Interpreting Insurance Policies

Knowing how to interpret an insurance policy is vital for insurance attorneys attempting to help clients with insurance disputes.  Knowing how to do this, is to know how courts interpret insurance policies.

One issue frequently faced by courts is the source of meaning to be given to words.  At least two different rules have evolved in order to identify the definitions to be given to words as used in insurance contracts.

The first rule is the “definition” rule.  Where the policy, by its own terms, defines a term, those definitions control.  This was made clear in the 2003, Texas Supreme Court opinion styled, Provident Life & Accident Ins. Co. v. Knott, and the 1997, opinion styled, Trinity Universal Ins. Co. v. Cowan.

What about a situation where the insurance  contract contains no definition?  In this situation, a different rule applies.  This can be referred to as the “plain ordinary meaning rule.”  Where the policy does not define a term, then the court will look for the ordinary, everyday meaning of the words to the general public dictionary.  In  the 2003, Texas Supreme Court opinion styled, Progressive County Mut. Ins. Co. v. Sink, that is exactly what the court said, “We look to the term in the ordinary, everyday meaning of the words to the general public.”  And in the 1954, opinion styled, United States Ins. Co. of Waco v. Boyer, the court said, “In construing such policies, we look to determine the ordinary, everyday meaning of the words to the general public.”

Really good news is that if an insurance contract is found to be ambiguous, the 1991, Texas Supreme Court opinion styled, National Union Fire Insurance Co. v. Hudson Energy Co. said that if an insurance policy is found to be ambiguous, “we must resolve the uncertainty by adopting the construction that most favors the insured.”

Further, Texas courts have adopted the construction of an exclusionary clause urged by the insured as long as that construction is not itself unreasonable even if the construction urged by the insurance company appears to be more reasonable or a more accurate reflection of the parties’ intent.  This is adopted by a string of Texas Supreme Court opinions.