Insurers Cannot Use Obscure Policy Language to Limit or Deny Your Claim

It is an unfortunate but common experience that a person or business dutifully pays insurance premiums for many years, only to be told by the insurer that there is “no coverage” the first time a claim is made. Often, the insurer quotes back to the policyholder obscure language in the insurance policy, even though the policyholder was never made fully aware of such limitations in the policy. When the insured complains, the insurance carrier’s response is often to the effect of “Guess you should have read your policy more carefully.”

To this, the California courts have said repeatedly, “no fair” – if an insurer wants to limit coverage, it must do so in a “conspicuous, plain and clear” language in the insurance policy. The insured must have fair notice of such a limitation of coverage in his policy, and the insurance company cannot rely on obscure and difficult-to-understand exclusions, endorsements and limitations. Recently, the California Supreme Court reminded insurance companies of this policy in a case called Haynes v. Farmers Insurance Exchange:

    “In the insurance context, “we begin with the fundamental principle that an insurer cannot escape its basic duty to insure by means of an exclusionary clause that is unclear. As we have declared time and again ‘any exception to the performance of the basic underlying obligation must be so stated as clearly to apprise the insured of its effect.’ ” * * * [T]o be enforceable, any provision that takes away or limits coverage reasonably expected by an insured must be “conspicuous, plain and clear.” Thus, any such limitation must be placed and printed so that it will attract the reader’s attention. Such a provision also must be stated precisely and understandably, in words that are part of the working vocabulary of the average layperson. The burden of making coverage exceptions and limitations conspicuous, plain and clear rests with the insurer.”

Nor are insurers permitted to hide behind the well-recognized fact that most people just do not have the time or ability to read and understand complex insurance policy language, as the California Supreme Court held in Haynes v. Farmers Ins. Exchange:

   For nearly a hundred years we have recognized that “ ‘the rule [presuming parties are familiar with contract terms] should not be strictly applied to insurance policies. It is a matter almost of common knowledge that a very small percentage of policy-holders are actually cognizant of the provisions of their policies…. The insured usually confides implicitly in the agent securing the insurance, and it is only just and equitable that the company should be required to call specifically to the attention of the policy-holder such provisions as the one before us.’ ” Thus, an insurer’s direction to the subscriber to read the entire policy “is not a substitute for notice to the subscriber of a loss of benefit.””

The short lesson for insurance policy holders is: If your insurance company refuses coverage on your claim, and quotes to you some obscure language in the policy that you cannot reasonably understand, get in touch with a lawyer who knows how to explain California law in language the insurance company will understand.


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