Insurance Policy Interpretation—An Overview
Posted Wednesday, May 28, 2014 by Christopher L. Thayer
Very few people have taken the time to actually review in detail the provisions of their insurance policies. Insurance policies are contracts and subject to many of the same provisions that govern the interpretation of contracts. It likely comes as no surprise, but interpretation of insurance policies, and determinations of whether a policy covers any given claim has been the subject of extensive litigation over the years. This article summarizes some of the significant decisions in Washington which courts use to provide guidance in interpreting the provisions of any given policy.
As a general rule, Washington courts “liberally construe insurance policies to provide coverage wherever possible.” Bordeaux, Inc. v. Am. Safety Insurance, 145 Wn. App. 687, 694, 186 P.3d 1188 (2008). Courts are to examine the policy to determine the “plain meaning” of the contract. Kitsap County v. Allstate Insurance, 136 Wn. 2d 567, 576, 964 P.2d 1173 (1998). All terms that are not defined in the policy “should be given their ordinary and common meaning, not their technical, legal meaning.” Allstate Ins. V. Peasley, 131 Wn. 2d 420, 424, 932 P.2d 1244 (1997).
Specifically, the terms in an insurance policy “must be given a fair, reasonable, and sensible construction as would be given by an average insurance purchaser.” Mid-Century Insurance v. Henault, 128 Wn. 2d 207, 213, 905 P.2d 379 (1995).
In order to determine whether or not a claim may be covered under a particular policy, “the insured must show the loss falls within the scope of the policy’s insured losses.” Moeller v. Farmers Insurance, 173 Wn. 2d 264, 267 P.3d 998 (2011). Then the insurer, if it wishes to seek to avoid coverage, must show the loss is excluded by specific policy language.
This is merely a summary of a few of the key provisions that courts use as aids in interpreting insurance policies. Determining whether or not a particular claim is covered, is often a very complicated and nuanced task. It is worth noting that the Washington legislature passed the Insurance Fair Conduct Act not long ago, which provides remedy to an insured in the event an insurance company acts “unreasonably in denying a claim for coverage or payment of benefits.” RCW 48.30.015.
In the event of a finding that an insurer breached the Insurance Fair Conduct Act, the court may award treble damages, plus attorneys’ fees and costs. This provides significant leverage for the average insured, which is very important given the resource disparities between a typical consumer and an insurance company.
For more information, please contact Christopher Thayer at 206-805-1494.