Interpretation of Insurance Policies

Principles of Interpretation of Insurance Policies:

1) An insurance policy is a contract between the parties and is the law between the parties.

2) An insurance policy is construed using the general rules of interpretation of contracts set forth in the Civil Code. See La. C.C. art. 2045: Interpretation of a contract is the determination of the common intent of the parties.

3) Jurisprudential responsibility is to determine the parties’ common intent as reflected by words in the policy to determine the extent of coverage. An insurance policy should not be interpreted in an unreasonable or a strained manner so as to enlarge or to restrict its provision beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion.

4) Absent a conflict with statutory provisions or public policy, insurers are entitled to limit their liability and to impose and to enforce reasonable conditions upon the policy obligations they contractually assume.

5) If policy wording is clear and unambiguously expresses the parties’ intent, the insurance contract must be enforced as written. See La. C.C. art. 2046: When the words of a contract are clear, no further interpretation may be made to determine the parties’ intent.

-Ambiguity in an insurance policy must be resolved by construing the policy as a whole; one policy provision is not to be construed separately at the expense of disregarding other policy provisions.

6) The courts should construe the policy to fulfill the reasonable expectations of the parties in light of the customs and usages of the industry.

-See La. C.C. art. 2047 – Words of a contract must be given their generally prevailing meaning. Words of art and technical terms must be given their technical meaning when the contract involves a technical matter.

7) If, after applying the general rules of construction, an ambiguity remains, the ambiguous contractual provision is to be construed against the drafter, or in the insurance context, in favor of the insured.

See La. C.C. art. 2056: In case of doubt that cannot be otherwise resolved, a provision in a contract must be interpreted against the party who furnished its text. A contract executed in a standard form of one party must be interpreted in case of doubt in favor of the other party.

-Rule of strict construction requires that an ambiguous policy provision be construed against the insurer who issued the policy and in favor of coverage to the insured.

See McKenzie & Johnson, 15 Louisiana Civil Law Treatise, Insurance Law and Practice (West).