An analysis of interpretation of insurance contracts: common law versus strict contra proferentem

Under strict contra proferentem, when the court finds a term ambiguous, it construes the term without reviewing extrinsic evidence.

“In the latter, when the court finds a term ambiguous, it construes the term without reviewing extrinsic evidence (Nardoni, 2013).”

• cites Nardoni, 2013Supported

When insurance provisions are unambiguous, the court must interpret the language according to the plain and ordinary meaning and go no further.

“When the insurance provisions are unambiguous, the court will go no further; it must interpret the language according to the plain and ordinary meaning.”

• cites [12] 12. Fridman, G.H.L., 1974. "The Basis of Contractual Obligation: An Essay in Speculative Jurisprudence," Loyola of Los Angeles Law Review, 7(1): 1-29.Could not verify

  Section VI discusses objective and subjective approaches to contractual obligation, not a rule for interpreting unambiguous insurance provisions. Searches for insurance provisions, unambiguous language, and “plain and ordinary meaning” found no passage in our copy addressing the claimed rule. (LLM, conf=0.73)

  Experimental — accuracy not yet measured

Virginia courts construe latent ambiguities using contract law, including extrinsic evidence.

“On the other hand, Virginia courts construe latent ambiguities-ambiguities apparent only after discovering or developing facts 29 -using contract law, including extrinsic evidence.”

• cites [30] 30. Randall, S., 2007. "Freedom of Contract in Insurance," Connecticut Insurance Law Journal,14(1): 107-147.Partly supported

  Section C, “Construing Ambiguities Against the Insurer,” says ordinary contract interpretation uses extrinsic or parol evidence to determine the parties’ intentions when language is ambiguous. The available passages do not establish that Virginia courts apply that approach specifically to latent ambiguities; searches for Virginia and latent ambiguity did not locate such a discussion. The copy is truncated, so that jurisdiction-specific point may be missing. (LLM, conf=0.78)

  Experimental — accuracy not yet measured

The essential difference between general rules of contract interpretation and strict contra proferentem is the consideration of extrinsic evidence to clarify an ambiguity.

“The essential difference between general rules of contract interpretation and strict contra proferentem is the consideration of extrinsic evidence to clarify an ambiguity (Randall, 2007).”

• cites Randall, 2007Supported

Contract law does not absolve drafters from liability since ambiguities will be interpreted against the drafter even after reviewing extrinsic circumstances.

“More specifically, contract law does not absolve drafters from liability since ambiguities will be interpreted against the drafter even after reviewing extrinsic circumstances (Nardoni, 2013).”

• cites Nardoni, 2013Partly supported

  Section II, “Contra Proferentem Under General Contract Law” (page unavailable), says ambiguities are interpreted against the drafter only if the factfinder cannot resolve them after considering extrinsic evidence. The claim captures the order of analysis but omits that condition; the rule does not make drafters automatically liable. (LLM, conf=0.87)

  Experimental — accuracy not yet measured

The restriction on both policyholders and the insurance company's ability to contract freely is undeniable.

“Though the MIA and PICD are consumer protection entities created to level the playing field between insureds and insurers, the restriction on both policyholders and the insurance company's ability to contract freely is undeniable (Randall, 2007).”

• cites Randall, 2007Supported

Insurance companies also lack freedom to contract because of state administrative controls on the insurance business.

“Yet, Professor Randall similarly argues that insurance companies also lack freedom to contract because of state administrative controls on the insurance business (Randall, 2007).”

• cites Randall, 2007Supported

The Maryland court declined to decide whether to change its nearly 200-year-old practice of interpreting insurance contracts using traditional contract law principles.

“Despite the case's potential impact on thousands of Maryland homeowners, the court declined to decide whether to change its nearly 200-year-old practice of interpreting insurance contracts using traditional contract law principles.”

• cites People's Ins.Counsel Div.v. State Farm Fire and Cas.Co.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

In the traditional contract law jurisdictions selected, the average insurance premiums are marginally lower than in jurisdictions using strict contra proferentem.

“In the traditional contract law jurisdictions selected, the average insurance premiums are marginally lower than in jurisdictions using strict contra proferentem.”

• AssumptionRests on an assumption: The six jurisdictions in the NAIC data are comparable enough that differences in average premiums can be attributed to contract interpretation method.

American courts reason based on equity and fairness, not contract law principles, under the reasonable expectations doctrine.

“American courts reason based on equity and fairness, not contract law principles.”

• cites C&J Fertilizer, Inc. v. Allied Mutual Ins.Not matched

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Virginia courts construe patent ambiguities without the aid of parol evidence, against the insurer.

“Virginia courts construe patent ambiguities-ambiguities apparent on the face of the policy 27 -without the aid of parol evidence, against the insurer.”

• cites [28] 28. Posner, R.A., 1992. Economic Analysis of Law, Fourth Edition: Aspen Publishers.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

A Maryland court held that only if there is no extrinsic or parol evidence or if a term remains ambiguous after examination of extrinsic or parol evidence should courts construe an ambiguous term against the insurer.

“A Maryland court applied contract law principles in holding that only if there is no extrinsic or parol evidence or if a term remains ambiguous after the examination of any extrinsic or parol evidence should courts construe an ambiguous term against the insurer.”

• cites [15] 15. Horton, D., 2009. "Flipping the Script: Contra Proferentem and Standard Form Contracts," University of Colorado Law Review, 80: 431, 459.Not checked — no full text of the source

Under general contract law, when ambiguity remains after reviewing extrinsic evidence, the court construes the ambiguous term in favor of the insured.

“In the former, when the ambiguity remains after reviewing extrinsic evidence-i.e., prior negotiations, conduct after policy issuance and industry standard practices-the court construes the ambiguous term in favor of the insured.”

• cites [23] 23. Maryland Attorney General, 2012. Annual Report on the People's Insurance Counsel Division: Fiscal Year 2012, accessed at www.oag.state.md.us/pic/.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The estoppel and negligent misrepresentation doctrines evidence judicially created doctrines to enforce insurance contracts in favor of the insured.

“Thus, the estoppel and negligent misrepresentation doctrines evidence judicially created doctrines to enforce insurance contracts in favor of the insured.”

An insured may be entitled to coverage despite unambiguous language in the policy to the contrary.

“An insured may be entitled to coverage despite unambiguous language in the policy to the contrary.”

• cites C&J FertilizerNot matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Today, most jurisdictions still interpret insurance contracts using contract law principles, including extrinsic and parol evidence.

“Today, most jurisdictions still interpret insurance contracts using contract law principles, including extrinsic and parol evidence.(See, for example, California, New York, Vermont and Virginia.)”

• cites California, New York, Vermont and VirginiaNot matched

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In Andres v. Am. Standard Ins. Co. of Wisconsin, the Oregon Court of Appeals reiterated the Oregon Supreme Court's Hoffman rule that interpretation of insurance policies is not resolved by reference to evidence extrinsic to the policy itself.

“Similarly, in Andres v. Am.Standard Ins.Co. of Wisconsin, 35 the Oregon Court of Appeals reiterated the Oregon Supreme Court's Hoffman rule that”

• cites Andres v. Am.Standard Ins.Co. of WisconsinNot matched

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At one point, every American jurisdiction interpreted insurance contracts using contract law.

“At one point, every American jurisdiction interpreted insurance contracts using contract law (Johnson, 2004).”

• cites Johnson, 2004Not matched

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This lack of specificity regarding ambiguity type has caused and likely will continue to cause confusion over which rule Virginia courts use when interpreting insurance policies.

“This lack of specificity regarding ambiguity type has caused and likely will continue to cause confusion over which rule Virginia courts use when interpreting insurance policies.”

The People's Insurance case brought to light the differences that still exist among states in interpreting insurance contracts.

“However, the case did bring to light the differences that still exist among states as it relates to interpreting insurance contracts.”

Strict contra proferentem jurisdictions give no additional opportunity for insurance companies to clarify their unclear policy terms.

“Strict contra proferentem jurisdictions give no additional opportunity for insurance companies to clarify their unclear policy terms.”

A burgeoning number of jurisdictions has supplemented its use of contract law with doctrines such as reasonable expectations.

“A burgeoning number of jurisdictions, however, has supplemented its use of contract law with doctrines such as reasonable expectations.(See, for example, California, Kentucky, Louisiana, New York and Ohio.)”

• cites California, Kentucky, Louisiana, New York and OhioNot matched

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Maryland courts first ascertain the intent of the parties from the policy as a whole, considering extrinsic and parol evidence to construe any ambiguity.

“Maryland courts first ascertain the intent of the parties from the policy as a whole, considering extrinsic and parol evidence to construe any ambiguity.”

• cites [16] 16. Imwinkelried, E.J., 2006. "The Organization of the Evidence Course: The 'Preliminaries' to Helping Students Develop the Skill of Identifying Nonhearsay," Saint Louis University Law Journal.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Strict contra proferentem jurisdictions first interpret insurance contracts by the terms of the contract itself, giving effect to the parties' intents through the contract language.

“Strict contra proferentem jurisdictions first interpret insurance contracts by the terms of the contract itself, giving effect to the parties' intents through the contract language.”

• cites [19] 19. Investopedia, 2014. "Losses Incurred," accessed at www.investopedia. com/terms/l/losses-incurred.asp.Not matched

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As of June 2014, 44 states have adopted special rules interpreting insurance contracts to balance unequal bargaining power.

“As of June 2014, 44 states have adopted special rules interpreting insurance contracts to balance unequal bargaining power.”

• cites Brief for PetitionerNot matched

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In Am. Alternative Ins. Corp. v. Superior Court, the court held that the addition of an endorsement removing an exclusion based on damage caused by government seizures created an ambiguity with respect to coverage.

“The court held that the addition of an endorsement removing an exclusion based on damage caused by government seizures created an ambiguity with result to coverage.”

• cites Am.Alternative Ins.Corp. v. Superior CourtNot matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

All Virginia court decisions do not clearly distinguish between patent and latent ambiguities as they relate to the admission of extrinsic evidence.

“All Virginia court decisions, however, do not clearly distinguish between patent and latent ambiguities as they relate to the admission of extrinsic evidence.”

• cites [31] 31. Rappaport, M.B., 1995. "The Ambiguity Rule and Insurance Law: Why Insurance Contracts Should Not Be Construed Against the Drafter," Georgia Law Review, 30: 171.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

In ascertaining the parties' intent, the court will look to the plain meaning of the contract language, that is, the ordinary meaning a lay person would use.

“In ascertaining the parties' intent, the court will look to the plain meaning of the contract language 10 -that is, the ordinary meaning a lay person would use.”

• cites [10] 10. Cogan Jr., J.A., 2010. "Readability, Contracts of Recurring Use, and the Problem of Ex Post Judicial Governance of Health Insurance Policies," Faculty Articles and Papers, accessed at http://digitalcommons.uconn.edu/ law_papers/59.Not checked — no full text of the source
• cites [11] 11. Drewniak, M., 2012. "Christie Administration Releases Total Hurricane Sandy Damage Assessment of $36.9 Billion," State of New Jersey Governor Chris Christie, www.nj.gov/governor/news/news/552012/ approved/20121128e.html.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Under strict contra proferentem, when insurance policy terms are susceptible to more than one meaning, the court will favor the non-drafting party without considering extrinsic evidence.

“Under strict contra proferentem, when insurance policy terms are susceptible to more than one meaning, the court will favor the non-drafting party without considering extrinsic evidence.”

• cites [20] 20. Johnson, S.G., 2004. Resolving Ambiguities in Insurance Policy Language: The Contra Proferentem Doctrine and the Use of Extrinsic Evidence, 33 WTR Brief 33.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Maryland is part of the majority of states that still interprets ambiguous consumer insurance contracts using standard contract law principles, including extrinsic and parol evidence.

“Maryland is part of the majority of states that still interprets ambiguous consumer insurance contracts using standard contract law principles, including extrinsic and parol evidence.”

• cites Cheney v. Bell Nat'l Life Ins.Co.Not matched

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Automatic construction against the insurer goes against contract law principles by removing the consideration of extrinsic evidence.

“Automatic construction against the insurer goes against contract law principles by removing the consideration of extrinsic evidence.”

• cites [14] 14. Hart Jr., H.M., and A.M. Sacks, 1958. The Legal Process: Basic Problems in the Making and Application of Law (subsequently edited and published by William N. Eskridge, Jr. & Philip P. Frickey, 1994). sourceNot checked — no full text of the source

California courts use contract law principles with reasonable expectations to interpret ambiguous terms.

“California courts also use contract law principles with reasonable expectations to interpret the ambiguous terms.”

• cites Am.Alternative Ins.Corp. v. Superior CourtNot matched

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In Washington Nat. Ins. Corp. v. Ruderman, the Florida Supreme Court rejected an insurer's attempt to introduce extrinsic evidence purporting to show the insureds' understandings about their benefits under home health care insurance policies.

“In Washington Nat.Ins.Corp. v. Ruderman, 34 the Florida Supreme Court rejected an insurer's attempt to introduce extrinsic evidence purporting to show the insureds' understandings about their benefits under home health care insurance policies.”

• cites Washington Nat.Ins.Corp. v. RudermanNot matched

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In some jurisdictions like Virginia, courts distinguish between patent and latent ambiguities and apply different interpretation rules depending on the type of ambiguity within the insurance policy.

“In some jurisdictions like Virginia, courts distinguish between patent and latent ambiguities and apply different interpretation rules depending on the type of ambiguity within the insurance policy.”

The majority of states recognize insurance policies as contracts of adhesion, in which the applicant must either accept the terms of the policy as written by the insurance company or reject the terms and accept similar terms from another insurance company.

“The majority of states recognize insurance policies as contracts of adhesion, in which the applicant must either accept the terms of the policy as written by the insurance company or reject the terms and accept similar terms from another insurance company (Plitt, 2010).”

• cites Plitt, 2010Not matched

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In the 19th century, standard form contracts originated to protect policyholders.

“Ironically, in the 19th century, standard form contracts originated to protect policyholders (Hardy, et al., 1922).”

• cites Hardy, et al., 1922Not matched

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Strict contra proferentem does not automatically ensure adequate protection for insureds.

“What is more important, however, is that strict contra proferentem does not automatically ensure adequate protection for insureds.63”

Strict contra proferentem often results in inefficient and often misinformed court interpretations.

“Strict contra proferentem often results in inefficient and often misinformed court interpretations (Rappaport, 1999).”

• cites Rappaport, 1999Not matched

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Both the Uniform Commercial Code and the Restatement (Second) of Contracts provide courts with flexibility to interpret standardized agreements in favor of consumers.

“More specifically, both the Uniform Commercial Code (UCC) and the Restatement (Second) of Contracts provide courts with flexibility to interpret standardized agreements in favor of consumers (Miller, 1988).”

• cites Miller, 1988 sourceNot checked — no full text of the source

Strict contra proferentem would not consider insights provided by relevant extrinsic circumstances.

“Strict contra proferentem would not consider insights provided by these relevant extrinsic circumstances.46”

In People's Insurance, the court could have reached the same outcome as Clendenin Bros., using traditional contract law as would occur under strict contra proferentem if it found the disputed term ambiguous.

“In People's Insurance, the court could have reached the same outcome as Clendenin Bros., using traditional contract law as would occur under strict contra proferentem if it found the disputed term ambiguous.”

The result obtained under general contract law could provide a more substantiated finding of coverage grounded in the parties' intentions because contract law provides a process under which the court evaluates circumstances surrounding the contract.

“In this context, therefore, the result obtained under general contract law could provide the court with a more substantiated finding of coverage grounded in the parties' intentions because contract law provides a process under which the court evaluates circumstances surrounding the contract.”

Strict contra proferentem forces insurance companies to attempt to eliminate ambiguities, which usually requires more technical language.

“Strict contra proferentem forces insurance companies to attempt to eliminate ambiguities, which usually requires more technical language.54”

Contract law is flexible enough to interpret ambiguous and unambiguous terms against the drafter.

“What is more important is that contract law is flexible enough to interpret ambiguous and unambiguous terms against the drafter.”

Insurance companies revise and refine insurance policies to more clearly exclude a risk where courts have used contra proferentem and other interpretive tools to cover in previous versions of insurance policies.

“Insurance companies revise and refine insurance policies to more clearly exclude a risk where courts have used contra proferentem and other interpretive tools to cover in previous versions of insurance policies (Baker, 2013).”

• cites Baker, 2013Not matched

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A rule that the insurance company as drafter cannot rely on extrinsic evidence to clarify its obscure terms encourages insurers to carefully draft clear contract terms and clauses.

“Such a rule encourages insurers to carefully draft clear contract terms and clauses (Rappaport, 1999).”

• cites Rappaport, 1999Not matched

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Applying contra proferentem rather than contract law principles prevents courts from discerning the parties' intent.

“Applying contra proferentem rather than contract law principles also prevents courts from discerning the parties' intent (Wilkerson, 2011).”

• cites Wilkerson, 2011Not matched

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Clendenin Bros. shows that contract law also protects consumers by reviewing extrinsic circumstances.

“This case shows that contract law also protects consumers by reviewing extrinsic circumstances.”

Applying contra proferentem rather than contract law principles causes the court to ignore the importance of context, language and extrinsic evidence to clarify ambiguities.

“As a result, the court ignores the importance of context, language and extrinsic evidence to clarify ambiguities (Rappaport, 1999).”

• cites Rappaport, 1999Not matched

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In Clendenin Bros., the court relied on the evolution of the insurance industry's treatment of pollution exclusion clauses.

“In so holding, the court relied on the evolution of the insurance industry's treatment of pollution exclusion clauses.”

• cites Clendenin Bros., Inc. v. U.S. Fire Ins.Co.Not matched

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In Ebert v. Miller Mutual Fire Ins. Co., the court held that the term fence reasonably included the wall surrounding the building.

“In Ebert v. Miller Mutual Fire Ins.Co., after citing that Maryland does not construe insurance policies most strongly against the insurer, the court held that the term”

• cites Ebert v. Miller Mutual Fire Ins.Co.Not matched

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The rule of strict contra proferentem tends to exacerbate the problem of consumer ignorance.

“Consequently, the rule of strict contra proferentem tends to exacerbate the problem of consumer ignorance.51”

The uncertainty is exacerbated because even the extension of coverage is indeterminable.

“Furthermore, the uncertainty is exacerbated since even the extension of coverage is indeterminable (Miller, 1988).”

• cites Miller, 1988 sourceNot checked — no full text of the source

Uncertainty about how judges will interpret contract terms and the chance judges may broaden policy coverage limits increases insurance company risks.

“Uncertainty about both how judges will interpret the contract terms and the chance judges may broaden policy coverage limits increases insurance company risks.51”

Insurers purchase standard policy terms from ISO and then propose the same or similar policy terms to administrative agencies like the MIA.

“In the case of policy terms, insurers purchase standard policy terms from the Insurance Services Office (ISO) and then propose the same or similar policy terms to administrative agencies like the MIA.”

Contract law principles discern the parties' true intent better than contra proferentem.

“Indeed, though more difficult to apply, commentators agree that contract law principles discern the parties' true intent better than contra proferentem (Rappaport, 1999) and (Miller, 1988).”

• cites Rappaport, 1999Not matched

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• cites Miller, 1988 sourceNot checked — no full text of the source

In Clendenin Bros., Inc. v. U.S. Fire Ins. Co., the Maryland Court of Appeals held that the insurance policy's pollution exclusion provision was ambiguous.

“In another case favoring the policyholder, Clendenin Bros., Inc. v. U.S. Fire Ins.Co., 43 the Maryland Court of Appeals held that the insurance policy's pollution exclusion provision was ambiguous.”

• cites Clendenin Bros., Inc. v. U.S. Fire Ins.Co.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Another rationale for applying general contract law principles is the importance of protecting vulnerable insurance consumers.

“Another rationale for applying general contract law principles is the importance of protecting vulnerable insurance consumers (Miller, 1988).”

• cites Miller, 1988 sourceNot checked — no full text of the source

In Ebert, contract law protected the insured without regard to extrinsic evidence.

“In that case, contract law protected the insured without regard to extrinsic evidence.”

Idaho employs strict contra proferentem without resorting to extrinsic evidence to determine the meaning of unclear insurance policy terms.

“Idaho also employs strict contra proferentem without resorting to extrinsic evidence to determine the meaning of unclear insurance policy terms.”

• cites Moss v. Mid-American Fire & Marine Ins.Co.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Courts often give policy terms an interpretation consistent with the purpose of insurance, absent the insurance policy's express exclusions or limitations suggesting otherwise.

“Thus, courts often give policy terms an interpretation consistent with that purpose, absent the insurance policy's express exclusions or limitations suggesting otherwise.66”

• cites Weinstein v. Prudential Property and Cas.Ins.Co., 149 Idaho 299 (2010)Not matched

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Research shows no state enacting the reasonable expectations doctrine.

“Nevertheless, while a possibility for legislative action, research shows no state enacting the reasonable expectations doctrine.”

Contract interpretation likely has minimal impact on the cost of insurance.

“Contract interpretation likely has minimal impact on the cost of insurance.”

Only courts have adopted the rule in those 39 jurisdictions construing insurance policies according to the insured's reasonable expectations.

“Only courts have adopted the rule in those 39 jurisdictions construing insurance policies according to the insured's reasonable expectations.77”

• cites State courts created rule of reasonable expectationsNot matched

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Strict contra proferentem enables the court to disregard extrinsic evidence and the process of evaluating the fairness of such evidence.

“The alternative interpretation, strict contra proferentem, enables the court to disregard extrinsic evidence and the process of evaluating the fairness of such evidence.”

Without reviewing extrinsic circumstances, the court would minimize scarce judicial resources.

“Without reviewing extrinsic circumstances, the court would minimize scarce judicial resources (Lash, 2015).”

• cites Lash, 2015Not matched

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Contract law principles often require the court to determine the admissibility of extrinsic circumstances by addressing issues such as relevancy, authentication and hearsay.

“Contract law principles often require the court to determine the admissibility of extrinsic circumstances by addressing issues such as relevancy, authentication and hearsay (Imwinkelried, 2006).”

• cites Imwinkelried, 2006Not matched

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Insurance policies will take longer to draft and become lengthier documents since they will require greater explanation of terms that might be reasonably susceptible to more than one meaning.

“Insurance policies will take longer to draft and become lengthier documents since they will require greater explanation of terms that might be reasonably susceptible to more than one meaning (Posner, 2005).”

• cites Posner, 2005Not matched

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Even assuming legislatures adopt an interpretation rule favoring policyholders, it is likely to use reasonable expectations-not strict contra proferentem-to protect insurance consumers.

“Even assuming, arguendo, that legislatures adopt an interpretation rule favoring policyholders, it is likely to use reasonable expectations-not strict contra proferentem-to protect insurance consumers.”

The claim that strict contra proferentem will significantly increase insurance costs, specifically insurance premiums and claims payments, is not well supported.

“that strict contra proferentem will significantly increase insurance costs, specifically insurance premiums and claims payments, are not well supported.”

Compared with strict contra proferentem, the court's in-depth, uncertain evidentiary inquiry under standard contract law is more significant in terms of both time and money.

“Compared with strict contra proferentem, the court's in-depth, uncertain evidentiary inquiry under standard contract law is more significant in terms of both time and money (i.e., salary and other expenses of a high-quality tribunal) (Posner, 78 See supra Section 2.C. 2005).”

• cites Posner, 2005Not matched

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For the insured, administrative costs (i.e., litigation costs) will be higher under contract law than strict contra proferentem.

“For the insured, administrative costs (i.e., litigation costs) will be higher under contract law than strict contra proferentem.”

At the dispute stage, administrative costs (i.e., litigation costs) could be higher for insurance companies because they would have to gather data and information, prepare agents for testimony and interview expert witnesses to bolster their interpretation of the disputed policy term.

“At the dispute stage, however, administrative costs (i.e., litigation costs) could be higher for insurance companies because they would have to gather data and information, prepare agents for testimony and interview expert witnesses to bolster their interpretation of the disputed policy term (Posner, 2005).”

• cites Posner, 2005Not matched

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From the court's perspective, administrative costs of adhering to contract law principles are likely greater than using strict contra proferentem.

“From the court's perspective, administrative costs of adhering to contract law principles is likely greater than using strict contra proferentem (Schwartz, 2008).”

• cites Schwartz, 2008Not checked — no full text of the source

In some cases, the administrative cost for insureds will be nearly equal under contract law and contra proferentem.

“Yet in some cases, the administrative cost for insureds will be nearly equal under contract law and contra proferentem.”

The insured realizes lower litigation costs, with the exception of time, because services provided by the PICD are free of charge.

“Thus, the insured realizes lower litigation costs, with the exception of time, because services provided by the PICD are free of charge.”

Insurers, as the contract drafter, can avoid unclear policy terms at the lowest cost.

“Insurers, as the contract drafter, can avoid unclear policy terms at the lowest cost (Burke, 2000).”

• cites Burke, 2000Not matched

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Under strict contra proferentem, insurance companies would necessarily draft more conspicuous contract terms.

“On the other hand, under strict contra proferentem, insurance companies would necessarily draft more conspicuous contract terms.”

Legislative inaction in Maryland and similarly situated states cannot appropriately be construed as legislative approval of the status quo.

“This could suggest that the legislative policy in Maryland and similarly situated states is to retain the construction of insurance contracts using contract law, or more likely that legislative inaction cannot appropriately be construed as legislative approval of the status quo (Hart and Sacks, 1958).”

• cites Hart and Sacks, 1958Not matched

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The South Carolina Senate Committee's primary concern was protecting homeowners from insurance companies that claimed faulty construction work was not covered under their policy.

“The South Carolina Senate Committee's primary concern was protecting homeowners from insurance companies that claimed faulty construction work was not covered under their policy (Workman, 2015).”

• cites Workman, 2015Not matched

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Administrative costs for drafting and reviewing policies are low under contract law.

“Thus, administrative costs for drafting and reviewing policies are low.”

Few states have proposed, much less enacted, legislation interpreting insurance contracts.

“Few states, however, have proposed-much less enacted-legislation interpreting insurance contracts.”

The higher transaction costs under contra proferentem result in higher administrative costs to insurance firms.

“In sum, the higher transaction costs under contra proferentem result in higher administrative costs to insurance firms.”

There is little economic incentive to change from traditional contract law to strict contra proferentem.

“Thus, there is little economic incentive to change from traditional contract law to strict contra proferentem.”

Insureds rarely challenge coverage denials.

“Of course, such reasoning ignores that insureds rarely challenge coverage denials (Rose, 2013).”

• cites Rose, 2013Not matched

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Some insurance companies might rationally decide not to consider the greater dispute costs, preferring to economize on drafting costs.

“With that understanding, some insurance companies might rationally decide not to consider the greater dispute costs, preferring to economize on drafting costs (Posner, 2005).”

• cites Posner, 2005Not matched

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Any financial benefit to insureds resulting from strictly construing insurance policies against insurers may result in higher insurance premiums.

“Ultimately, any financial benefit to insureds resulting from strictly construing insurance policies against insurers may result in higher insurance premiums.”

The apparently greater costs at the dispute stage reduce the slight incentive of drafting ambiguous terms in the first instance.

“The apparently greater costs at the dispute stage reduce the slight incentive of drafting ambiguous terms in the first instance.”

Legal rules (i.e., duty to settle and damages for bad faith breach) that promote the enforcement of insurance contracts attempt to reduce such instances of insurer moral hazard.

“Legal rules (i.e., duty to settle and damages for bad faith breach) that promote the enforcement of insurance contracts attempt to reduce such instances of insurer moral hazard (Asmat and Tennyson, 2010).”

• cites Asmat and Tennyson, 2010Not matched

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In deciding whether to pay a claim, or how much to pay, the insurer cannot help but be affected by getting to keep whatever money it does not payout for losses.

“For example, in deciding whether to pay a claim, or how much to pay, the insurer cannot help but be affected by getting to keep whatever money it does not payout for losses (Baker, 2013).”

• cites Baker, 2013Not matched

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With higher potential claims, the insurer will charge higher premiums.

“The problem then arises that with higher potential claims, the insurer will charge higher premiums (Baker, 2013).”

• cites Baker, 2013Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

While acknowledging the possibility of increased premiums and claims payments under strict contra proferentem, the data suggests that any increases would be nominal.

“While acknowledging the possibility of increased premiums and claims payments under strict contra proferentem, the data suggests that any increases would be nominal.”

• AssumptionRests on an assumption: The six jurisdictions in the NAIC data are comparable enough that differences in average premiums can be attributed to contract interpretation method.

The fact that strict contra proferentem jurisdictions have marginally higher average premiums does not conclusively suggest that contract interpretation type results in a higher average premium price.

“The fact that strict contra proferentem jurisdictions have marginally higher average premiums does not conclusively suggest that contract interpretation type results in a higher average premium price, however.”

Insurer moral hazard also constrains the insurance market.

“Insurer moral hazard also constrains the insurance market (Baker, 2013).”

• cites Baker, 2013Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Strict contra proferentem, which promotes the purpose of insurance by broadly favoring insureds when a policy term is unclear, should reduce insurer moral hazard in policy drafting.

“Thus, strict contra proferentem, which promotes the purpose of insurance by broadly favoring insureds when a policy term is unclear, should reduce insurer moral hazard in policy drafting.”

With regard to administrative costs, neither approach appears to be universally more efficient than the other.

“With regard to administrative costs, neither approach appears to be universally more efficient than the other.”

Rules allowing a broader interpretation of arguably ambiguous contract terms might encourage insureds to presume additional coverage, even when that presumption is erroneous.

“Rules allowing a broader interpretation of arguably ambiguous contract terms might encourage this type of behavior since an insured might presume additional coverage, even when that presumption is erroneous.”

Contract interpretation principles could reduce insurers' incentives to attract insureds with broad, inconspicuous language and then deny coverage once a loss occurs.

“Similarly, contract interpretation principles also could reduce insurers' incentives to attract insureds with broad, inconspicuous language and then deny coverage once a loss occurs.”

Insurance creates a principal-agent relationship, wherein the insured (principal) appoints the insurer (agent), who is responsible for insured losses.

“Insurance creates a principal-agent relationship, wherein the insured (principal) appoints the insurer (agent), who is responsible for insured losses (Baker, 2013).”

• cites Baker, 2013Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Switching interpretation methods in Maryland will not necessarily lower insureds' premiums.

“Accordingly, switching interpretation methods in Maryland will not necessarily lower insureds' premiums.”