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Chevron, Contra Proferentem and Contract Interpretation

Recently, Justice Gorsuch has continued his attack on Chevron deference by writing a statement accompanying the denial of certiorari, joined by Roberts and Alito, that raised serious questions about the decisions of some lower courts to extend Chevron deference to contracts entered into with administrative agencies.  Gorsuch writes that it is one thing to provide Chevron deference for agency interpretation of statutes (which he clearly does not favor) and quite another to provide Chevron deference for interpreting contracts into which the agency entered (which he seems to regard as an excessive extension of Chevron).  Gorsuch appears to favor traditional contract interpretation – which would be more fair-minded – than this Chevron extension.

So far so good.  I agree that Chevron is mistaken and it should not be extended to contract interpretation.

In making his argument, however, Gorsuch referenced one of these traditional contract interpretive rules: “Usually, of course, judges look to the tested and pretty ancient rules of contract construction. For example, we often resolve contractual ambiguities against the party who wrote the agreement, in part on the theory that the drafter might have avoided the dispute by picking clearer terms.”

This latter rule of resolving contractual ambiguities against the drafter – contra proferentem – is in my view a problematic interpretive rule.  In my earlier career as an insurance scholar, I wrote a piece entitled “The Ambiguity Rule and Insurance Law: Why Insurance Contracts Should Not Be Construed Against the Drafter.”  In the insurance context, where the rule is applied most strongly, I argued that the rule has various problematic features.  First, it provides a variety of unfortunately incentives, such as inducing insurers to write harder to read contracts, because they have to spell out more to avoid ambiguity.  Second, it provides protection to insureds when they did not necessarily need it, since there is little reason to believe that ambiguous provisions are unfair to them.  Third, it discourages the courts from considering the purposes of the parties in resolving ambiguities, because it seems to say that the insurer should lose concerning unclear provisions, even if the parties’ purposes might support the insurer.

I don’t favor replacing one ambiguity rule (Chevron) with another one (contra proferentem).  Ambiguities sometimes makes sense (such as the one that asks judges to interpret provisions based on purposes), but often they do not.  That is the case with both Chevron and contra proferentem).

Of course, my policy views about the contra proferentem should not influence the Supreme Court in this case.  So Gorsuch is correct in his (apparent) claim that Chevron should not apply to contract interpretation and that traditional contract interpretive principles, including contra proferentem, should apply.

Reader Discussion

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on October 30, 2017 at 10:26:12 am

The problem is one of default rules. Chevron is a default rule: If all other interpretive tools fail to resolve the ambiguity of a statute then rule in favor of the agency. Contra proferentem is also a default rule: If all other interpretive tools fail to resolve the ambiguity of a contract rule against the draftsman. The statutory cannon of construction most similar to contra proferentem is the rule of lenity: If all other interpretive tools fail to resolve the ambiguity rule against the government.

The rule of lenity has many of the same reasons as contra proferentem, which is why I disagree with you on contra proferentem. The basic idea is to make sure contracts or statutes are written clearly so that everyone involved understands the meaning of the provisions. Does this lead to longer contracts because they “have to spell out more to avoid ambiguity”? Absolutely, in fact that is the whole point, to force contracts to avoid ambiguity at the cost of longer contracts. The same is true of statutes with the rule of lenity, forcing Congress to “spell out more to avoid ambiguity.” It is better to have a longer statute with no ambiguity then to subject citizens to possible imprisonment for something they didn’t know was wrong. Nor should people’s property be taken because they violated some provision of a contract that they didn’t know they violated.

It is true that these default rules (chevron, contra proferentem, and the rule of lenity) tend to push courts into being less vigorous in using the other standard integrative techniques first (which they should do). But that’s just a complaint about lazy judges who are failing to use the standard cannons of construction prior to relying on a default rule. There must always be some default rule, and there will always be lazy judges who rely on whatever that default is rather than doing their job to use the standard cannons of construction first. But the problem isn’t with the default rule, it is with the judges relying too much on the default rule rather than the other interpretive methods first.

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Devin Watkins
on October 30, 2017 at 12:57:28 pm

I'm shocked! shocked! that an insurance company lawyer thinks that ambiguous provisions in contracts should not be construed against the drafter.

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EK
on October 30, 2017 at 13:57:39 pm

Only partly facetiously here:

I recommend the rule of lenity as it strikes me that Agency minions may, in fact, have an incentive to draft ambiguity into a contract / regulation / guidance, etc. It would seem, even more so than for an insurance company, which after all must to some extent "keep the customers satisfied", that ambiguity may (and has been) be worked to the advantage of the Agency.

Lenity for all!!!!!

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gabe
on October 30, 2017 at 20:23:09 pm

Insurance company lawyer?

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Mike Rappaport
on October 31, 2017 at 10:35:07 am

I think he saw this line: "In my earlier career as an insurance scholar" and assumed that meant that you represented insurance companies.

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Devin Watkins

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.