Is Insurance "Just A Contract" or a "Just Contract"?

Abstract

Courts never tire of saying an insurance policy is “just a contract” and subject to ordinary rules of contract law. Contract here signals a plain language approach that strives for formal neutrality between the parties. Yet courts also frequently rely on a narrative that an insurance policy strives to be a “just contract” with special pro-policyholder rules that reach beyond the plain language.

How is insurance simultaneously “just a contract” and a “just contract?” Prior scholarship has noted the confusion, but this Article aims to reconcile the dueling narratives. When the issue relates to scope or breadth of coverage—whether a loss is included within the bounds of the policy—strict construction gains the upper hand. But when the focus is on the suite of rights that flow from coverage—such as expanded remedies available upon an insurer breach—courts craft coverage rights which are deeper than what can be derived from the plain meaning of the policy. This distinction makes sense considering the degree of uncertainty posed in each setting. Broadening a policy to risks beyond its coverage base threatens to upend the match between risks and premiums. By contrast, the cost of deeper insurance is derivative of risks already assumed by the policy and thus more predictable to the insurer.

This analysis gives courts a framework to understand when they should treat insurance law differently from contract law. Furthermore, because plain language exerts a strong pull over the entire landscape of contract law, clearly presenting counterexamples and their rationale should prevent courts from importing plain language concepts into areas of insurance law that are anchored on competing normative foundations.

ISSN

0025-4282

Disciplines

Contracts | Insurance Law | Law

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