Bet on David, Not Goliath – or Why Ambiguities in an Insurance Policy Favor the Insured
When does the little guy ever win a contract battle? When the contract is an insurance policy, of course! It’s an age-old story played out in case after case: Ambiguous terms in an insurance policy will be strictly construed against the insurer, particularly where the ambiguity appears in an exclusion. Why? Because courts see insurers as Goliaths, reasoning that big insurance companies often intentionally create ambiguities, particularly in exclusions, by leaving terms intentionally vague or by defining some important terms while leaving others undefined.
To level the playing field, courts conclude that undefined terms in insurance policies are, by definition, ambiguous (or “can be. “or “are more likely to be,” ambiguous). The rule does make a certain amount of sense, since policies typically are adhesion contracts that contain prewritten forms with language imposed by insurers that are unwilling to negotiate changes.
Ambiguities in endorsements are interpreted against carriers with even greater force, since endorsements are created to apply to the particular circumstances of an insured and often differ from standard policy language.
Courts also uniformly interpret provisions the way a reasonable person (not someone with insurance expertise or a law school education) would. Some courts have even gone so far as to consider what the insured reasonably expected would be covered. The rule applies to all forms of coverage and all kinds of policies.
So what should the Davids of this world do with this information? Careful review and analysis of policy language, particularly in exclusions and endorsements, may well reveal effective weapons that will help insureds overcome insurer decisions to deny coverage outright or offer defenses to claims under a strict reservation of rights.