Confucius once said, “life is simple, but we insist on making it complicated.” The same goes for insurance policies.
Insurance policies are hard to read, and it should not be hard for customers to understand what they purchase.
Insurance companies have long used convoluted legal language to deny claims and mislead policyholders about what is actually covered and excluded within their policy. Insurance companies know that many policyholders will not understand the complex legal jargon and paragraph-dense provisions packed into a policy. Even more so, insurance companies are betting policyholders don’t know the intricacies of insurance law and will avoid the expense of hiring specialized insurance counsel.
Now more than ever, lawmakers have been enacting and requiring insurance policies to be written in language that is clear and understandable to the average person.
[A] n insured should not have to consult a long line of case law or law review articles and treatises to determine the coverage he or she is purchasing under an insurance policy.1
Insurance companies began to revise and simplify their contracts as far back as the 1970s – some voluntarily and others in response to state laws. Today, more than half of all states have enacted “Plain English” laws for consumer contracts. Yet, many policyholders still do not fully understand what’s inside their policy and the risks associated within it.2 Even though steps have been made in the fight for readability within insurance contracts, there is still a long way to go.
For example, many policyholders mistakenly believe their insurance company will pay for the full replacement cost to rebuild from a natural disaster. However, most insurance companies limit the money they will pay for a total loss and often have gaps in coverage, meaning it’s possible to not get the full amount of money needed to rebuild your home after a natural disaster.3
Many policyholders believe their homeowners policy will cover damage from backup of sewers, sump pumps, and drains. In fact, almost all policies exclude coverage for this damage.4 These are examples of why lawmakers and courts should hold drafters and insurance companies accountable for drafting techniques that confuse consumers and innocent policyholders.
Historically, the goal of the courts has been to carry out the intent of the contracting parties.5 However, many court decisions turn on the insured’s ability to understand the policy wording. One court6 examined the word “nil” (for nihil), which was used (and not defined) where “no coverage was meant to be conveyed.” The court held for the insured stating:
An insurance company has a duty to make policy provisions and words therein, especially those related to coverage, plain, clear, and prominent to the average person; otherwise, if the language is such that the average person would not understand its full impact, the insurance contract will be interpreted to yield the maximum protection consistent with its language and the reasonable expectation of the insured.7
Some insurance companies still practice sneaky policy drafting techniques by placing important exclusions of coverage in inconspicuous places. Even with these attempts, courts have held that clauses must still be precise in language, conspicuous, and clear.8 Meaning, they can’t be hidden away in unusual parts of the policy.9 In determining whether a limitation or exclusion is clear, courts consider whether the provision is written, displayed, or presented in a way that a reasonable person would notice it.10
To sum it all up, in the fight between easy and hard to read insurance policies, the battle has not yet been won. Nevertheless, we should continue to fight back by holding insurers accountable in their obligation to make their policies, exclusions, and limitations conspicuous, plain, and clear.11
1 Kovach v. Zurich Am. Ins. Co., 587 F. 3d 323 (6th Cir. 2009), cited in “When Worlds Collide” Bill Wilson.
2 David Rossmiller, “Plainly Ambiguous: Have Plain English Laws Made Insurance Policies Less Ambiguous?” Oregon Association of Defense Counsel, Spring 2008.
3 Zogby/MetLife Auto & Home Insurance Survey, July 10, 2007,
5 McEvoy v. Sec. Fire Ins. Co. of Baltimore, 110 Md. 275 (1909).
6 Read v. Western Farm Bur. Mut. Ins. Co., 90 N.M. 369 (N.M. Ct. App. 1977).
8 Ponder v. Blue Cross, (1983) 145 Cal.App.3d 709, 719.
9 Fields v. Blue Shield of California (1985) 163 Cal. App. 3d 570.
10 Esparza v. Burlington Ins. Co., (E.D. Cal. 2011) 866 F. Supp. 2d 1185, 1201.
11 Clarendon Nat. Ins. v. Insurance Co. of the West (E.D. Cal. 2006) 442 F. Supp. 2d 914, 933.