Mediation of Insurance Coverage Disputes When Disputing the Interpretation of Policy Language
Every industry has its unique verbiage or jargon, and insurance is no exception to this rule. Insurance policy verbiage may be defined as the terminology, conditions, and definitions of insurance coverage as written down in an insurance policy. Generally speaking, ambiguity in an insurance policy will be construed against the insurer. To avoid potential disputes over risks covered, insurance companies need to be acutely aware of their verbiage as they draft, modify, and develop their policy forms and endorsements. Policy wording must be exact and precise, as the smallest detail in a policy can affect a claim’s outcome. Also, many insurance coverage disputes can be avoided through the regular practice of clear and careful policy drafting. In this way, insurers can mitigate potential risks by using straightforward, unambiguous policy verbiage so that policy wording issues need not be dealt with through mediation or court proceedings.
Insurers Feel Confident about the Meaning of their Verbiage
Drafting clear policy language that produces predictable results for both prior and future losses is not easy, but insurance companies are skilled at the process. In addition to the costs of developing effective policy language, companies need to get the approval of regulators in the states where they plan to use their policies. Thus, insurers are concerned about defending policy language to which they are committed in underwriting and rate setting. Moreover, in most instances, insurance companies are confident about the meaning of their policy language and so are disinclined to debate a policy’s definition after a loss has occurred. Suppose the basic facts are unquestionable, and the claim can be decided by means of a summary judgment motion. In that case, insurance companies are not likely to agree willingly to present a coverage dispute for mediation.
Moreover, an insurer that is certain about its position on coverage may be interested in litigating the case to establish a precedent that will influence future cases relating to the same claim. Then again, if the company is less sure about its prospects regarding a coverage question, it may want to avoid a negative outcome that would produce a precedent for other similar claims and so might be more strongly inclined to settle during or before the mediation begins. A mediator who recognizes and is responsive to this process will be better able to contribute to the mediation to improve the chances of a successful outcome.
Successful Resolutions Depend on Thorough Knowledge of Policy Verbiage
When mediation does become necessary, the mediator’s success in producing a satisfactory resolution to a coverage dispute mainly rests on his or her credibility as a skilled interpreter of policy verbiage. For insurance companies, coverage disputes have clear-cut answers; they are not the types of disputes that lend themselves to negotiation among the parties involved to seek a compromised meaning.
The Main Reasons for Uncertainty in Insurance Policy Language
However, despite insurers’ confidence in the clarity of their verbiage, it is always imperative to carefully review insurance policies and other coverage documents. Part of this effort involves detecting and clarifying any uncertainties in the meaning of a contract’s language. There are many reasons that courts may find the meaning of contract language to be inexact, with the leading causes falling into four general categories: ambiguity, vagueness, absurdity, and obscurity. Language is ambiguous when it is subject to multiple interpretations; that is, it says two or more things. By contrast, vague language is imprecise, and absurd verbiage involves incongruity of a given provision concerning the other provisions in an insurance policy. Finally, obscure verbiage is misleading because it omits mention of specific relevant facts or is in conflict with what a policyholder would reasonably assume based on a policy’s purpose.
Policy Verbiage Beyond that which is Being Disputed may be Relevant
Cases where a policy’s language is claimed to be uncertain can be challenging to resolve in mediation. A policy’s wording is obviously significant but does not exist in isolation. On occasion, policy language beyond that which the parties have placed in issue also has to be considered. In an insurance coverage dispute, the disagreement is at first framed by the opposing parties who focus on the application of particular specific language in the policy; the mediation briefs will almost always refer to that language as part of the parties’ attempts to inform the mediator and influence the opinion of the opposing side.
However, the mediator should never presume that the verbiage on which the parties initially focus in a dispute is the policy’s only relevant language. For instance, definitions found in another part of a policy are often essential to understanding the disputed meaning of a text, evaluating the strength of the parties’ views, and ultimately deciding the case’s most probable outcome if the case is not settled. For this reason, the mediator should (1) always persist in obtaining a copy of the whole policy; (2) thoroughly study the entire policy in advance, and (3) be prepared to pose any questions to counsel that propose different arguments about the policy’s interpretation.
Given insurers’ strong interest in defending their positions on the scope of coverage, it is not surprising that they have an extreme interest in words and in defending what, from an insurer’s viewpoint, are their “plain meaning.” As a result, coverage questions that go to mediation are typically dealt with in evaluative, not facilitative or traditional, mediations. For this reason, insurers press for mediators that have know-how in the legal principles related to coverage disputes; that is, those with the following qualities:
- proficiency in close reading of policy texts;
- experience to understand texts;
- knowledge of the legal principles used in the local jurisdiction to establish the meaning of contracts generally and insurance policies specifically; and
- an understanding of the relevant case law establishing those principles.
Without a doubt, a mediator’s ability to reach a satisfactory resolution in a coverage dispute thus depends mainly on his or her credibility as an expert interpreter of policy verbiage. Therefore, although insurers tend to view such disputes as always having straightforward answers, the parties involved often end up arriving at a compromised meaning due to the mediator’s meticulous analysis of the disputed text’s semantics, syntax, and context.