A restaurant owner purchases a commercial property insurance policy. Following a severe storm, the restaurant suffers extensive water damage. The insurer denies the claim, citing a specific exclusion in the policy. The restaurant owner's attorney argues in court that the exclusion's wording is highly vague and can reasonably be interpreted to cover the damage. If the judge agrees that the policy language is ambiguous, how will the court most likely resolve the dispute based on the characteristics of insurance contracts?
- AThe court will interpret the policy in favor of the insurer because the insurer, as the drafting party, has the right to determine the meaning of ambiguous terms.
- BThe court will void the policy and refund the premium because the ambiguity proves a valid exchange of consideration did not occur.
- The court will interpret the policy in favor of the restaurant owner because it is a contract of adhesion, drafted entirely by the insurer.Answer
- DThe court will rule in favor of the restaurant owner only if the owner can prove the insurer explicitly waived the exclusion prior to the loss.
Answer
The court will interpret the policy in favor of the restaurant owner because it is a contract of adhesion, drafted entirely by the insurer.
Insurance policies are contracts of adhesion, meaning they are drafted entirely by one party (the insurer) and offered to the other party on a 'take-it-or-leave-it' basis. Because the insured has no opportunity to negotiate the wording, courts employ the doctrine of reasonable expectations and strictly construe any ambiguity in the contract language against the drafting party and in favor of the insured.
Step-by-Step Solution
Key Concept
Contracts of Adhesion and the Resolution of Ambiguity