Insurance Coverage For Collapse: How Has It Changed and Why?



Who Wins When Policy Language is Ambiguous?

Like most contracts, insurance policies typically are complex documents that require knowledge and experience in order to achieve a reasonable understanding of their meaning. It is imperative that insurance adjusters as well as agents and insureds carefully review the policy when a loss or claim occurs and coverage is sought. The reputation of individual insurers as well as the industry at large can be affected by how insurance companies interpret policy provisions. It is fairly common for disputes to arise over the meaning of a particular word or provision that may be subject to more than one possible interpretation. In such cases, what “rules of the road” apply?

Insurance policy contracts are subject to the same rules that apply to contracts in general. However, the uniqueness of the insurance product creates some distinctive features associated with insurance contracts. These features affect the way in which insurance policies are interpreted.

Insurance is an Intangible

Because an insured pays a premium but technically does not receive anything material or physical in return, insurance is characterized as being an “intangible” product. Although there are many social benefits associated with insurance — peace of mind, loss prevention services, etc. — and to society in general — a basis for credit and creating investment capital — the characterization of insurance as an intangible is accurate. In essence, the product embodied in an insurance policy is a promise — a promise to pay for a covered loss. The payment of a claim consummates the insurance contract, but not all insureds have losses or make claims. But this is...

“Court decisions stemming from insurance disputes often tend to balance what is perceived as the unequal bargaining positions of insureds and insurers by giving the insured the benefit of the doubt.”