Insurance policies are drafted entirely by the insurance company and offered to the applicant on a 'take-it-or-leave-it' basis, making them contracts of adhesion. If a claims dispute arises because a provision in the policy is ambiguously written, which of the following statements correctly describe the legally mandated outcomes? (Select all that apply)
- The ambiguity will be interpreted and resolved in favor of the insured.Answer
- Courts will likely apply the doctrine of reasonable expectations to provide the coverage the policyholder logically expected.Answer
- CThe ambiguous provision will be interpreted in favor of the insurer because they possess the legal authority to draft the contract.
- DThe entire insurance contract will be declared void due to an absence of legal consideration.
Answer
The ambiguity will be interpreted in favor of the insured, and courts will apply the doctrine of reasonable expectations to honor what the policyholder expected the coverage to be.
Because insurance contracts are drafted by the insurer on a 'take-it-or-leave-it' basis (contracts of adhesion), courts protect the insured from unclear language. Therefore, any ambiguity is legally resolved in favor of the insured, often applying the doctrine of reasonable expectations to ensure the policyholder receives the coverage they reasonably anticipated.
Step-by-Step Solution
Key Concept
Contracts of Adhesion and Reasonable Expectations