How will the courts typically interpret an insurance policy when its meaning is unclear?

When interpreting an insurance policy with unclear language, courts generally apply the principle of a contract of adhesion. This type of contract is characterized by one party possessing significantly greater power over the other, often resulting in terms that have been drafted unilaterally by the insurer. As a result, any ambiguities found within the policy are often construed in favor of the policyholder, since they are the weaker party who did not have the opportunity to negotiate the terms.

Considering how insurance contracts are designed, they often include complex legal language that may not be easily understood by the average consumer. In such situations, courts lean toward ensuring that the interpretation aligns with the reasonable expectations of the insured. This protects consumers and ensures fairness within the agreement.

In comparison, warranties involve guarantees about the quality or longevity of a product, aleatory contracts refer to agreements where the outcome depends on chance (common in gambling), and unilateral contracts involve a promise in exchange for a performance yet do not specifically address the interpretation of ambiguous terms. Understanding the nature of a contract of adhesion is crucial for anyone working with insurance policies, as it shapes the legal framework in which disputes are resolved.