Interpreting An Insurance Policy In Texas

When a Court in Texas makes a ruling on an insurance issue in Texas, that ruling has the same effect on Texas residents regardless of where they live in the State. Living in Grand Prairie, Arlington, Dallas, Fort Worth, or out in Weatherford or anywhere else in the State, would all be the same.
What happens if an insurance contract is ambiguous? Ambiguous is when an insurance policy is subject to more than one reasonable interpretation. When an insurance policy is ambiguous the Courts in Texas have ruled that the interpretation of the policy that is most favorable to providing coverage will be adopted, as a matter of law. The reasoning for this is discussed in a line of Texas Supreme Court cases. A few of these cases are: (1) Grain Dealers Mutual Insurance Company v. McKee, decided in 1997, (2) State Farm Fire & Casualty Company v. Vaughan, decided in 1998, (3) Kelly Associates., Ltd. v. Aetna Casualty & Surity Company, decided in 1984.
The above cases say that it is for the Judge of the Court to decide if a reading of the insurance policy is ambiguous. If the policy is found to be subject to more than one interpretation, then the Court “must” rule in favor of coverage being provided under the policy. The intention of the insurance company in drafting the policy does not matter.
The following are rules that apply to ambiguities in policies of insurance:
1) whether an insurance policy is ambiguous is a legal question to be decided by examining the entire policy in light of the circumstances that existed when the policy was taken out;
2) if a policy is worded such that it can be given a definite meaning, then it is not ambiguous;
3) different interpretations of the policy does not automatically mean ambiguity;
4) if a policy is subject to two or more interpretations, after a Court has applied legal rules of construction, then it is ambiguous;
5) when a policy is found to be reasonably read in two different ways, then the Court most adopt the reading favorable to providing coverage under the policy;
6) the Court must interpret the policy most favorable to coverage being provided as long as that interpretation is not unreasonable;
7) an insured persons reasonable interpretation must be adopted even when the insurance company’s interpretation appears to be more reasonable or a more accurate mirroring of the intent at the time the policy was signed;
8) these rules regarding policy ambiguity are a natural product of the general rule that uncertain contractual language is interpreted against the drafter of the contract;
9) these rules, though sometimes rough, are justified because of the unequal bargaining power between the insurance company and its customer.
Whenever an insurance company denies coverage under a policy, it is proper for them to explain the reason for the denial of coverage. In doing this, the insurance company adjuster or agent will often times cite policy paragraphs as justification for their denial of a claim. An experienced Insurance Law Attorney understands the above listed rules that apply to insurance policy’s and knows how to read a policy with these rules in mind. It is vital that a policy holder seek legal advice when a claim is being denied.