According to the law, ambiguous insurance policy provisions are to be interpreted in favor of the policyholder and against the insurance company. Too often, insurance adjusters do just the opposite and deny coverage based on ambiguous policy provisions.
Insurance policies are contracts between the insurance company and the policyholder. Insurance companies draft the language of the policy and sell it to policyholders on a “take it or leave it” basis. When is the last time you were able to negotiate the language of an insurance policy with your agent? My guess is your answer is: “Never.” Insurance policies what is referred to as “adhesion contracts.” All of the bargaining power lies with the insurance companies. You can choose not to buy a policy from a given company, but when you go next door to the agent for another company’s office, you will get the same treatment.
In recognition of this fact, the law states that since the insurance company drafted the language of the policy and has far superior knowledge of the terms of the policy to the normal policyholder, any ambiguity in the policy provisions is to be resolved in favor of the policyholder. In other words, if coverage depends on language of the policy that is “ambiguous” then the courts are supposed to find in favor of the policyholder.
What does “ambiguous” mean? If a policy provision can be reasonably read in more than one way, it is ambiguous. So, if the language of the policy that determines whether there is coverage for a claim can reasonably be read such that there is coverage, then the insurance company must accept the claim and pay it. However, the law also says that policy language will be given its plain and ordinary meaning and if the language is unambiguous, it will be interpreted as such. Therefore, the question is when is policy language ambiguous?
Obviously, if an insurance adjuster is faced with making a decision on a claim based on specific policy language, the adjuster must know how to identify an ambiguity. This requires the adjuster to see the dispute through the eyes of the policyholder to determine if it is reasonable to read the policy language at issue and conclude it provides coverage. If so, the adjuster should accept the claim and pay it.
In my experience, insurance adjusters are generally very poorly trained in this regard. Too many insurance companies spend too little time explaining the concept of ambiguity of a policy provision to their adjusters. It is always amazing to me that so many adjusters do not even know the definition of “ambiguity,” much less what to do when a policy provision they rely on is in fact ambiguous.
This often results in very poor decisions by insurance adjusters with regard to coverage, which in turn often harms policyholders. When a company fails to properly train its adjusters on the rules for interpreting insurance policy language, and a valid claim is denied as a result when it should have been paid, most jurors will conclude the insurance company did not act reasonably, fairly and in good faith.