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Ambiguous Language and Settlement Agreements in North Carolina

The language in any contract must be clear and unambiguous, and this standard is true of settlement agreements in divorce proceedings as well. When the terms of an agreement are left open to interpretation, it can lead to issues like contention and litigation.

North Carolina Contract Verbiage Requirements

Extensive case law has determined that written contracts must be enforced based on their terms and that a contract should be reasonably interpreted according to the intent of each party at the time they executed the agreement. Intent is gathered from the contract’s language, which is why ambiguous language presents problems.

Ambiguity in a contract may exist when the words have more than one reasonable interpretation. An agreement may also be considered ambiguous when the verbiage of the contract is clear, but the details of the case point to multiple interpretations of the provisions.

Galloway v. Snell

In the North Carolina Supreme Court case of Galloway v. Snell, the matter centered on the ambiguity of a settlement agreement.

Husband and Wife separated in August 2017 and six months later entered into a settlement agreement in February 2018. A final divorce judgment was entered in December 2018. A few months later, Wife passed away. Her life insurance policy at the time of her death listed a living trust as the beneficiary, and their four children were beneficiaries of the trust.

The parties in this case were the trustee of Wife’s trust as the plaintiff and Husband as the defendant. The trustee sued, stating that Wife was legally allowed to name the trust as the beneficiary of the life insurance proceeds. Defendant claimed that the settlement agreement required death benefits be paid to him.

The trial court determined that the agreement was not ambiguous and that the trust was the proper sole beneficiary of the life insurance policy. Defendant then appealed, and a divided Court of Appeals panel reversed the lower court’s ruling, stating the language was ambiguous. A single dissenting opinion in the appellate court decided in favor of the trustee and in agreement with the trial court, and so the trustee was able to appeal to the North Carolina Supreme Court.

The wording in Defendant’s settlement agreement with Wife stated as follows:

  • Wife shall maintain a life insurance policy with Defendant as the beneficiary until she no longer has an obligation to pay for the children’s college expenses
  • Each party shall establish a trust for the benefit of the children so that they can receive any life insurance proceeds in lieu of naming the other party as beneficiary

The trustee, Plaintiff, argued that the agreement unambiguously allows either party to remove the other as beneficiary once the trust is established. Defendant argued that the agreement required that he remain the beneficiary of Wife’s life insurance policy and that the trust was meant to hold additional policy benefits.

The Supreme Court concurred with the dissenting opinion of the Court of Appeals, stating that the agreement’s intent is clear when the contract is taken as a whole. The inclusion of the word “any” in the provision regarding the trust receiving life insurance proceeds was evidence that the trust could be set up as the beneficiary of Wife’s life insurance policy instead of Defendant. The Supreme Court therefore reversed the appellate court’s decision.