mutual intent sufficient to support reformation as a matter of summary judgment effectively trumps the contract construction process, rendering contract construction as little more than an advisory opinion. Indeed, resolution of a meritorious reformation claim, before requiring the parties to engage in the costly and burdensome discovery sometimes associated with contract construction furthers the principle stated in the Federal Rules of Civil Procedure and many state court rules of procedure, that procedural rules be 'administered to secure the just, speedy, and inexpensive determination of every action.' Fed. R. Civ. P. 1; see also Ga. Code Ann. 9-11-1 (same); W. Va. R. Civ. P. 1 (same). When the most inexpensive and efficient course for resolving a coverage dispute is to 'cut to the chase' of a reformation claim, there is no reason why the parties, and the court, should not take that path.

John O'Connor is a partner in Steptoe & Johnson LLP's Litigation Department. He regularly represents insurers in coverage litigation in federal and state courts as well as in arbitration proceedings.