Interpretation and Disclosure in Insurance Contracts

This Essay has two goals: one descriptive and one normative. Descriptively, it explicates the connection between interpretation of insurance contracts and the Insurer’s disclosure duty. Disclosure duties and interpretation rules constitute a two way street. The interpretation of insurance contracts by courts, ex post, influences the incentives of insurance companies to disclose information to consumers, ex ante. Correspondingly, the scope of ex ante disclosure by insurance companies impacts the willingness of courts to overwrite insurance contracts by broadly interpreting provisions to increase the liability of insurance companies. To illustrate this claim, the Essay discusses the two principal interpretive tools used by the courts to expand the liability of insurance companies: the “Interpretation against the Drafter” rule and “The Reasonable Expectations” test.