A Theory of Insurance Policy Interpretation
The first principle of insurance law is captured by the maxim contra proferentem, which directs that ambiguities in a contract be interpreted “against the drafter,” who is almost always the insurer. Yet given the modern recognition that language is an inherently imperfect instrument for communicating meaning, insurance policy provisions are in a sense always ambiguous. Moreover, in addition to contra proferentem, policyholders may invoke such allied doctrines as waiver, estoppel, and the rule that the reasonable expectations of the insured should be honored even if those expectations are unambiguously contradicted by fine-print provisions in the policy. Contra proferentem and these other doctrines are so frequently invoked by the courts in insurance cases that the casual observer might well suppose that the true first principle of insurance law is that insurance disputes are generally resolved in favor of coverage. Indeed, in light of all these pro-coverage legal doctrines, it is surprising that insurers ever win disputes involving the meaning of policy provisions. But of course insurers very often win coverage disputes, including those in which a policy provision is allegedly ambiguous. Contra proferentem is not merely a label for pro-coverage results reached for other reasons. Rather, the process of interpreting insurance policies cannot be adequately understood without recognizing the way in which contra proferentem helps to explain decisions both for and against policyholders. Similarly, by their own terms the doctrines of waiver and estoppel and the expectations principle have nothing to do with “interpretation” as it is normally understood. These doctrines direct that under specific circumstances the meaning of even clear policy language must be disregarded, not interpreted. But there remains a vague sense on the part of many observers of insurance law that these doctrines, which create rights “at variance” with policy provisions,5 nevertheless have something to do with interpretation, though precisely what has always been difficult to articulate.