The reasonable expectations doctrine could be outcome determinative in coverage disputes in the Tar Heel State. Two doctrines courts often consider when analyzing policy interpretation are the doctrines of (1) contra proferentem and (2) the insured’s “reasonable expectations.” North Carolina state courts embrace the doctrine of contra proferentem while its adoption of the reasonable expectations doctrine is more limited. The doctrine of contra proferentem is one of contract interpretation and construes any ambiguity in the contract against the party who drafted the contract. North Carolina state courts apply this principle in policy interpretation. Courts look to the plain meaning of the contract. Strict construction applies unless there is an ambiguity. In the property insurance context, North Carolina state courts use this rule to interpret policy terms liberally in favor of the policyholder and strictly against the insurance company since the insurance company chose the language in the policy.
The North Carolina Supreme Court held that, “[e]xclusionary clauses are interpreted narrowly while coverage clauses are interpreted broadly to provide the greatest possible protection to the insured.”1 Similarly, the North Carolina Court of Appeals explained that courts should interpret a term strictly against an insurer under a policy exclusion while interpreting the same term broadly in favor of the insured under a coverage provision.2
North Carolina courts recognize that insurers draft the policy provisions and, therefore, should be responsible for the interpretation of the policy terms. Ambiguities found in policy provisions are construed against the carrier and in favor of the policyholder. North Carolina state courts have adopted an exception to the rule of strict adherence to the policy language absent ambiguity when interpreting notice requirements in policy provisions. The issue becomes whether the carrier was materially prejudiced by the policyholder’s failure to comply with the notice provision pursuant to the policy.3 This approach to policy interpretation of the notice requirement affords coverage to policyholders in accordance with the insured’s reasonable expectations while also protecting the insurer from material prejudice.4
1 Kabit v. MAG Mut. Ins. Co., 708 S.E.2d 138, 147 (N.C. Ct. App. 2011) (quoting State Capital Ins. Co. v. Nationwide Mut. Ins. Co., 350 S.E.2d 66, 71 (N.C. 1986)).
2 Durham City Bd. Of Ed., v. Nat’l Union Fire Ins. Co., 426 S.E.2d 451, 456 (N.C. Ct. App. 1993).
3 See, e.g., Rinehart v. Hartford Cas. Ins. Co., 371 S.E.2d 788, 792 (N.C. Ct. App. 1988).