Interpreting An Insurance Policy

One of the first things Dallas and Fort Worth insurance lawyers want to do in an insurance case is to read the policy.  The next thing would be to know how the courts interpret policies.  A recent article from the State Bar of Texas, Insurance Section, is a must read for insurance attorneys.  The article discusses proposed changes to the Restatement (Third) of Insurance Liability.  Here is a short exert from the 12 page article.

A.  General principle — plain meaning is the preferred interpretation.

Under Section 2, policy interpretation is the process to determine the meaning of policy terms; enforcement is determined by other substantive law.  Absent other law to the contrary, the ordinary rules of contract interpretation apply.

Under Section 3, there is a presumption that the “plain meaning” controls.  “Plain meaning” is the single meaning, if any, of a policy term to which the language is reasonably susceptible to the dispute at hand, in the context of the entire policy, without reference to extrinsic evidence.  The presumption favoring “plain meaning” applies unless the court determines a reasonable person clearly would give the term a different meaning.  The alternative meaning must be one to which the language is reasonably susceptible after considering extrinsic evidence.

Policy interpretation is a distinct subset of contract interpretation rules.  The justification for this distinction is that insurance policies are mass marketed and deeply entwined in the civil justice system.  Also, after the loss policyholders cannot obtain additional coverage to compensate for the injury.

The objectives of interpretation are facilitating resolution of coverage and claims disputes, encouraging accurate description of insurance policies, and providing clear guidance on meaning to promote fair and efficient pricing, underwriting, and claims handling.  Because policies are mass marketed standard forms, interpreting a term affects the scope of similar policies; interpretive rules that give the same meanings to terms in all contexts are preferred.  Financial responsibility law may require certain forms of liability insurance, which sets practical limits on liability and a justification for applying traditional interpretation rules.  This does not justify strained interpretations to provide compensation to injured persons.

Looking at the above should make since and explain the purpose for uniformity in interpreting insurance policies.  So the next step, as stated in the second sentence of this writing, is make sure that the insurance law attorney has a good understanding how the courts are interpreting insurance polices.  The interpretation, plus the facts of a particular case, allow an attorney to give more reliable advice on cases they handle.