For years, those of us who work in the trenches of property insurance claims have known that most policyholders have no real shot at understanding their homeowners policy. It is not because they lack intelligence or initiative. It is because the documents are drafted in a way that defies ordinary comprehension. A remarkable new study by Professors Daniel Schwarcz, Brenda J. Cude, Kyle Logue, and German Marquez Alcala finally provides empirical support for that truth. 1 This paper and the results should be shared with all insurance regulators, legislators, and briefed in legal argument.
Brenda Cude previewed this research at the National Association of Insurance Commissioners meeting this summer. It sparked an energetic discussion among regulators who have long suspected that readability standards and plain-language statutes were not delivering what consumers actually need, a policy they can understand. As it turns out, even when homeowners sit down and try to read their policy, comprehension collapses in predictable and troubling ways.
The researchers conducted a series of experiments with thousands of homeowners. Some participants were shown short excerpts of actual policy provisions from the ISO HO-3. Others were asked to answer the same questions based solely on their general beliefs about what a homeowners policy covers. You might assume that the group given the actual contract language would perform better. In several scenarios, they did. But in others, something startling happened: people who read the policy became significantly more wrong about coverage than those who never saw the policy language at all.
The reason is as old as the modern insurance contract itself. The typical policy is structured like a legal labyrinth. It starts with a broad grant of coverage, carves it back with exclusions, then reintroduces coverage through narrow exceptions to those exclusions. Most homeowners read until they think they have the gist, but they stop short of the critical language that reverses the meaning. The result is what the authors call the partial-reading or partial-understanding problem. Even careful readers fall into traps set by the structural complexity of the document.
One of the most disturbing findings is that policy language does not simply mislead. It emboldens. Participants grew more confident in their answers when given policy excerpts, even when the excerpts made them less accurate. That combination of misunderstanding and misplaced confidence is exactly why so many policyholders accept wrongful denials or never push back in the first place. They believe the contract supports the insurer because they remember reading something that seemed to point that way, unaware they had missed the sentence that would have changed the entire picture.
The study also punctures another industry assumption that sophistication, education, or income meaningfully improve comprehension. They do not. Highly educated or experienced respondents misinterpreted the language at the same rates as everyone else. The problem is not the reader. The problem is the text.
This research should be a flashing red signal to insurance regulators. If courts and lawmakers continue to cling to the legal fiction that consumers “assent” to terms they cannot possibly understand, the entire foundation of consumer contract law in insurance becomes suspect. As I read the NAIC discussion notes, it seemed to me that regulators at the NAIC understood this immediately when Professor Cude walked through the findings. The question is no longer whether homeowners read their policies. The question is whether the policy is written in a way that the average person could ever hope to grasp in the first place.
What happens next will determine whether this becomes another academic insight that fades into the background or a catalyst for rethinking policy drafting, readability enforcement, and the interpretive doctrines that govern disputes. Insurers may protest that complexity is unavoidable, but that argument rings hollow when complexity predictably misleads the very people the product is designed to protect.
If the insurance industry expects homeowners to live by these contracts, it must write and explain them so policyholders can understand them. The study shows, with data instead of anecdotes, that we are nowhere close to that reality today. As long as misunderstanding is built into the structure of the policy itself, disputes will remain inevitable, trust will continue to erode, and regulators will find themselves returning again and again to the same core question: what good is a promise that cannot be understood?
I have suggested that insurers should be required to provide examples of what is not covered and claims they deny, as discussed in yesterday’s post, The Long Shadow of State Farm’s Water Damage.
Thought For The Day
“The single biggest problem in communication is the illusion that it has taken place.”
—George Bernard Shaw
1 Schwarcz, Daniel; Cude, Brenda J.; Logue, Kyle D.; and Marquez Alcala, German, “Read But Not Understood? An Empirical Analysis of Consumer Comprehension in Homeowners Insurance” (2025). Law & Economics Working Papers. 284.
