Interpretation Of An Insurance Policy: Must Be Reasonable

Posted on July 10, 2009 by Steven V. Buckman

In our last post, we discussed some rules the courts use to interpret insurance policies. If the contract has language that is subject to more than one interpretation, it is considered to be ambiguous. In Oklahoma when an insurance policy has ambiguous language, we explained the courts construe the language in favor of the insured or the policy holder and against the insurance company.

However, this still does not answer the question of how you decide what the language means. It is one thing to say the language should be viewed favorably to the policy holder, but you still have to determine what should happen.

Oklahoma has adopted the “reasonable expectations test”. In simple terms, it is what would a reasonable insured would have expected at the time he was purchasing the coverage. An insured buying disability insurance that has a clause which is ambiguous would not reasonably expect to have collision coverage for his vehicle.

The courts have used the “reasonable expectations test” as a means of protecting insurance companies from having their contract rewritten to the point where it would be unfair and unreasonable. The courts have made it extremely clear that it is not their job to rewrite an ambiguous insurance contract, it is merely their responsibility to interpret the language of the policy when the parties otherwise disagree.

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Courts Use Rules Of Interpretation To Decide What An Insurance Policy Really Means

Posted on July 3, 2009 by Steven V. Buckman

It is no surprise there is often disagreement over whether an insurance policy provides coverage. There are competing interests to be accommodated and sometimes the language used is clearer to one person than another.

We are often asked, “How do judges decide what the insurance policy really means?” There are volumes of books in law libraries discussing this very topic, but there are some general principles judges often employ.

  1. A judge is going to look at the whole contract to determine the intent of the parties. You do not just consider one part of the contract, but use all of the parts to interpret other provisions and try to figure out what was really intended.
  2. The courts generally examine the language of the policy to see what the parties meant by the words that were used. For instance, there may be definitions in the policy that tell the meaning of the words.  If not, then the courts usually interpret words in their ordinary and popular sense. Technical words are interpreted in the way that are usually understood by persons in that particular business unless they are clearly used in a different sense.
  3. If the terms are ambiguous or otherwise uncertain, those particular phrases are read in the way that is most favorable to the policy holder or the insured.  Lawyers tend to say the contract is construed against the drafter.  Since the insurance company came up with the language used; it will be read in the light most beneficial to the person insured.
  4. The courts are going to apply any regulations that the insurance department, statutes, or case law require.  For example, it would be against public policy to write an insurance policy that provided protection for committing criminal actions. In certain categories or classifications of insurance, there are required coverages which are mandated by the legislature.  Oklahoma has a statutory fire policy in which the essential elements of the coverage are set forth in the statute and this coverage is provided even if the policy says something different.  The insurance company can add to the minimum coverage, but cannot provide less than the minimum.
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