This Essay has two goals: one descriptive and one normative. Descriptively, it explicates the connection between interpretation of insurance contracts and the Insurer’s disclosure duty. Disclosure duties and interpretation rules constitute a two way street. The interpretation of insurance contracts by courts, ex post, influences the incentives of insurance companies to disclose information consumers, ex ante. Correspondingly, the scope of ex ante disclosure by insurance companies impacts the willingness of courts to use overwrite insurance contracts by broadly interpreting provision to increase the liability of insurance companies. To illustrate this claim, the Essay discusses the two principal interpretive tools used by the courts to expand the liability of insurance companies: the “Interpretation against the Drafter” rule and “The Reasonable Expectations” test.
Normatively, the Essay proposes a new interpretative model for interpreting insurance contracts. The model establishes a three step approach to interpretation. First, courts ought to discern the “subjective purpose” of the insurance contract, namely, the joint subjective intent of the parties. Second, in those cases where subjective intent cannot be inferred by the court, should it resort the objective purpose of the contract by employing the reasonable expectations test. Third, and finally, when courts cannot identify the objective purpose of the contract, they ought to use the interpretation against the drafter rule.
- Insurance Contracts
Available at: http://works.bepress.com/david_schwartz/1/