In two seminal opinions, Wilkie v Auto-Owners Ins. Co. and Rory v Continental Ins. Co., the Michigan Supreme Court emphatically confirmed that insurance contracts are to be enforced by the courts “as written.” The parties to an insurance contract remain free to waive or modify the terms of the contract by mutual consent, but one party cannot demand enforcement of an insurance contract, contrary to the mutually agreed terms, based upon that party’s unilateral belief that the contract has a meaning different than what the mutually agreed terms actually provide. In particular, the insured is bound by the agreed terms, despite the reality that most insureds must accept their insurance contracts as offered by an insurer, with no genuine opportunity to negotiate the coverage terms.
Yet under these mandates, both the insured and the insurer must be careful to read the insurance contract between them. An insurer is obligated to know the terms of their insurance policy and will be bound to those terms, even if they fail to read them. On the other hand, in the absence of fraud by the insured, the insurer is equally bound to the terms of the insurance policy; the insurer must specifically describe those exclusions and conditions in the policy in unambiguous terms. Ambiguous terms in an insurance policy (i.e., terms that are capable of conflicting interpretations based upon the words used) may be interpreted against the insurer, if there is no demonstrable, external evidence that the insured and insurer had mutually agreed to one particular meaning for the ambiguous term.
Insurance sales and claims representatives need to be particularly aware of the actual language of the insurance policies with which they deal because the policy terms may prove overly generalized or even ambiguous in specific factual situations. This is particularly true because policy terms are often drafted by the Insurance Services Office (an association of insurers that develops standard policy forms) rather than an individual insurer. Insurers, as much as their insured, are at risk of finding their expectations regarding the meaning of terms of an insurance policy rejected by the courts if these expectations are not based upon a careful reading of the language of the insurance contract.
Douglas Curlew, an attorney in our Livonia office, concentrates his practice on appeals, premises liability and insurance law. He can be reached at (734) 261-2400 or firstname.lastname@example.org.