Bad Faith Tactics: Misleading Insurance Policy Terms
Insurance policies should not confuse you. Your plan should clearly state what your plan covers, the amount of funds you can claim in the event of an accident, and the process for filing a claim, among other crucial pieces of information. However, some insurance policies can feel complicated and confusing. Ambiguous insurance policies are not only frustrating – they could be violating your rights.
What Is Ambiguous Policy Language?
Most insurance plans contain numerous limitations, conditions, and exemptions that can decrease the amount of coverage you actually receive. You may think you can file a claim for a certain problem, but when you read your policy, you find out that the incident is not eligible. However, your policy should clearly state these conditions without requiring you to decipher awkward phrases or industry jargon.
Insurance regulations prohibit companies from relying on ambiguous policy language to deny a claim to a client. Doing so would violate the provision that insurance companies should act for the benefit of the insurance purchaser. If your company denies your claim based on ambiguous language, you could reverse the denial.
Testing for Ambiguous Policy Language
To test for ambiguous policy language, courts perform the following test. First, the court will read the policy and determine what the insurance company intended the terms to mean. Next, the court will assess what the insured person understood the terms to mean.
Finally, the court will determine if an average consumer would understand the terms based on the insurance company’s definition of the consumer’s definition. If the court rules that an average consumer would not understand the terms in the way that the company intends them to, the language is ambiguous.
The following language mechanisms can lead to ambiguous policy terms:
- “Fancy” or unusual grammar that an average consumer would not understand
- Industry jargon that changes the terms of a policy section, with no provided definition
- Inconsistent information between different policy items
- Broad, everyday terms without definition
An Example of an Ambiguous Policy Lawsuit
A recent case in Nebraska awarded damages to a plaintiff after the court ruled that his insurance policy contained ambiguous language. The plaintiff, Eric Hayes, owned a Nebraska home and used his detached garage to house his plumbing business. In addition, he had tenants living in the second and third stories of his home.
When a fire destroyed a good portion of his property, Hayes filed a claim with his insurance company. When the company discovered that he used a section of his property for his business, the company denied his claim, did not offer him compensatory funds, and cancelled his policy. The company’s justification for this decision was that Hayes indicated on his insurance application that he would not use his property for business or as a rental.
However, the application in question contained unclear language. The application asked if Hayes would operate his business out of his garage – which he did not. He used his garage to house equipment and conduct some activities, but the majority of his operations took place in client homes. In addition, the form asked if Hayes would use his property exclusively for rental, which he did not – he lived on the first floor of the property and rented out a portion of the home.
Hayes brought a claim against the insurance company for bad faith and breach of contract. The District Court ruled in his favor, affirming that the application contained ambiguous language. Hayes received an undisclosed amount of damages to pay for repairs to his home.
What Can You Do If You Encounter Ambiguous Policy Language?
If you suffered damages or claim denials due to ambiguous policy language, speak to an insurance attorney. He or she can review the policy and advise you of the presence of ambiguous language. In addition, you may be able to file a claim against the insurance company in civil court.