Insurance Is

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Insurance policies are contracts. To form a contract, an insurer must make an offer that is accepted by a potential insured who then pays consideration – premiums – for the promises made by the insurer. Insurance contracts, like all contracts, can only exist if there is an offer, acceptance of the offer and payment of consideration.

An insurance contract exists when an insurer and the insured agrees that the insurer will provide indemnity to the insured as a result of a contingent or unknown event that causes loss to the insured.

The language of insurance contracts come in multiple formats with an almost infinite variety of terms and conditions. I personally have collected, over the last 54 years about 17 linear feet of multiple insurance forms created by the Insurance Services Office (“ISO”), Standard, and individual insurance company specialty forms. In addition, since the advent of the Internet I have collected gigabytes of insurance policy forms as paper has given way to digital insurance policy wording.

It is recognized that an insurance contract can be written to contain nearly any term that the parties to it choose. In State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 313 (Ala. 1999), the court stated that “The language of insurance contracts comes in multiple formats with an almost infinite variety of terms and conditions.”

Since interpretation of an insurance contract’s wording is always a matter of law left to the court alone it is not a subject to be presented to a jury as fact finder. The court, asked to interpret the contract will look to the policy wording at issue first. If the wording is clear and it unambiguously expresses the parties’ intent, courts will enforce the insurance contract as written and may not alter its terms under the guise of contractual interpretation. However, as will be discussed in more detail later, if the court finds an ambiguity in the insurance contract wording it will interpret the contract to the favor of the policyholder.

PROPERTY INSURANCE

Property insurance does not insure property. It insures people who have an interest in real or personal property and who face the risk of losing that property to unknown or contingent perils. 

The Contract of Personal Indemnity

First party property insurance is a contract of personal indemnity. The insurer promises to indemnify the first party, the insured, in the event the insured incurs a loss as a result of one of the perils insured against by the wording of the policy. Insurance does not follow title to the land. 

ZALMA OPINION

It is essential that everyone in the business of insurance understand what insurance is and how it is created as a means to indemnity against the risks of loss faced by every citizen.

© 2021 – Barry Zalma