Corporate & Securities Law

?Latent Ambiguity? Is a Confusing Concept

By Ken Adams

This post isn’t intended for drafters so much as judges and litigators.

In a recent bankruptcy case, In re IdleAire Technologies Corp., 2009 Bankr. LEXIS 343 (Bankr. D. Del. Feb. 18, 2009), the court had the following to say about “latent ambiguity”:

The plain language of an insurance policy, however, can also be ambiguous, even when there is only one reasonable interpretation of the language, when a plain meaning reading can lead to an absurd result. This second type of ambiguity, latent ambiguity, differs from patent ambiguity in that the former is characterized as “ambiguous facts” whereas the latter is referred to as “ambiguous terms.”

But in everday usage, ambiguity is a function of alternative meanings. Consequently, “latent ambiguity” is an unhelpful term, in that it has nothing to do with language itself conveying alternative meanings.

I’ll spare you the facts of the case, but the court went on to say this:

Because the “terms ‘irritant’ and ‘contaminant,’ when viewed in isolation, are virtually boundless in their inclusion, for ‘there is virtually no substance or chemical in existence that would not irritate or damage some person or property,” the Total Pollution Exclusion is latently ambiguous.

In MSCD 6.10 I suggest that a better term for latent ambiguity would be “undue generality.” That switch would have worked in this case. Court opinions would be clearer if courts were to retire the concept of latent ambiguity.

Chapter 6 of MSCD and this March 2008 blog post discuss generally how courts see ambiguity in all sources of uncertainty in contract language.

Full post as published by AdamsDrafting on March 16, 2009 (boomark / email).