Establishing Ambiguity Of Policy Language
In insurance coverage disputes, the interpretation of contractual terms is often the key issue on which the case turns. The insurer usually contends that the policyholder’s losses, as alleged, fall outside the unambiguous provisions of the contract, while the policyholder takes the opposite position or argues that the contractual terms are ambiguous. If the court finds that a contractual term is ambiguous, extrinsic evidence, such as evidence of prior negotiations, may be admissible to resolve that ambiguity, or the court may, as a last resort, resolve the ambiguity
through the application of presumptions of contract interpretation. Thus, it is important for practitioners to understand how courts assess the threshold question of whether an ambiguity exists. Traditionally, ambiguity was assessed by considering only the “four corners” of the contract. However, some jurisdictions now adhere to a “modern view” that allows extrinsic evidence to be considered in establishing contractual ambiguity. This article provides an overview of these approaches and offers a case study representing each method.