A Video Explaining Insurance Policy Interpretation and Construction
A site for the insurance claims professional and anyone who wants to know soThe first thing every person representing an insurer with regard to a potential fraudulent claim must understand that the insurance policy is the basis for every insurance fraud investigation. Without an insurance policy there can be no insurance fraud. The insurance policy contract describes the rights and obligations of the parties to the policy of insurance. It contains, in clear and unambiguous language, weapons to defeat a fraudulent claim.
The construction of insurance contracts should be, but often is not, governed by the same rules of construction applicable to all contracts. The courts claim that when they construe an insurance contract it gives the terms of the policy their ordinary and generally accepted meaning. The primary goal of the court is to give effect to the written expression of the intent of the parties to the insurance policy.
Some rules that must be followed when construing or interpreting an insurance contract include:
If the terms of the policy are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor (the insurer) believed at the time of making it, that the promisee (the insured) understood it.
If the language of a policy or contract is subject to two or more reasonable interpretations, it is probably ambiguous.
Where an ambiguity involves an exclusionary provision of an insurance policy, courts adopt the construction urged by the insured as long as the construction is not unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the intent of the insured and insurer.
In reaching the conclusion that a policy exclusion was ambiguous, and the policy, therefore, provided coverage, the courts should follow the settled rule that any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer and that if semantically permissible, the contract will be given such construction as will fairly achieve its object of providing indemnity for the loss to which the insurance relates.
It is a maxim of law that a contract should be construed against its drafter. The maxim is sometimes referred to as the contra preferendum
Provisions excluding coverage are strictly construed against the insurer.
Ambiguities in insurance applications will usually be construed against the insurer to avoid denial of coverage because of alleged misrepresentations.
Where the language of a contract is clear and unambiguous, it must be interpreted solely by reference to the four corners of that document.
When a policy is interpreted, the provisions of an endorsement controls the interpretation over the body or declarations of a policy when the two are in conflict.
The basic rules of construction or interpretation of an insurance contract are all subject to the limitation that a court cannot and should not do violence to the plain terms of a contract by artificially creating ambiguity where none exists. In situations in which reasonable interpretation favors the insurer, and any other would be strained and tenuous, no compulsion exists to torture or twist the language of the contract. An insurance company has the right to limit the coverage of a policy issued by it and when it has done so, the plain language of the limitation must be respected.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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