It's rare that a judge publicly chastises an insurer for drafting a policy that's difficult to understand and interpret. But recently, a dissenting judge on the Texas Court of Appeals did exactly that, accusing the insurer of instigating the coverage dispute by its failure to use language that clearly expressed the intent of the policy and making the court's job in interpreting the policy language that much harder.
As with any other contract, an insurance policy should be interpreted to give effect to the parties' mutual intent, which is usually inferred from the plain meaning of the policy language. A court will interpret a disputed term in its ordinary and popular sense, and avoid technical and legal meanings. Often, however, there is no such plain meaning. A policy term can be unclear on its face, inconsistent when read with other policy terms, or confusing when applied to a particular claim under the policy. And when a policy term is subject to two reasonable interpretations—generally, one proffered by the policyholder and the other by the insurer—it is deemed ambiguous.
The near universal rule applied to interpreting an ambiguous policy term is that a court must accept the reasonable interpretation most favorable to the insured—in other words, the insured's proffered meaning. The reason for this rule—known as contra proferentem (literally, against the offeror)—is twofold. First, it addresses the historical disparity in bargaining power between policyholders and insurers. Most insurance policies are contracts of adhesion, drafted by the insurer and offered to the policyholder on a "take it or leave it" basis. Second, it assures that the policyholder actually receives the coverage it reasonably expected when it purchased the policy and paid a valuable premium.
But even when applying contra proferentem, courts rarely place public blame on insurers for drafting policy provisions that are less than clear. That was not the case, however, in Doe #1 v. National Union Fire Insurance Company of Pittsburgh, PA, in which the parties disputed whether a sexual conduct exclusion applied to all coverage for bodily injury under a CGL policy (as the insurer contended), or only to claims falling within a "Clergy Counseling Professional Liability Coverage" endorsement (as the policyholder contended). The trial court had found no ambiguity in the key policy language, found that the exclusion applied to all bodily injury coverage, and granted summary judgment to the insurer. The majority of the appellate court disagreed, finding the language to be ambiguous. It thus applied contra proferentem, reversed the trial court's ruling, and remanded the case for further proceedings.
Seemingly annoyed about having to construe the complex and "odd[ly]" worded policy language, Chief Justice Quinn dissented, opening with the following remarks: "I wonder if insurance companies cause their own problems by writing policies laden with amendments, endorsements, and odd selection of words. The latter often hinder my ability to comprehend the numerous contracts and documents I am asked to read and construe on a regular basis." He noted that the policy before the court contained "amendments and at least fourteen endorsements. Some are short. Some are long. Some are cryptic. And, together, they make the policy quite lengthy and difficult to read."
Interestingly, Chief Justice Quinn did not find the disputed language to be ambiguous. Nevertheless, he openly blamed the insurer for writing a policy that was so unclear that it gave rise to a lawsuit. He concluded: "But, again, the entire dispute could have been avoided if the insurance company simply said what it purportedly intended. English is not a language of limited content. It encompasses more words than most people (including this writer) will ever read. Within that relatively limitless range, anyone charged with drafting a contract, policy, document or other writing can find terms that clearly express his intended thought. Writing is not magic; it is simply saying what you mean in a way for the eyes to read and the brain to comprehend. This, of course, presumes that the writer wants to be understood."
Insurers would do well to heed these words.
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