A health insurance policy contains a vaguely worded exclusion regarding coverage for a newly developed physical therapy technique. The insured undergoes the therapy and files a claim. The insurer denies the claim, arguing the technique falls under the exclusion. The insured challenges this denial, and a legal review confirms the exclusion language has multiple reasonable meanings. Under contract law principles specific to insurance, how should this ambiguity be legally resolved?
- AThe contract should be nullified since the unclear terms prevent a valid exchange of consideration between the parties.
- BThe denial stands because the insured's failure to clarify the coverage limitation acts as a breach of warranty.
- The dispute must be resolved in favor of the insured because the policy is a contract of adhesion drafted solely by the insurer.Answer
- DThe decision must favor the insurance company because the insured accepted all terms upon paying the initial premium.
Answer
The ambiguity must be resolved in favor of the insured because insurance policies are contracts of adhesion.
Because insurance contracts are drafted entirely by the insurance company and offered on a 'take-it-or-leave-it' basis, they are considered contracts of adhesion. A fundamental legal rule for such contracts is that any ambiguity in the wording must be interpreted strictly in favor of the non-drafting party (the insured) and against the drafter (the insurer).
Step-by-Step Solution
Key Concept
Contracts of Adhesion and Ambiguity