Now this is an impressive post on ambiguities in insurance contracts, complete with footnotes, by Chris Robertson, a third-year law student at Harvard. I hesitate to link to it, for fear anyone will expect footnotes from me. If they are waiting for this, they will wait a long time.
The post is well-researched with sources ranging from Judge Richard Posner to Ralph Nader. The gist of the post is that insurers perhaps intentionally make policy terms and conditions ambiguous as a strategy to deter and intimidate policyholders. Chris acknowledges that courts decide ambiguities against the insurer, but says insurers may prefer to take their chances knowing that many people won’t sue and that sometimes courts will side with insurers. Chris wrote this post in a scholarly vein, so I hope he won’t mind if I take issue with it. The post is in line with a lot of popular sentiment, so I want to address it.
If this is a strategy by any insurance company in this world, let me give you some free advice: give it up, it won’t work. Instead, don’t put any ambiguities in policies and use the same strategy of refusing to pay no matter what, and you will achieve better results. Let’s look at the economic argument in the post this way. Suppose the market is saturated with insurers whose business strategy manual has one page that contains one sentence: AT ALL TIMES, ACT IN BAD FAITH. They take in premiums but don’t pay. Let’s also just say there are no state regulators who will prosecute them or revoke their licenses to sell insurance in the state. If I come along and start an honest insurance company, or as honest as I can make it considering I may have to hire employees from companies that trained them to operate in bad faith, I will be able to charge higher prices and still dominate the market, because people know with me, they at least have a chance of getting a claim paid. Whereas with the other companies, giving them money is like making a loan to your brother-in-law. Neither I nor the bad companies have any incentive to make policies ambiguous — doing so only gives some judge a free shot at me, and for the other guys, why bother, since they aren’t going to pay no matter what the contract says.
Not to mention that we know that almost all terms in widely used policies originated with the Insurance Services Office or some other trade group that debated endlessly about language to address specific concerns, in response to specific legal developments, and had a specific intention to broaden coverage to include certain things but not others, or to contract coverage to exclude certain things but not others. These things are written about as well as they can be written. Plain English doesn’t work. The less that is said about a given thing, and the less technical the term, the more ambiguous you can make it out to be.
In any event, a good, thought-provoking post.
UPDATE: Make sure you check out the comment below from Prof. Seth Chandler. He gives you two weeks of course work on ambiguity condensed into a 60-second bite, and you don’t have to pay any law school tuition to get it.