The interpretation of words is vital when settling a claim. From time to time, the courts have created rules to clarify
the words. There are several rules to assist in interpreting statutes, including the Interpretation Act, the literal rule, the golden rule and the mischief rule.
Courts frame Common law rules to facilitate interpreting the words used in contracts, including insurance contracts. Literal rule is the most used way of interpretation and has precedence over others. It states that the courts should interpret words and phrases in their ordinary sense and stick to customary grammar and punctuation rules while interpreting.
Some subsidiary principles govern the literal rule, like ‘Noscitur a sociis rule’, a general principle specifying that context should determine the meaning of the words. Similarly, the ‘Ejusdem generis rule’ states that the meaning of any general term depends upon any specific words that precede it.
Therefore, policy drafting is complex and must be carefully executed. We often encounter disputes about the meaning of the words as they can have different interpretations.
Ambiguity: the contra proferentem rule
Different interpretations of insurance contract wordings create ambiguity, leaving both the insured and insurer using it in their favour. A specific word can have two or more meanings. In such cases, the Court applies the contra proferentem rule. The verdict is often given against the policy drafter, and the other party is given the benefit of the doubt. There must be genuine ambiguity when applying the contra proferentem rule. In other words, there must be a reasonable alternative construction rather than one that is grammatically possible but improbable.
In the case of Dyoll Insurance Company Ltd and David Cardoza (2003), David Cardoza took a comprehensive household insurance policy with Dyoll Insurance Company Ltd for his private dwelling house, swimming pool, walls, gutters, and fences.
The perils covered by the Policy included fire, explosion, lightning and flood. The exclusion clearly mentioned the company would not pay for loss or damage caused by subsidence or landslip.
On the morning of August 4, 1998, David Cardoza awoke to the sound of heavy rainfall. The daylong uninterrupted heavy rainfall started accumulating water at his newly constructed property. Some work was unfinished in this building. Around 11:00 am, he heard a cracking sound emanating from his newly built property, and to his great dismay, he noticed a part of the swimming pool and some parts of the wall were torn off. The insurance company denied the claim on the score that the event occurred because of a landslip, a policy exclusion.
Cardoza had successfully contended in the Court below that the damage was caused by flood, a peril covered by the Policy. The insurer referred the matter to the Court of Appeal as it argued that there was no flood and that the damage was caused by a landslip, which was within the exclusion clause and was not covered by the Policy. The Court below agreed that Slippage was the final cause and the prior flooding was the proximate cause. Without the flooding, there would have been no slippage, and without this, no damage would have occurred. Slippage was the direct result of flooding. The Honourable Judge found it curious that the exclusion of landslips was not included in the context of flooding.
Landslip here was a contributory factor to the damage, and it was a policy exclusion. Insurance companies should use this exclusion in a precise manner without any ambiguity. The court tried to unravel the effect of the word landslip in the context of the exception clause. ‘There is no certainty on this issue. It could mean any landslip whatsoever is excluded, or it could mean the landslip must be the proximate cause of the damage for it to exclude the effect of the flood, or it could mean a landslip which followed the flood and was merely incidental to it’. The judge opined. Based on the above assumptions, the honourable judge found it curious that the landslip was not put in the context of flooding.
Wherever the terms are ambiguous, the court adopts a more favourable construction to the insureds by applying the ‘contra proferentem’ rules.
An established principle of insurance is when a peril insured against precedes an excepted Clause –the resulting claims arising out of the preceding peril despite the operation of the excepted peril are payable and should be considered the proximate cause of the loss. Suppose there is a causal connection between the peril and the loss. In that case, the excluded peril is just merely a link in the chain of causation to the extent it is a reasonable and probable consequence of the peril; the peril remains the cause of the loss within the meaning of the Policy.
Many health insurance claims in India are denied under the following standard exclusion: use, misuse or abuse of drugs/alcohol or use of intoxicating substances or such abuse or addiction.
I have taken the example of policy wordings of some insurance companies for reference.
1. Convalescence, general debility, ‘Run-down’ condition or rest cure, obesity treatment and its complications, treatment relating to all psychiatric and psychosomatic disorders, infertility, sterility, Venereal disease, intentional self-injury and Illness or Injury caused by the use of intoxicating drugs/alcohol. 2. Ailments requiring treatment due to the use or abuse of any substance, drug or alcohol and treatment for de-addiction. 3. medical expenses incurred as the result of alcohol and/or drug abuse, addiction or Overdose
2. Insanity, the use of any alcohol/ drugs (except as medically prescribed) or drug addiction
3. Treatment for alcoholism, drug or substance abuse or any addictive condition and consequences thereof.
4. Any Illness/injury/accident due to abuse or the consequences of the abuse of intoxicants or hallucinogenic substances such as intoxicating drugs and alcohol, including alcohol withdrawal, smoking cessation programs and the treatment of nicotine addiction or any other substance abuse treatment or services, or supplies, impairment of Insured Person’s intellectual faculties by abuse of stimulants or depressants. This exclusion shall apply only in case illness/accident is caused due to the above-mentioned abuse by the insured.
One can find out there is no consistency in policy wording as regards the above exclusion. It could mean any drug or substance use is excluded from the Policy’s purview, and a claim can be denied for the above mentioned reason. In some cases, the use or, more importantly, abuse has to be the proximate or the most dominant cause. There has to be a causal relationship between the illness and the abuse (please note the mention of the word abuse and no mention of the word ‘use’). How can one interpret an exclusion such as medical expenses incurred as the result of alcohol and/or drug abuse, addiction or overdose? Will it not require corroborative evidence to prove the abuse, addiction or overdose? What would be the ramifications when the overdose or a wrong dose was prescribed and administered by the doctor? Take a hypothetical example: a treatment advised by the doctor and the peril (in this case, the disease ) covered by the Policy goes wrong ( presuming it was not evidence-based) due to overmedication or overdose. Are we going to deny the claim because of an overdose? This is a case of an insured peril preceding an excepted peril. Such claims should be paid.
In many a case, the mere mention of drugs, substances or alcohol prompts an insurer to deny a claim. They fail to come out with corroborative clinical evidence to establish whether there was a causal relationship between the illness and the drug/substance/alcohol. While some of the exclusion wordings have clarity, most others can have various interpretations that require the intervention of the Contra Proferentum Rule – which is not a healthy development.
-By Prof (Dr.) Abhijit K. Chattoraj, Charted Insurer, Professor of Insurance & Risk Management and Director- MDP & Consulting; IMS Unison University.
