Beware of Unclear Language in Construction Contracts/Forms

Contra Proferentem

The claim forced us into the "contra proferentem" arena, a fancy Latin phrase meaning that ambiguities in a contract or document will be construed against the drafter of that contract or document. "Construing against drafter" basically means that the ambiguous phrase will be given the meaning that favors the entity that was not responsible for placing the ambiguous or confusing language into the contract or document.

In our situation, if the contractor was correct, and the term "regular tile" was deemed to be ambiguous, it would have meant that the term would be interpreted in favor of the contractor and against the owner since the owner (through the architect) prepared/drafted the contract documents. The contractor, then, could rely on his position that he interpreted the "regular tile" language in the specs to mean furnishing and installing a flat, square-edge-type tile and that he was entitled to be paid the substantial additional costs as a result of the directive to furnish and install tegular tile.

On the other hand, if the contractor was wrong and the term "regular tile" was held to be unambiguous, then the language would not be interpreted in favor of the contractor or against the owner. In that event, the contractor would have been responsible for furnishing and installing tegular tile and would not be awarded any additional costs for that work.

When Does the Doctrine Apply?

The doctrine applies to all forms of contracts and other documents, not just those involved in the construction and design industries. In fact, many insurance companies have been burned when this doctrine is applied to language in their insurance policies. I guess we must recognize the reality that, where coverage claims are made against insurers, courts make every effort to try to find that there is coverage and rule in favor of the policyholder or claimant.

This rule of interpretation (construing against the drafter) gives courts great leeway to rule against insurers and find coverage for a claimant by finding that the policy language at issue—whether a definition, exclusion, or exception to an exclusion—is not clear and is ambiguous. Since policy language is prepared by (or for) the insurer, it becomes easy for the court to say that the insurer created the problem, so the confusing language will be interpreted in a way that favors the policyholder, who did not draft the language or create the problem.

Years ago, I had a case for a client who rented space at a strip mall in Mt. Kisco, New York (about 30 miles north of Manhattan). My client, along with six other shop owners at the mall, were sued by the owner of the strip mall as a result of an oil leak from a rooftop oil tank. The owner sued to recover the cleanup costs since the oil leaked into a local waterway. The owner said that, although none of the shop owners were responsible for the leak, or in any way caused the leak, each had to share in the cleanup costs since it was "community" oil and each shop owned a share of the leaked oil.

Let's set aside the legitimacy of the claim against my client or the other shop owners or the bizarre theory that the owner said that the shop owners were somehow responsible for the cleanup costs. My issue involved insurance coverage. My client had a "Special Business Owners" commercial general liability policy with Nationwide. The policy had broad coverage language. However, there was a clear pollution exclusion. The exclusion, however, said that Nationwide would not cover holders of business owner policies (BOPs) for any costs related to pollution or spills and related damage.

We claimed there was coverage. We argued that the client held a Special Business Owners policy and not a BOP. The pollution exclusion applied to BOPs, not to a Special Business Owners policy. Nationwide drafted the policy and exclusion; if it wanted the pollution exclusion to apply to Special Business Owners' policies, Nationwide should have said so. We argued that, if there was any confusion or ambiguity, it should be "construed against the drafter," Nationwide. We won. The court agreed and held in our favor based on this rule.

Avoiding Contra Proferentem

Let's take a look at what this doctrine is, and then see how you can position your company to avoid becoming a victim of this rule of interpretation.

The premise is fairly straightforward: The entity that prepares or "drafts" a document is in the best position to make sure that the language used is clear and not confusing. The language does not have to be perfect, just clear. If language is ambiguous or confusing and results in a claim or dispute, then the claim or dispute will be resolved against the entity who prepared the document, since, as noted, that entity was in the best position to avoid the problem by writing it clearly. The court's logic, basically, is that if it has to choose between the one who created the problem and the one who is more innocent, it will rule against the one who created the problem.

There are certain conditions that typically have to be met before the court will apply this doctrine and rule against the drafter. First, there has to be an actual ambiguity. If an owner drafts the general contractor agreement and the contractor wants to argue that the language should be construed against the owner, as drafter, the contractor has to show that the phrase at issue is ambiguous. In our "regular tile" versus "tegular tile" case, the contractor first had to convince the court that the phrase "regular tile" used by the owner was ambiguous. If the phrase was not ambiguous, then the doctrine does not apply.

Second, it has to be clear who the drafter is. In certain cases, language gets negotiated and massaged so much before it is agreed upon, that it is not clear who actually prepared the final, agreed-upon version. In that case, a court is likely to say that the documents were jointly prepared and, generally, will not hold against either side as drafter, even if there is an ambiguity in language.

Keep in mind that if you use any of the trade association forms, such as the American Institute of Architects (AIA), Construction Management Association of America (CMAA), Associated General Contractors of America (AGC), or ConsensusDocs forms, it is likely that you will be considered the drafter of the document if there are any ambiguities, even though you did not actually prepare the form. A court or arbitrator will likely hold that since you used the form, it is as if you prepared it.

Third, whichever party that wants to rely on this doctrine must show that it acted in good faith and tried to avoid issues or problems in contract language. Contractors who want to get the benefit of having an ambiguity resolved against the owners will have to show that they were not aware of the issue and were not able to avoid the problem early on. If it seems like the contractor was aware of the issue and was waiting for the right time to sandbag the owner, that will likely result in the contractor losing its right to rely on this rule to obtain an award from the owner.

Dealing with Contra Proferentem

Let's take a look at how you can best position your company to avoid the harsh results that can occur if the court applies the "construe against drafter" doctrine to one of your documents.

• Periodically review your templates and forms for potential hot spots or issues. Consider whether there are clauses or sections that routinely seem to cause issues or confusion with others. Follow up with your project managers and superintendents to see if they deal with repetitive or similar issues with different vendors or on various projects. If there are recurring issues, consider if the contract or other form language can be adjusted or clarified so that it does not morph into a battle in court or arbitration.

• Avoid addressing the same areas in multiple attachments. For some reason, owners and contractors seem to believe that it is better to cover topics more than once. While there may be benefits to doing that, I've found otherwise and believe that addressing similar topics in many different forms or attachments is a recipe for a claim. If you deal with a topic in more than one location, and you do not say exactly the same thing each time, you are ripe for inconsistency.

  I just finished reviewing contract documents for a client where the total set was almost 200 pages with the "Main Agreement," "General Conditions," "Supplementary Conditions," and "Special Conditions." (I think they just wanted to see how many different types of "Conditions" they could create.) They added to all that attachments for proposed requisitions and lien waivers. I lost count of how many inconsistencies there were. Generally, I recommend to our clients streamlining the contract documents and forms to cover an area once in detail. We may cross-reference sections, but we try not to repeat. (Let me repeat that: we try not to repeat.)

• Be careful when revising your contract or form templates when you address changes that are agreed to with the other party. Whether you are dealing with lower tiers or upper tiers, there almost always are changes in language requested by the other side. Whatever changes are acceptable, make sure that they are consistent with the other language in the contract documents.

  For example, if you are an owner, your standard forms probably say that you will not be liable for any delay damages incurred by a contractor. You may agree with the contractor, however, that certain delays will be compensable, and you will pay added general conditions if those specific delays occur. If you add that clause in some attachment, how does that clause then square with the clause in the main body of the agreement saying you will not pay for the delay?

• Add a clause that negates the "construe against drafter" doctrine. Contracts will sometimes have clauses which say that if there is a claim, then the contract documents will be considered drafted by both parties, and the language will not be interpreted against one or the other as drafter. I will also mention that I refuse to agree to that clause when I review contracts or forms for our clients and that were drafted by others. My position is: you drafted it, you take responsibility for it.

• Address language issues early on. If you see something, say something. That applies here, too. Try to resolve language issues and discrepancies before the contract is signed. While a court or arbitrator may be sympathetic to an owner, contractor, or subcontractor on a claim involving ambiguous language in a contract or form, the court or arbitrator generally will not be as sympathetic if there is a feeling that the entity was aware of the issue and did nothing to try to fix the language early on.

  In my "tegular tile" versus "regular tile" dustup, the court ruled for us and said two things: First, the contractor was aware of the problem at the beginning and should have tried to address and resolve it up front. Instead, the contractor tried to take advantage of our client (the owner) and create an unjustified claim for an extra buck. Second, the court found that there was no ambiguity. The court said that it believed the testimony that there is no such thing as a "regular tile" so the contractor should have known that "tegular" was the intent. Further, the court found that the plans showed the installation of a tegular tile. So, even if the contractor was confused by the term "regular tile," the drawings clarified the intent and the language.

  We wound up winning that entire case for the owner, not just on the issue dealing with the nefarious regular/tegular tile. I can't help but believe that the court had a bad feeling about this contractor and what he tried to do on that one extra, so the court ruled against him on everything. I also did wonder if I should disable the spell-checker on company computers, just as I disabled the "autocorrect" on my iPhone, of course, after sending one too many messages that made no sense.