I don’t know about you, but since the Christchurch earthquakes I have read my insurance policy many times. My heart goes out to all those Hurricane Sandy victims who are in the process of reading theirs.
Though I am legally trained, I still find my insurance policy an incredibly nebulous document which is so ‘cleverly’ written that most whatever insurers choose can be interpreted into it. Even though we all have different insurers and different policies one thing is clear – that nothing is clear!
A study by Forrest E. Harding in the Journal of Risk and Insurance in 1967, found that a specimen auto policy was substantially more difficult to read than Albert Einstein’s The Meaning of Relativity– I joke not. (See The Standard Automobile Insurance Policy: A Study of Its Readability, Journal of Risk and Insurance, Vol. 34, No. 1 (March 1967), pp. 39-45.) I don’t think too much has changed since the mid 1960s when it comes to insurance policy wording. You may be inclined to think that the reason for widespread misunderstanding is probably that consumers simply do not bother to look at their policies at all. Well I have certainly looked at mine!
The meaning ascribed to the policy language by you and I is markedly different from the meaning the language is given in Court. With contract clauses, the lay reader has an illusion of understanding, but the truth of the matter is that only knowledge of the historical case law and regulatory actions reveals what the language actually means in the eyes of the law. This ambiguity and incomprehensibility seem to be favourite tools of the insurance trade in drafting policies. To an outsider it would seem that insurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the Court when a claim is made that nothing is covered. (S.C. Ins. Co. v. Fid. & Guar. Ins. Underwriters, Inc., 489 S.E.2d 200, 206 (S.C. 1997)).
Prior to the earthquakes and upon taking out our policy, I read it and on the face of things I saw nothing particularly untoward. However, since then subsequent events have highlighted some disturbing issues – I have come to learn that nothing is as it seems.
The general opinion is that insurance is a ‘rip off’ and consequently people tend not to think about it. It is most easily described as an economic transfer from yourself in the present, with no problem, to a future in which you suddenly find yourself with a loss. It is also true that most home insurance policies are standard form— where there is little or no bargaining permitted. So for many, the thinking is ‘why bother to read them at all’? The common view relating to these policies is ‘trickery’. The drafters lure consumers in with promising language that when put to the test can amount to something quite other in Court.
As consumers we read the language, think we understand it, and more importantly put trust in the fact that it provides a sense of security. There are many of us who have discovered and are discovering that these represent false premises. I know of one insurer in Christchurch who is introducing terms into contracts that simply are not there, terms such as ‘betterment’, for example. What other examples can you think of?
You might think that the courts would ensure that insurers provide clear language. The rule of contra proferentem i.e. deciding against the drafter in event of ambiguity— holds sway and is applied with particular diligence against insurance companies. You might also think that the threat of being taken to task for bad policy language sends insurers running back to the drafting board? Well it seems that it does not!
Using language that is too simple was considered risky, no doubt by the insurance industry as it did not address the legal precedents that insurers wanted to cancel out. Simple language does not contain the terminology and phrases used by the courts. It also does not accurately state the jargon of insurance causation, where words like “concurrent” and “sequential” have meanings far different and more complicated than their meanings in common usage.
So it is clear that insurers do not write for consumers but for the courts.
Insurers win some, occasionally they lose some, but once a policy provision has been interpreted in one jurisdiction, it becomes ‘precedent’ and acquires actuarial value as a known quantity.
For the consumer there is some sense of comfort derived from ‘ambiguous boilerplate’ language and terminology. After all, hasn’t everyone else signed this so it must be OK’? The substance though, lies between the insurance industry and the courts, not with the innocent, unsuspecting consumer. The ‘illusions’ are the private conversations held between drafters, insurers, the legal profession and ultimately the courts. We the consumers are not privy to these conversations. And if we were, how many of us could understand? All we have in front of us is the policy and the wording. The only task we are able to participate in, is the duty to read what we find before us. It would seem that the legal profession and the insurance industry do not particularly feel that the policy language should be clearer nor make sense to the layperson.
It does not even need to make sense standing alone; a judge will read the language in the context of precedent, with the aid of briefing and a decision will be made on that basis.
So all you unsuspecting policyholders out there, grab your policies, have a good look at them, imagine yourself in a disaster zone and spot the pitfalls in your policy- they are there – just keep looking!
~Future Proofing for a sustainable, participatory, democratic society.
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David Rossmiller, “Plainly Ambiguous: Have Plain English Laws Made Insurance Policies Less Ambiguous?” Oregon Association of Defense Counsel, Spring 2008.
Michelle E. Boardman, “Contra Proferentem: The Allure of Ambiguous Boilerplate,” Michigan Law Review, Vol. 104:1105, March 2006.